The Art of Economic Warfare (Part 5): Using a Bad System For Some Good

By | 2017-06-02T18:30:05+00:00 December 12, 2016|
Print Friendly, PDF & Email

crony-capitalism

In the last week, Right- and Left-wingers alike have been picking up on an old theme: Can one serve a greater good by engaging in a little bad? This is the dilemma that currently plagues the checklist conservatives and the big government Leftists opposing Trump.

The question has been raised in relation to President-elect Trump’s recent actions regarding the Carrier air conditioning firm in Indiana and the $4 billion Boeing deal to build the next Air Force One. In the aftermath of these two events, Trump’s critics have banded together to decry what they view as the unabashed use of “crony capitalism.”

Crony capitalism is often defined as the union of interests between the state and selected private enterprises. This concept could also be called corporatism or what Joshua Kurlantzick refers to as, “State Capitalism.” The truth is that the United States has been operating under such a system at least since the Franklin D. Roosevelt Administration.

As I stated in part four of this series, “crony capitalism” is actually an oxymoron. Real capitalism is the decentralization of all economic decisions in a state. Cronyism is the result of the centralization of economic decisions and activity. Combining cronyism and capitalism is like trying to combine oil and water.  It just doesn’t work. The term “crony capitalism” is really nothing more than a Leftist term of disparagement for capitalism—as if to suggest that capitalism is a delusion or a thing that always devolves into injustice of one kind or another. A more appropriate term would be either “corporatism” or “mercantilism.” Or, at the extreme, “fascism.”

Over the years, that system of “corporatism” or “cronyism” that replaced capitalism after FDR has become a devouring dragon: gobbling up more and more of what was once left to individuals, private businesses, as well as local and state governments. In this system, the President of the United States has the capability to repay all of his union supporters by using federal funds to bail out a failing car company, such as President Obama did with General Motors.

As a conservative, I loathe the idea of crony capitalism or corporatism. I resist it at every turn. I rail against subsidies. I decry politically motivated regulations. But I am also a realist. I recognize that this is the system we live in. For better or for worse, it is the system that Donald Trump is entering on January 20, 2017. At least Trump seems to be trying to make things better for you and I (as opposed to satisfying the cries of the hypocritical political class).

Myopia as Principled Conservatism

The checklist conservative opposition to the Carrier deal is best expressed in John Tamny’s claim that by using the bully pulpit to goad Carrier into remaining in Indiana, Trump has likely created market distortions that will be visited back upon consumers. From a purely economic standpoint, the critics are likely right. Consumers will likely suffer from a modest increase in costs—particularly those who purchase Carrier products.

But, as a nation-state, the American republic benefits mightily from maintaining economic capacity in the form of jobs saved. The more people who are employed, the more money those people will have to spend. The more money they have to spend, the more that the economy can expand. What’s more conservative than providing opportunity and prosperity to as many Americans as possible? Who cares if the consumer faces minor and, likely, temporary distortions?

Also, what is the obsession with the globalized consumer economy (hold your breath University of Chicago folks) anyway? The same principled conservatives who decry Trump’s purported misuse of executive power also blather endlessly about the need to keep prices low on consumer products.

But, who cares about keeping prices low on flat screen televisions if a majority of Americans are either unemployed or hopelessly underemployed? Do these principled—or, rather, myopic—checklist conservatives realize that mindless consumerism is not a conservative principle? It is rather, a quasi-socialist, Keynesian concept.

So, no, the Carrier deal did not uphold America’s bizarre commitment to globalization at the expense of the national interest. What it did do was reaffirm Trump’s commitment to preserving the economic capacity of America. Such capacity is desperately needed in the face of stiff international competition. After all, how can a country compete with another in, say, manufacturing if its manufacturing capacity has been gutted due to precariously low trade barriers?

The Tweet Heard ’Round the World

When Trump tweeted: “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!” he signaled what is likely to be a sea change in how the U.S. government manages its defense budget. If you want to see the most visible—and pernicious—form of crony capitalism in action, then look no further than the American defense budget.

The Pentagon is where big government (the military, the executive branch bureaucracy, and Congress) meets big business. This is where major defense contractors, such as Boeing—as well as their highly paid lobbyists—move through the elephantine government bureaucracy to line their pockets with taxpayer dollars.

