Example of hidden industrial policy

A recent review in the Washington Post of Nikil Saval’s new book, Cubed: A Secret History of the Workplace, contains a great example of how Industrial Policy really works in the United States. It utilizes the tax code and is often inadvertent. The book is about the creation and spread of the open office concept — aka cubicles — and technically know as Herman Miller’s “Action Office.” The Post story (“9 Things You Didn’t Know About the Office Cubicle“) includes this little know fact:

6. The tax code is partly to blame for the cubicle’s spread.
Sales for Herman Miller’s design didn’t really take off, Saval writes, until other competitors started producing such “workstations” themselves. Yet the federal government played a role, too: “the Treasury in the 1960s made a slight but powerfully significant change in the tax code,” Saval writes, “making it easier for companies to write off depreciating assets. A shorter shelf life was established for furniture and equipment, while more permanent features of buildings had a longer range. In other words, it became cheaper to have an Action Office than an actual office.”

I have long argued that one only need to look carefully at the tax code to find the U.S. industrial policy. And that it is one of the worse type of industrial policy: non-transparent, generally not subject to any periodic review, and targeting specific industries/companies rather than promoting structural adaption and change.
One exception to that description is the so-called extenders — those specific tax breaks that Congress routinely extends for a limited time period. These include the R&D tax credit, mortgage debt tax relief and the deduction for mortgage interest payments, tax credits for employer paid mass-transit benefits, mine rescue team training credit, provisions on restaurant and retail store improvements, and various alternative energy tax credits – to name a few.
The Congress is currently in the process of once again addressing these tax provisions. Earlier this month, the Senate Finance Committee marked up the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act. While the debate will be pointed on some of these provisions, I doubt there will be much discussion of the nature of the structural policy that emerges from the sum of these and all the other industry-specific provisions. To his credit, the new Finance Committee Chairman, Senator Ron Wyden, D-OR, sees the extenders bill as a stop-gap measure on the way to broader tax reform.
We will see whether that broader bill can take a more strategic and structural view of the tax code – if and when that broader bill ever emerges.

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