Government subsidies are never free, and we are now learning the price American semiconductor companies and others will pay for signing on to President Biden’s industrial policy. They will become the hired servants of progressive social policy.
Last year, Democrats convinced Republicans to pass their $280 billion Chip Act, which includes $39 billion in direct financial aid for chipmakers and a 25% investment tax credit. Republicans hoped this would satisfy West Virginia Senator Joe Manchin, but after Chips passed he quickly switched and backed the Reduced Inflation Act.
Now the Administration is using the semiconductor subsidies to enforce much of the social policy that was contained in the failed Build Back Better bill. On Tuesday, Commerce Secretary Gina Raimondo laid out the new rules for chipmakers, summarizing the policy to the New York Times: “If Congress wasn’t going to do what it should have done, we’re going to do it on implementation.” of the subsidies
Start with childcare, which chipmakers applying for more than $150 million in federal aid will be required to provide to their employees and construction workers. Finding workers to run day care centers, especially in rural areas, can be even more difficult than finding workers to build and operate plants. The US child care workforce is still 58,000 smaller than it was before the pandemic. By boosting demand for child care, the Commerce mandate will increase costs for all parents who live near a chip plant.
But not just any childcare will do. Chipmakers will have to draw up their “child care plans in conjunction with community stakeholders, including state and local governments and local groups with expertise in child care administration,” meaning unions and progressive groups. Start the awake indoctrination early.
Chipmakers will also have to pay construction workers prevailing wages set by the unions and will be “strongly encouraged” – that is, required – to use project labor agreements (PLAs), which allow unions dictate wages, benefits and work rules for all workers. States that restrict PLA may have to change their laws if they want to benefit from the federal largesse.
Businesses will need to comply with the Administration’s “Good Jobs Principles” which ensure that “full-time and part-time workers receive family-support benefits that promote economic security and mobility,” including “paid leave and support care”.
In their applications, chipmakers will be required to describe their “comprehensive services to support people in underserved and economically disadvantaged communities” as “adult care, transportation assistance, or housing assistance.” The administration is imposing a cradle-to-grave welfare system through corporate subsidies.
Ms. Raimondo is not a 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 saying that chipmakers won’t succeed 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 simply increase business costs.
The irony is rich because chipmakers have moved manufacturing to Asia to cut costs. It is 40% more expensive to produce chips in the US than it is abroad. One reason is the US permitting maze. But chipmakers receiving federal largess will still have to comply with more regulations under the National Environmental Policy Act.
Oh, and the Commerce Department also requires companies that receive more than $150 million to share “with the US government a portion of cash flows or returns that exceed applicant projections above a threshold.” established”. Don’t buy stock again for five years either. What a wonderful life if you are a politician. First, piling up regulations that increase business costs. Then offer subsidies to boost your social policy and demand a share of business profits in the deal.
Ms. Raimondo’s demands were not specified in the Chip Law and will do nothing to bolster national security, the ostensible purpose of the subsidies. The money may not even boost US chip manufacturing much. Goldman Sachs estimated last fall that the subsidies could increase the US market share of global chip capacity by less than 1%.
We get a lot of pain from the big government right for opposing the Chip Act, but these Tories look foolish for voting for an industrial policy that is now an engine for progressive politics. And a subsidy is never enough. Chip subsidies are “a good first step,” Semiconductor Industry Association President John Neuffer said recently.
Welcome to French industrial policy, where the government pays companies to invest in what, where and how the government wants. Let’s hope it turns out better here.
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