Trump, Crony Capitalism & Manufacturing Job Deals

Because Pragmatically Distributed has a keen interest in distinguishing when a state intervention is or is not appropriate under Capitalism, we now consider the example Trump has set lately with his interventions to prevent the outsourcing of manufacturing jobs.

We do so not just to understand Trump’s policies, but to also help hone our reader’s understanding of what the state role in Hamiltonian Capitalism should be.

Where do his actions fit under our vision of Capitalism?

As we defined the correct government-private actor role in Capitalism –

  • Capitalism – Government actors set the common business environment without favoring particular private actors; individual private actors are then free to take any business action within the boundaries of the established environment.
  • Libertarianism – Private actors set the common business environment without favoring particular private actors; individual private actors are then free to take any business action within the boundaries of the established environment.
  • Liberalism – Government actors set the common business environment without favoring particular actors; government actors then decide on all individual economic actions within the boundaries of the established environment.

Because Trump is directly pressuring private businesses like Carrier and Ford to change their operational plans, his actions as a state actor have in these cases been closer to the Crony Capitalist variant of Capitalism.  In Crony Capitalism the government, after arranging the conditions of the business environment, generally allows private actors to act as they see fit within the environment but intervenes directly in the affairs of private companies when politically expedient.

Crony Capitalism is the form of Capitalism now practiced by most of Northeast Asia and Russia.

The role for government to assume in Capitalism, preferred by Hamiltonians, remains the purer, Anglo-Saxon type where the state makes no decisions for and plays no favorites with private actors so long as they do not violate regulations or laws.

In our economics, state intervention is acceptable when the rules controlling the business environment (for the economy as a whole or a specific sector) are adjusted by the government.  Examples of this kind of environmental adjustment include tax incentives for manufacturers to remain onshore, lifting the regulatory burden imposed on manufacturers, government facilitation of greater energy production to cut manufacturing expenses, and penalizing foreign nations for unfair trade practices.

We advocate for the Anglo model largely because it yields relatively greater Darwinian benefits for the economy than any other – by not playing favorites with specific private actors the fittest companies that deploy resources most efficiently are selected for while inefficient firms either reform or die out.

The major weakness of Crony Capitalism is that inefficient “Industrial Champions” may lumber on for many decades thanks to political favoritism, and at the expense of the emergence of more nimble firms.

As much as Trump has veered from our ideal concept of Capitalism, we do not worry greatly about it.  On balance his policies on many issues fit the preferences of this blog to a remarkable degree; if he is generally successful he will have resuscitated the classic economics of Hamilton’s Federalist Party, despite occasional deviations from Orthodoxy.

It is also true that the economic environment for American manufacturing has been damaged by decades of Liberal economic policy.  This damage cannot be undone as quickly as might be politically desirable if Trump limited himself only to nurturing the common manufacturing environment.  Direct negotiations with CEOs that lead to headlines of thousands of jobs being saved are more politically dramatic and immediate than waiting for corporate tax cuts to eventually impact manufacturing hiring plans, and eventually show up as statistics in labor market reports.

If the political payoff of direct state interventions gives him credibility to systematically restructure the American business environment along Hamiltonian lines, then we would judge his short term Crony Capitalism as an acceptable nod to political reality.

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3 thoughts on “Trump, Crony Capitalism & Manufacturing Job Deals”

  1. You’re completely right. Crony capitalism isn’t ideal, but when you’re faced with international competitors trying to steal your lunch, dinner and breakfast and not playing by international WTO rules, there really is no alternative. In the UK, the “anglo” model is resulting in persistent and structural balance of payments deficits, due to unfair overseas competition (including from the EU). These deficits are being financed by selling off all our major companies (and London housing) to foreigners. So many of our largest companies are no longer controlled by indigenous management and shareholders. (High paying jobs and intellectual property then go overseas.) In the latter case, house prices are being bid up so that indigenous workers can’t afford to live within 30 miles of their workplaces. And yet many of the properties are barely used. The only solution given a fixed amount of land is that London properties get smaller and smaller, while London garages for cars are worth more than houses in the rest of the UK. But our governments do nothing about this. We too need a Donald Trump.

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  2. You’re completely right. Crony capitalism isn’t ideal, but when you’re faced with international competitors trying to steal your lunch, dinner and breakfast and not playing by international WTO rules, there really is no alternative.

    Very good.

    You’re warming to how we see Capitalism. I anticipated more would convert over to this kind of thinking back when I wrote that this blog assumes many readers are already Hamiltonians, but don’t know it yet.

    And there is much more for us to cover. Stay with us and in ten years you’ll have the Tories trembling before your paws.

    In the UK, the “anglo” model is resulting in persistent and structural balance of payments deficits, due to unfair overseas competition (including from the EU). These deficits are being financed by selling off all our major companies (and London housing) to foreigners.

    The situation with London’s property prices is quite the fiasco.

    But are you sure this is the result of the Anglo model of Capitalism or Fabian Socialism?

    As I’ve pointed out to you before, many of the worst problems associated with Big Business practices are caused by Leftism.

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  3. I do have to admit that the relentlessly Capitalistic American governments from 1865 to 1932 practiced more than their fair share of corporate favoritism. On balance, however, they did try to adhere to Anglo-Saxon principles of laissez-faire, and enforce standards of fair play. The result was that this era came the closest to realizing the benefits of the Capitalistic ideal relative to any other experiment of free market economics.

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