John Fritz, an American engineering legend, once said,
“Now, boys, we have got her done, let’s start her up and see why she doesn’t work.”1
That wasn’t a joke.
Fritz helped define the spirit of American manufacturing: build something, test it, learn from what breaks, and improve it. It was how the steel industry was born. It’s how modern aviation took off. It’s how SpaceX developed rockets. And oddly enough—it’s not far from how China built its industrial strength.
As economist Arthur Kroeber put it in his recent interview with Dwarkesh Patel:
“In terms of how they got here... this was not the result of some carefully crafted master plan... It was a lot of groping and a lot of random stuff... Then through this random process, it all coalesced in the end... A lot of it was essentially a random walk where a lot of things that were enabled then started to interact with each other... They got a few big directional things correct. They stuck with them... They were also willing to adapt when things were obviously not working.” — Arthur Kroeber on the Dwarkesh Podcast
That’s not inefficient—it’s emergent. It’s industrial evolution, not industrial design.
In modern language, you could say China seeded its industrial commons: creating supply chains, clusters, and know-how by trying lots of things, tolerating misfires, and doubling down where momentum appeared. The results couldn’t have been pre-planned—but they were made possible by persistent experimentation.
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Read more about the industrial commons:
Industrial Commons
A country does not rise to the level of its innovation. It falls to the level of its industrial commons.
Relearning How to Build
China tolerates “inefficiencies”
“They are willing to lose huge amounts of money for a few of their bets to pay off: at China’s scale, effectiveness matters more than efficiency.”
— Arthur Kroeber
This is a deep contrast with the Western mindset. In the U.S., we gave one loan to one solar company—Solyndra—and when it failed, declared industrial policy a bust. Meanwhile, China was subsidzing every step of the solar supply chain, tolerating years of losses across dozens of firms, until they controlled the entire sector.
Two approaches, same industry
“We want to be big in solar energy.”… They started thinking about this in 2005… So they identified the whole supply chain and said “We want to be in every stage of that.”… They were willing go to through cycles of people not making money.” — Arthur Kroeber
Contrast that with the U.S. approach: we picked one player (Solyndra), watched it fail, and abandoned the field.
Arthur argues the Chinese answer—support the ecosystem even at the cost of short-term returns—is the correct one.
“This would not have worked unless you had this broader ecosystem of export-driven manufacturing, high competition, and international participation… They all converged to create success.” — Arthur Kroeber
Export-driven manufacturing ensured global discipline.
High competition pushed constant iteration.
International participation brought in tech and talent from abroad—and China absorbed it, localized it, and scaled it.
China got to effectiveness thanks to a few General Purpose Technologies (GPTs, “enabling all-purpose technologies”). They got these right and that seeded everything.
The point here is that if you're able to get a few of these sort of enabling all-purpose technology decisions right earlier and then scale them up, then a lot of good things can happen as a result of that, regardless of how effective you are at picking winners sector by sector in industrial policy. — Arthur Kroeber
China wasn’t efficient, but it was effective by trying a lot and supporting an ecosystem.
Starting point matters
Critics of industrial policy often say it “crowds out the market.” But the effect of state intervention depends on where you start:
A developing nation with no advanced industry.
A mature economy with strong existing industrial base.
A post-industrial economy that’s lost key capabilities.
China started at (1) and is now at (2) in many sectors.
America today is at (3)—we’ve lost manufacturing commons in critical areas.
So the fear of "crowding out" is misplaced. You can’t crowd out what isn’t there. What is often behind detractors of industrial policy focused on invigorating our manufacturing industry is Big Import and their lobby groups that see any policy that favors exporters2 as harming themselves.
Back in 2008, Amar Bhide published The Venturesome Economy where he argues America losing it’s lead in R&D isn’t a problem, as long as it retains its capacity to produce.
“…as long as the United States maintains its capacity to harness the high-level know-how to improve the performance of its mid- and ground-level industries, the expansion of the global supply of cutting-edge research, regardless of where it originates, is a good thing for the United States.” - Amar Bhide
We’ve lost a lot of that capacity, particularly in electronics. We need to rebuild it.
