Beyond Industrial Policy: How Engaging Capital Markets can Help our Industrial Base Scale

Abstract

"Industrial policy is all the rage in the United States. Dramatically increased investments in Defense Production Act (DPA) Title III programs, the first-ever National Defense Industrial Strategy (NDIS), and the $52 billion Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act have clearly demonstrated U.S. government commitment to address industrial base weaknesses. Despite these efforts, however, weaknesses abound. We cannot build munitions fast enough to resupply Ukraine, much less U.S. military stockpiles. Major systems continue to deliver late and in quantities that could not match wartime production needs. Moreover, it is not at all clear that DPA or CHIPS investments will not be enough to fully address those vulnerabilities in our defense industrial base. This paper examines the impact and challenges of industrial policy through large-scale industrial base investments and explores options to attract and scale private sector capital investment to scale production and address industrial base weaknesses. "