Politicians have adopted the belief that all markets are created equal.  It was Michael Boskin, George Bush’s chairman for the Council of Economic Advisors, who, when referring to U.S. technology production, said, “Computer chips or potato chips, what’s the difference?” This line of thinking argues that selling $100 of potato chips is still the same as selling $100 of computer chips. 

Most people today can easily see the difference in economic value between the two types of chips. Computer chips are in far greater economic demand than potato chips, and that demand is only expected to grow. Computer chips are also projected to improve in quality and innovation, increasing the value of the sector. 

So why would Boskin and, by extension, Bush believe this? This line of thinking stems back to the 1970s and the start of a theory called neoliberalization. Neoliberalization revolves heavily around government separation from markets, the free movement of trade and capital between nations. One of the best policy cases reflecting this line of thinking was the Washington Consensus.

The Washington Consensus was released in 1989, reflecting an era of new thought. The consensus was used as a guideline for developing countries to follow. This was put forth by institutions like the International Monetary Fund, the World Bank and the U.S. Treasury Department. 

The consensus itself consisted of 10 principles that encapsulated the hands-off views the U.S. had toward economic activity. These principles included ideas such as reducing trade barriers, lowering barriers to international investment, deregulation and privatization.

These ideas were viewed with such high regard that they were treated as scripture for the West moving into the 1990s and early 2000s, and President Clinton popularized the ideology across the political spectrum. Before the 1970s, most Democrats and many Republicans stood strongly opposed. It was just a couple of decades before Reagan that a very different set of ideas led the development of many Western countries.

These ideas largely followed a theory known as Keynesian economics. This economic outlook saw the government as a manager at the macroeconomic level. This allowed the government to flip levers and adjust dials of tax rates, government spending. and interest rates to best limit the harsh highs and lows of sporadic markets. However, these views encouraged nations to use protectionist trade policies and targeted infrastructure development to create high-value markets in specific sectors.

The Asian Tigers

Today, Japan, South Korea and Taiwan are known for their technology industries. Samsung, Sony, LG and TSMC are among the largest international companies outside the U.S., and they are household names. However, the development of these industries did not happen free of government intervention; in fact, it was quite the opposite.

Asia saw value in many emerging sectors after World War II. However, they had a problem: to produce the products relating to these sectors, they needed to develop the necessary infrastructure and capital. 

This development was ushered in through multiple policies. First, they adopted protectionist trade policies. They used tariffs and trade barriers for certain sectors, allowing domestic industries to grow isolated from the foreign competition of already developed markets.

Second, the Japanese, South Korean and Taiwanese governments focused heavily on cultivating a friendly environment for technological production and development. One way they did this was through education. Education-related spending skyrocketed after World War II to the point that the South Korean literacy rate rose from 22% in 1945 to 96% in 1958, according to a Borgen Project study that focused on South Korean education reduced poverty.

This focus on education extends to today. South Korea has 70% of its students pursuing higher education, and according to the Hechinger Report. A journal that conducted research on South Korean education learned that one-in-four college graduates receive an engineering degree, cultivating a friendly environment for the technology sector.

Finally, the Asian tigers used bureaucracies staffed by technological experts to guide economic development. These bureaucracies included the “Taiwanese Council for Economic Planning and Development” and “South Korea’s Economic Planning Board.” These bureaucracies targeted loans, subsidies and investments in specific strategic areas to develop the infrastructure and production base necessary for the emerging market.

These policies and programs led to the rapid growth of East Asian economies, transforming them from predominantly agricultural to advanced technology-based economies. These changes were often called economic miracles, and they were largely attributed to what was called the East Asian Development State. This showcased the success the government had in guiding and stimulating economic development.

From here, it was these Asian nations that began to take over, leading the world in many technological industries. Asia then inherited computer chip manufacturing from the United States. 

The very first semiconductor was invented in the U.S. However, as the U.S. government began to divest from its markets, the industry went abroad. Specifically, it went to the Asian nations that have been targeting the industry with investments for decades.

The U.S. Today

The United States has begun to backtrack on many of its ideas on neoliberalization. The recent adoption of tariffs shows this; something even less than 10 years ago, the U.S. was firmly against.

The broad effect of these tariffs, however, does not solve the problem of specific market development. A much more promising example of this is the CHIPS and Science Act of 2022. This act allocated significant subsidies, loans and funding for semiconductor manufacturing projects across the U.S. It also put strong constraints on foreign countries selling their own computer chips.

According to the Biden White House, because of this, the U.S. is projected to go from producing 0% of the world’s computer chips to 30% by 2032. This is a policy decision that resembles the East Asian Development State of post-WWII far more than the post-Cold War Washington Consensus.

Perhaps this means the U.S. is starting to see the flaws in its unguided markets and may be realizing that not all markets are created equal.

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