America Knows How to Build
SpaceX may be an outlier, but the policy architecture that enabled it is not. Programs like NASA’s COTS (Commercial Orbital Transportation Services) show how government can act less like a planner and more like a venture catalyst—funding multiple approaches, rewarding milestones, and letting the best solution emerge. Rather than dictating design specs, NASA said: “Here’s the outcome we need. Show us how you’ll get there.” That flexibility allowed for iteration, failure, and ultimately, faster progress.
The other key ingredient was demand certainty. By becoming an “anchor customer,” the U.S. government gave SpaceX—and others—a runway to scale. NASA, the Department of Defense, and NOAA all bought launches, reducing risk and attracting private capital. It’s a lesson the U.S. has applied before: from wartime procurement to Operation Warp Speed, when government absorbs early risk and rewards results, private industry can move fast, learn faster, and build capabilities we’d long thought were gone.
Hidden Industrial Policy in the U.S.
In fact, many hidden policies already pick winners—tax rules, regulations, and legal risk all skew capital toward certain sectors (e.g., AI over energy infrastructure).
Digital vs. Physical: Compare how little red tape exists for building AI models versus building transmission lines.
Sales tax history: For years, e-commerce firms benefited from sales tax loopholes, effectively a subsidy over brick-and-mortar.
Lack of a border-adjusted tax: importers don’t have to pay a VAT-like border adjusted tax.3 Also, the prevalence of VAT elsewhere makes it nearly impossible for an American manufacturer to export.
The point? We already have industrial policy—just not the kind that builds anything.
China Went Too Far
Kroeber does caution that China may have gone too far. By emphasizing industrial goals too much, they’ve sacrificed the ability of ordinary citizens to rise into middle-class consumption.
Although unrelated to industrial policy, Kroeber also notes that Xi has doubled down on control over growth, much to the detriment of China’s economic diversity. Diversity that could’ve lead to new sub-industries, jobs and feelings of self-worth for younger generations.4
What is “Deemed Important,” Anyway?
When economists discuss industrial policy, they often focus on technologies “deemed important”—like semiconductors or AI.
But having a narrow focus is dangerous.
If we only focus on the top of the technology stack, we risk neglecting the foundational layers—materials, components, equipment, training systems—that advanced tech depends on. And those foundations can’t be rebuilt with money alone.
Build Industrial Commons, Not Just Champions
Vertical integration, like what SpaceX achieved, is powerful and fast—but it’s not enough. If all capability lives inside one firm, it stays locked there. America needs to rebuild the industrial commons: networks of suppliers, machine shops, process engineers, and training institutions that spill over across companies and sectors.
Apple’s supply chain in China is a case in point. Foxconn and other contractors didn’t just serve Apple—they took the know-how and tooling they developed and applied it across dozens of clients. That led to a dense, hyper-competitive ecosystem where innovation diffused quickly, suppliers scaled up independently, and prices fell industry-wide.
A commons-based ecosystem creates:
Redundancy (not dependent on a single firm)
Talent mobility
Technological diffusion
Cost discipline through competition
Industrial policy should seed ecosystems, kickstart clusters, and ensure that capabilities are shared, not siloed.
Lessons for America
Build Industrial Commons, not just champions
Vertical integration is great, but without a broader supplier base and talent ecosystem, spillover benefits are smaller. I think we’ll get there, it takes time.Evaluate where we are
Are we truly “advanced” if we can’t build the things we design?Try more stuff
We miss 100% of the shots we don’t take.When something fails, ask why and fix it
Failure is feedback, not indictment. Adopt the engineer mindset— not the lawyer’s.Allow foreign investment in American production (even if it’s Chinese)
We need global leaders’ expertise, and some of them are in China.
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Via David McCullough’s The Path Between the Seas.
Much could be written on all the ways an American-based exporter is disadvantaged by American rules, taxes, dollar status and regulations.
Sales Tax is not the same as a border-adjusted tax. For example, big box retailers such as Walmart, one of the bigger importers of goods from China, does not pay sales tax on items they sell. This is due to the resale exemption. Instead, shoppers at Walmart pay the sales tax.
In the CPC’s vision, self-worth flows from national service and ideological conformity, not individual exploration. Identity itself becomes sacred terrain. Joseph Torigian explores this dynamic in The Party’s Interests Come First.
