Jake Sullivan has authored a very important piece in the Council on Foreign Relations’ magazine Foreign Affairs entitled “How to Reindustrialize America – The Case for a Strategic Investment Fund.”
American System Now believes that any significant attempt to resurrect Hamiltonian economics and methods in the U.S. (see the summary below) needs to be brought to the attention of our readers, as our late founder Nancy Spannaus long fought to bring that approach to the forefront of the debate over reversing the decades long de-industrialization of America.
The solution Sullivan proposes, a $50 billion fund (for starters), is based solidly on the American System precedents of Alexander Hamilton and FDR and his Reconstruction Finance Corporation. With the detailed plan outlined in the piece, it seems likely that Sullivan’s plan may be introduced as a bill before Congress, and we would hope, with bi-partisan support.
American System Now believes that this proposal, which includes a crucial element of advanced planning for America’s strategic investments, is long overdue. Such an approach could act as a complement to the proposed $5 trillion National Infrastructure Bank proposal (H.R. 5356), which is also modeled on the Hamiltonian approach. The logical third leg of this stool should be the other FDR bill which tamed the speculators – Glass-Steagall.
The American System of Hamilton was common knowledge in this country until the turn of the twentieth century, when many in the U.S. still thought ahead in terms of government channeling of national investment into infrastructure and manufacturing. Still, most of the time these methods have only been invoked in periods of dire crisis. And by and large, many of those who cite Hamilton rarely understand the deeper principles behind his economics.
Nancy Spannaus fought to deepen that understanding. She opened her book, Hamilton Versus Wall Street: The Core Principles of the American System of Economics, with the following quote from Alexander Hamilton’s Report on Manufactures: “To cherish and stimulate the activity of the human mind, by multiplying the objects of enterprise, is not among the least considerable of the expedients, by which the wealth of a nation may be promoted.”
At this moment when we face our breakdown as a great-industrial power, including the disintegration of our education system and our infrastructure, we need to admit that this was not caused by China. They borrowed some of our ideas (good for them), and now it is time for us to embrace our own.
JAKE SULLIVAN CHANNELS HAMILTON AND FDR
On July 29, Foreign Affairs, the journal of the New York Council on Foreign Relations, published an article by former Biden Administration National Security Advisor Jake Sullivan, arguing for the creation of a Strategic Investment Fund on the model of Alexander Hamilton’s First National Bank and President Franklin Roosevelt’s expanded use of the Reconstruction Finance Corporation to bankroll the New Deal and the Arsenal of Democracy.
Sullivan is now on the faculty of the Harvard Kennedy School. His essay, “How to Reindustrialize America: The Case for a Strategic Investment Fund,” began with an accurate account of a looming “second China shock” with the People’s Republic assuming a commanding lead in global high-tech manufacturing and supply chains and now nearing US prowess in innovation.
Sullivan warned: “At the same time China was building its industrial strength, the United States was allowing much of its productive base to migrate abroad. For a few decades, that shift appeared to carry few strategic costs. America remained the world’s leading center of research and invention even as manufacturing employment fell and supply chains stretched across continents. But the costs of separating innovation from production are now too great to ignore. As factories have moved offshore, the United States has lost much of its skilled workforce and the expertise to build at speed and scale. If it does not change course, the country could cede its technological edge, and, in time, its broader global leadership, to China.”
Sullivan’s solution? America should return to the successful policies of Alexander Hamilton and Franklin Roosevelt.
He wrote: “Since its founding, the United States has treated finance as an instrument of sovereignty. In his 1791 Report on Manufactures to Congress, Hamilton made the case that economic independence was inseparable from political independence. The young republic, he argued, had to use public credit to nurture productive industry and national strength. Hamilton envisioned a pragmatic model of state-enabled capitalism, in which loans and bounties encouraged `infant manufactures,’ tariffs protected strategic sectors, and public institutions channeled capital toward long-term national aims. Whenever the United States has faced existential tests, its leaders have returned to Hamilton’s logic.”
He cited FDR’s use of the RFC to channel government funds and private capital into the recovery and war mobilization: “When credit markets froze during the Great Depression and World War II, the Reconstruction Finance Corporation (RFC), created in 1932, filled the gap and served as a strategic investor, financing banks, utilities, housing, and manufacturing, earning returns and restoring confidence in U.S. markets. Its wartime subsidiary, the Defense Plant Corporation (DPC), built more than 2,000 factories and shipyards, eventually transferring them to private operators, creating the foundations for America’s postwar dominance in steel, aviation, and chemicals.”
During the Cold War, government institutions like DARPA, NASA, and the Atomic Energy Commission played a similar role channeling a combination of Federal and private funding to Apollo and other projects that drove American prosperity. But by the 1980s, the US had gone through what he called a “brawn drain”—the loss of a skilled industrial labor force.
“MIT’s Task Force on Production in the Innovation Economy has demonstrated that in complex, high-value industries, innovation depends on proximity between design and production. When manufacturing migrates abroad, the feedback loops between engineers and factory floors break down and innovation suffers. Reindustrialization, done right, is a precondition for renewing the United States’ inventive edge and the foundation of its strategic strength.”
Sullivan noted that even as the Trump and Biden Administrations diagnosed the challenge, efforts to rebuild America’s high-tech industrial base and secure supply chains have so far been disjointed and blocked by bureaucratic regulations and private capital’s risk aversion.
Sullivan then presented his proposal:
“Throughout its history, the United States built institutions that channeled capital toward a national strategy. Resurrecting that tradition today would mean establishing a new kind of public investor: a U.S. Strategic Investment Fund (SIF), a federally chartered, market-facing public investor with its own balance sheet, designed to invest alongside private capital in strategically critical industries, both mature and emerging, where markets alone have proven insufficient.”
Acknowledging the skepticism and institutional pushback that such a Hamiltonian institution would likely generate, Sullivan proposes a modest beginning—an initial capital base of $50 billion to be quickly scaled up as the SIF demonstrates an ability to generate private capital investment in vital areas of economic security.
“The fund would build on recent initiatives to invest in American industrial competitiveness at home and abroad, including the Pentagon’s Office of Strategic Capital and Economic Defense Unit, the Department of Energy’s Loan Programs Office, the Development Finance Corporation, and the CHIPS and Science Act, as well as ad hoc capital interventions from Departments of Commerce and Energy. Rather than replace these efforts, it would effectively unite the nation’s investment, trade, procurement, and regulatory tools within a single framework of economic statecraft.”
After briefly proposing a structure for the new Strategic Investment Fund, to be led by Cabinet secretaries with a private labor-industry-finance advisory board, Sullivan returned to the essentials:
“For more than two centuries, the United States has shaped its financial institutions to meet the strategic demands of the era. Hamilton’s Treasury built national credit in the young republic. The RFC built industrial scale during the nation’s economic nadir. The innovation agencies built America’s technological leadership as it emerged from World War II. Each moment required the same act of imagination: treating capital as a tool of national purpose and industrial power.
“That imagination is sorely needed today. China’s rise has forced Washington to answer whether open, market-based democracies can still mobilize capital to serve national ends. The United States still commands the world’s deepest markets and its most capable entrepreneurs. What it lacks are modern instruments to align them with long-term national aims. A strategic investment fund would ensure that the future is not only imagined in America, but made in America, too.”
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Tags: Alexander Hamilton, Alexander Hamilton on Finance, and Debt, credit, infrastructure, infrastructure funding, Reconstruction Finance Corporation
