This post originally appeared at https://www.badgerinstitute.org/will-governments-heavy-hand-make-business-go-galt/

Ayn Rand’s fictitious solution to government overreach has new relevance

In Ayn Rand’s classic novel “Atlas Shrugged,” the government nationalizes industry after industry until the economy is on the brink of collapse. The story’s protagonists, Dagny Taggart of Taggart Transcontinental and Hank Rearden of Rearden Steel, fight to defend their businesses from these “looters.” Meanwhile, their fellow “producers” continue to disappear from society, taking their talents with them in a move known as “Going Galt” in honor of movement leader John Galt.

Sometimes it seems that no major development project occurs in Wisconsin without the visible hand of government steering it. The examples range from direct subsidies for pro sports franchises to a huge federal grant to build a streetcar project in Milwaukee. A multitude of local construction projects are pushed ahead with tax incremental financing (TIF). We seem unable to accomplish any major project without government direction and subsidies.

This trend in government central planning extends to the current mood in Washington. Industrial policy — the use of government plans to promote particular industries — is making a clear comeback as a part of Bidenomics. Fans of industrial policy point to successes from history such as the transcontinental railroad, the Apollo space program, and the interstate highway system.

Industrial policy has fallen in and out of favor. The 1970s were a low point as profligate government spending received some of the blame for a stubborn inflation. President Reagan captured the mood of disfavor for industrial policy in his 1981 inaugural address, saying, “Government is not the solution to our problem; government is the problem.” 

Today, both major political parties have discovered a new fondness for old and largely discredited ideas that see government as better able to allocate resources than a market system. President Biden seems interested in subsidizing any and every enterprise he favors: electric vehicles and charging stations, renewable energy, semiconductors and computer chips, roads, bridges, public transportation, ports, airports, and more. Many of these subsidy programs were passed with significant Republican support. At the same time, former President Trump proposes to achieve his central planning goals through massive new tariffs to protect certain American industries.

These new versions of industrial policy are unlike previous successes, which solved technical and engineering problems (like the Apollo moon shots) and met established consumer preferences (like the transcontinental railroad and interstate highway system). Instead, they aim to counteract consumer preferences for things such as imported and gasoline-powered cars. Or they draft businesses to solve social problems such as childcare.

Industrial policy has long had its opponents, but new critics include entrepreneurs resisting the lure of subsidies. In California, of all places, housing developers are turning their backs on government funding. One large developer is avoiding the rules and regulations tied to subsidies for low-income housing construction by opting out of the subsidies. And by avoiding extra government-imposed costs, the business is able to build low-income housing for hundreds of thousands of dollars less per unit than subsidized competitors. As California’s homeless issue has become top of mind to many in the state, people are starting to notice the corrosive effects of government programs designed to “help” with this problem.

They are not the first to “Go Galt.”

In the cleanup after the 2009 financial crisis, some insurance companies refused to take part in the federal government’s rescue programs.

At the national level, recent studies show that small businesses are not contracting with the federal government as frequently as in the past. And those that do are becoming more concentrated in a handful of congressional districts around Washington, where rent seeking is the norm.

Firms are increasingly voicing complaints related to the costs imposed by the CHIPS and Inflation Reduction acts. Among the concerns: Chipmakers who receive funding are prohibited from expanding semiconductor manufacturing capacity in foreign countries for 10 years; recipients of government largesse have to develop a strategy for providing childcare for their workers. The “Build America, Buy America” mandate is a morass of regulations that make it harder to build anything.

As the central planners in Madison, Sacramento, and Washington persist in pushing industrial policies with massive subsidies, productive entrepreneurs and business leaders might dream about “going Galt” and withdrawing their services. In today’s networked economy they may only be able to reject government subsidies, a sort of “going Galt lite” — but they are ready to make a statement with their actions.

Scott Niederjohn is a professor of economics and director of the Free Enterprise Center at Concordia University Wisconsin in Mequon and a Badger Institute visiting fellow.

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