The Trump effect on free market
FOR Donald Trump and Mike Pence, the news from Carrier looks like a slam-dunk: A company that was going to move 1,000 jobs to Mexico has agreed to keep the factories and jobs open in Indiana after the president-elect and vice president-elect applied a little pressure. We don’t know exactly what subsidies, tax breaks or other deals may have been involved, but workers making furnaces in Indiana are cheering, and Trump is basking in triumph. He promised in the campaign to apply his deal-making skills to stopping the exodus of US manufacturing jobs abroad. Now he can claim some success even before being sworn in.
But after the celebrating should come some discomfort. Trump’s aggressive rhetoric suggests he sees nothing wrong with pushing corporate chieftains around in the name of making America great again.
Trump would do well to remember: He was elected president, not factory boss.
What makes capitalism strong are the forces of the market left to work their own magic. No free market is ever totally free, but the basics matter a lot: Decisions are made on the basis of things like supply and demand, knowing that information is open and rule of law secure.
Still, politics laps at the edge all the time. Trump knows this better than anyone from his years seeking government permits and approvals in real estate and casinos. When government intrudes in service of the com- mon good – regulating a product to ensure consumer safety, or imposing responsibilities on polluters to protect the environment for the greater good – that’s normal in a healthy society and is enhanced by nonstop political debate. We have that.
But what happens when the market gets thrown out of kilter because of political influence? When decisions are made not on the basis of market forces but something else? When a political boss puts his thumb on the scales? When a president does?
You don’t have to look far beyond America’s borders to see the disaster that can occur when wealth and power become too cosy, when an overbearing state begins to dictate business decisions. It drives the free-market mechanism into a ditch.
Has everyone already forgotten Gosplan, the central planning agency of the Soviet Union? Those brilliant thinkers tried to put their thumb on every scale, and it worked for a while – until it no longer worked at all. The point is not just a historical one; in many nations today, state-owned or state-controlled enterprises are little more than extensions of the political leadership.
They are balky, coddled, inefficient behemoths, and usually piggy banks for the rulers. Economic decisions are made in phone calls from the seat of power.
Do we want the president of the United States to be cajoling factory executives one by one? Such behavior seems to expose the president to risks, too. When do special favours and incentives to a company – or the pursuit of them – become something more sinister? Aside from warping market decisions, they could ensnare Trump or his administration in scandal. Just consider the ruckus over the Obama administration’s attempts to encourage clean energy – what Republicans dubbed the Solyndra “scandal” – to envision what might happen if the president starts actively intervening in corporate decisions. The already overworked K Street lobbyists and our money-saturated political system will gleefully wade into a new swamp.
How would Trump have reacted if President Obama had called him with a request to make a corporate real estate decision against what his business spreadsheets dictated? Would he have been happy about it?
Soon, perhaps once he takes office, Trump may grasp that this is not how to change the world. He might save Carrier’s jobs for now, but the big forces that are shifting manufacturing jobs abroad – and have been for decades – will not be slowed by his intervention. Those forces can be changed, if at all, by economic policy – not by presidential jawboning.