Gina Raimondo on February 23
Photo: Al Drago/Bloomberg NewsGovernment subsidies are never free, and now we are learning the price U.S. semiconductor firms and others will pay for signing on to President Biden’s industrial policy. They will become the indentured servants of progressive social policy.
Democrats last year snookered Republicans into passing their $280 billion Chips Act, which includes $39 billion in direct financial aid for chip makers and a 25% investment tax credit. Republicans hoped this would satisfy West Virginia Sen. Joe Manchin, but after Chips passed he quickly flipped and endorsed the Inflation Reduction Act.
Now the Administration is using the semiconductor subsidies to impose much of the social policy that was in the failed Build Back Better bill. On Tuesday Commerce Secretary Gina Raimondo rolled out the new rules for chip makers and summed up the politics to the New York Times : “If Congress wasn’t going to do what they should have done, we’re going to do it in implementation” of the subsidies.
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Start with child care, which chip makers applying for more than $150 million in federal aid will be required to provide to their employees and construction workers. Finding workers to run child-care facilities, especially in rural areas, may prove even more challenging than finding workers to build and operate the plants. The U.S. child-care workforce is still 58,000 smaller than before the pandemic. By boosting demand for child care, Commerce’s mandate will increase costs for all parents living near a chip plant.
But not any child care will do. Chip makers will have to craft their “child care plans in tandem with community stakeholders, including state and local governments and local groups with expertise administering child care”—i.e., labor unions and progressive outfits. Start the woke indoctrination early.
Chip makers will also have to pay construction workers prevailing wages set by unions and will be “strongly encouraged”—i.e., required—to use project labor agreements (PLAs), which let unions dictate pay, benefits and work rules for all workers. States restricting PLAs may have to change their laws if they want to benefit from the federal largesse.
Companies will have to comply with the Administration’s “Good Jobs Principles” that guarantee “full-time and part-time workers are provided family-sustaining benefits that promote economic security and mobility,” including “paid leave and caregiving supports.”
In their applications, chip makers will have to describe their “wraparound services to support individuals from underserved and economically disadvantaged communities,” such “as adult care, transportation assistance, or housing assistance.” The Administration is imposing a cradle-to-grave welfare system via corporate subsidies.
Ms. Raimondo is no socialist, but here she is doing the bidding of the Democratic left. Does she have a promotion in mind? She justifies this gigantic intervention in the private economy by claiming that chip makers won’t be successful unless they “find a way to attract, train, put to work and retain women.” But companies don’t need the government to tell them how to attract and retain workers. Ms. Raimondo’s mandates will merely raise business costs.
The irony is rich because chip makers have shifted manufacturing to Asia to reduce costs. Producing chips in the U.S. is 40% more expensive than overseas. One reason is the U.S. permitting thicket. But chip makers that receive federal largesse will still have to comply with more regulation under the National Environmental Policy Act.
Oh, and Commerce is also demanding that companies receiving more than $150 million share “with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections above an established threshold.” No buying back stock for five years either. What a wonderful life if you’re a politician. First, pile on regulation that increase business costs. Then dangle subsidies to drive your social policy and demand a cut of business profits in the bargain.
Ms. Raimondo’s demands weren’t specified in the Chips Act, and they will do nothing to bolster national security, the ostensible purpose of the subsidies. The money may not even boost U.S. chip manufacturing by much. Goldman Sachs last autumn estimated the subsidies might increase the U.S. market share of global chip capacity by less than 1%.
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We took a lot of grief from the big-government right for opposing the Chips Act, but these conservatives look like chumps for voting for an industrial policy that is now an engine for progressive policy. And one subsidy is never enough. The chip subsidies are “a good first step,” Semiconductor Industry Association president John Neuffer recently said.
Welcome to French industrial policy, where the government pays business to invest in what, where and how government wants. Let’s hope it turns out better here.
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Appeared in the March 1, 2023, print edition as 'Biden’s New Industrial Social Policy.'
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