These groups sell very expensive items to a government that is more than willing to pay whatever the asking price is (so long as the political class benefits).

Part of the problem is the insular culture of the defense contracting community. The rise of smaller startups to challenge the quasi-monopoly that the larger contractors have on the bidding process is what’s most needed to lower costs to the taxpayer. But, it’s the one thing that is not happening in the defense community. This is why the F-35 Joint Strike Fighter or the Navy’s newest warship, the LCS, took so long to build and cost so much. It’s also why both the F-35 and LCS are about as useful as the Iraqi navy. Lack of competition breeds inefficiency and waste. But, such is to be expected in a crony capitalist system.

The Pentagon is so closed off to startups that Taylor Lincoln, director of the congressional watch division of Public Citizen (a nonprofit consumer advocacy group) has said, “If you’re a startup, you almost certainly won’t get a chance to sell your product or service to the U.S. government.”

This is in spite of congressional legislation demanding that the Pentagon open up its doors to cost-cutting startups. In fact, whenever startups do successfully bid on a government contract over at the Pentagon, very often, the bigger firms, like Boeing, buy them out. This, then, gives the appearance of defense budget reform without the whole reform part.

In one small tweet, Trump challenged the entire system. Oh, sure, it’s just $4 billion (a rounding error, in terms of the defense budget) and nothing has actually happened. Boeing has merely said that they are willing to reopen negotiations on the issue. But, that’s a big step in the right direction. For the first time in a very long time, an American political leader has likely just played hardball with defense contractors—and won.

Imagine what the president-elect will do once he’s in charge of the Defense Department this January. With James Mattis as his secretary of defense, I’d expect a lot more movement in saving hard earned tax dollars than just a simple tweet. Though, to be fair, that small tweet fundamentally reversed the way that things have been done at the Pentagon since 1945.

Give The Man Some Time

We have to remember that Trump will not be president for several more weeks. The checklist conservatives worry that Trump will simply behave as Obama did in office: that he was use the bully pulpit of the presidency to pick economic winners and losers. Leftists worry that he will slaughter all of their sacred cows.

There is no doubt that Trump will do a little bit of both. Yet, I suspect that once Trump is officially the President of the United States, he will not only have the ability to cajole and intimidate businesses into bending to his will, but he will also have the ability to incentivize them. Keeping 1,100 jobs in Indiana is one thing. But, how can Trump possibly keep more jobs from leaving high-tax America?

That’s where Trump’s tax cut proposal comes into play. It’s where regulatory reform is involved. The Trump Administration will lower costs to the consumer and taxpayer while also removing the burdens that restrict business (and, therefore, employment). Meanwhile, Trump has appointed people to the Pentagon who worry about cost overruns and inefficiency as much as I do. He has appointed real reformers there.

431830366v3_225x225_frontFor now, however, we will all have to accept that Donald Trump is coming into possession of an inherently bad system of pre-existing crony capitalism. The needs and challenges Trump will face require immediate action. Therefore, in the near-term, the most expeditious solution would be for Trump to turn that inherently bad system of crony capitalism around from doing active harm to taxpayers and workers and instead toward doing some good for the American people as a whole. This is exactly what Trump has done with the Carrier deal and his Boeing tweet.

Those who are decrying his actions from the Right are being unrealistically dogmatic. Trump’s critics on the Left are suffering from selective amnesia, as they have not only disproportionately benefited from the system, but they also—in many cases—helped to create the system!

As such, this seems to be nothing more than a case of crony capitalism for me, but not for thee. Leftists love Big Government when they’re in charge. It’s going to be fun watching them squirm these next four years with Trump running the show.

About the Author:

Brandon J. Weichert
Brandon J. Weichert is a contributing editor to American Greatness. A former Republican Congressional staffer and national security expert, he also runs The Weichert Report, www.theweichertreport.com, an online journal of geopolitics. He holds Master's degree in Statecraft & National Security from the Institute of World Politics in Washington, D.C. He is also an Associate Member of New College at Oxford University and holds a B.A. in Political Science from DePaul University. He is currently completing a book on national security space policy due out next year.
  • Alpha

    At least as far as the Carrier action goes, it is a rational calculation. The state rebates back $700 per employee to keep jobs paying circa $60K per year on average producing $3600 per year in state income tax alone, not to mention multiplier effects, saved unemployment and retraining costs etc. It is a no-brainer.