Coercive Capitalism

Rather than looking hard in the mirror for answers as to why the November election turned out to be such a catastrophe, most Democrats are indulging themselves in a practice most of our parents tried to shake out of us by second grade:  blaming others.  Despite a president with solid favorability ratings, a growing economy, and a relatively low unemployment rate, the Democrats managed to lose the White House, failed to take the Senate or the House, and control only 15 state houses.  While they try to console themselves with Hillary’s popular vote margin, the fact is that Republicans ran the table on them and Hillary lost (once again) to someone with no executive experience in government.  You would think that would cause them to ask some hard questions about what they might do differently, but they immediately re-upped aged Nancy Pelosi as their house leader and variously blamed white nationalism, Fox news, and the electoral college. 

Meanwhile, how is Trump doing in the transition?   Some good.  Some bad.  Much still to come.

First, the bad (I will deal with the good in a subsequent post).  I side with Larry Summers on the Carrier deal.   Yes, I agree that government should do more to promote job generation in the US.  But mostly, that can be accomplished by simply getting out of the way.  We have had eight full years of veritable assault on business from every direction—increase in taxes, regulatory assaults from the EPA, OSHA, DOL, a real crunch through Dodd Frank and the CFPB, and of course, the extraordinary costs and disruption layered on business through the ACA.   Business deaths outnumbered births and in particular, young people were eschewing entrepreneurship.  The Obama Administration routinely demonized business, and singled out certain out of favor  industries for termination through regulations—coal, payday lenders and vapor cigarettes, for instance.  Others were forced to consolidate --- with a resulting death of jobs--- because of the regulatory burden.   Community banking (a lifeblood of small business) was particularly hard hit by the new and onerous regulatory scheme.

I’m wholly supportive of Donald Trump’s efforts to create an environment that is conducive to job creation, especially in the inner cities and small town America, but the Carrier deal is not the route.  Most of the country is clapping and cheering over keeping 1,000 jobs in Indiana.  Even Charles Payne, Fox Business commentator and avowed capitalist seemed exuberant and brushed aside concerns about how this deal went down.  I am not so sanguine.  Sure, states have been engaging in “bidding wars” with various tax abatements and incentives to attract and retain companies for a long time (my own Chicago White Sox are only here because owner Jerry Reinsdorf mounted a credible threat to move the franchise to Florida and squeezed financial incentives out of the city).  But Trump took this concept a step further.  First, this is the federal government, not a state or municipality.  Second, he coupled the $7 million of incentives with a threat—that any companies that move and then sell product back to the U.S. will be subject to “retribution or consequence.”  His announcement was eerily reminiscent of the tone of Hugo Chavez and he immediately went after another Indiana company, Rexnord when he caught wind that they were moving 300 jobs to Mexico. 

What’s wrong with this?  Several things, including precedence.  There is the moral hazard created by threatening to leave and getting government goodies that advantage you vis-à-vis your competitors. 

 There will be nothing to stop future presidents that are not as business friendly to single out companies they like for favors and companies they don’t like for punishment.  Obama has already done this, regulating some industries nearly out of existence and granting special favors to other “pets” (Solyndra is the poster child). Moreover, Trump needs to differentiate himself from Obama/Clinton.  After the Democrats lost Congress,  Obama governed largely through his “pen and phone” and regulatory bodies, unilaterally imposing  restrictions and rules and limiting the ability of companies to act.  Firms had to staff up in their compliance departments- sometimes expanding them by two or three times to keep up with the bevy of regulations. Often, small businesses gave up and sold themselves to larger competitors that had enough scale to deal with the avalanche.  Hillary Clinton promised  more of the same.   

But is Trump really different?  Yes, there were financially inducements, but there were warnings and bullying.  And bullying is bullying, whether it is done by Obama for one purpose or Trump for another.  Instead, Trump needs to focus on creating a tax and regulatory environment that is less hostile toward business and employment creation, mostly through the legislative process.  Yes, I’m glad that jobs are staying in Indiana, but Sarah Palin has it mostly right--deals like Carrier tilt the tables, and threaten to become the worst combination of crony capitalism and coercive capitalism. Government's job is to create an environment that makes companies happy to stay, not bludgeon them if they choose otherwise.