The GOP's stupid swoon for big government
Conservative nationalists are now selling the virtues of industrial policy. Big mistake.
Talk about a dirty job. It's tough, back-breaking work trying to manufacture a coherent economic philosophy and agenda out of the raw materials of Trumponomics: 1950s nostalgia, trade protectionism, a belief that real jobs (for working-class men) are factory jobs, and a summary dismissal of the economics profession. But right-wing populists have set themselves to the task. At the recent National Conservatism Conference in Washington, the crowd of Trump enthusiasts voted overwhelmingly in favor of a resolution calling for the United States to adopt an "industrial policy."
Of course they did. Blue-collar folks, at least the white ones, are now a key part of the Trumpublican coalition. This powerful new voting bloc seems uninterested in traditional GOP issues such as business tax cuts and entitlement reform. And in the case of free trade, these new GOPers are often actively hostile.
So time for a new conservative agenda, one that promises to use government action — taxes, spending subsidies, regulation, tariffs (especially tariffs) — to resurrect a postwar American economy built around making stuff. For it is manufacturing, nationalist conservative thinker Oren Cass of the Manhattan Institute argues in a recent essay, that "provides particularly well-paying, stable employment — especially for men with less formal education."
And if Germany and Japan can do it, why can't America? Trumpists like Cass point to those two advanced economies as real-world proof of how smart government intervention can successfully protect factory jobs against the supposedly unstoppable forces of globalization and technological change. One supposedly persuasive statistic supporting their case: Manufacturing output is only 12 percent of GDP in America, compared to 19 percent in Japan and 23 percent in Germany. America has to catch up, ASAP!
Now having lots of manufacturing doesn't necessarily mean a healthy and vibrant economy. It may actually indicate an inefficient economy where policy nudges labor and capital away from their most productive uses. More to the point, whatever Japan and Germany have been doing in recent decades, it hasn't created a protective bubble around their manufacturing sector. Industrial policy simply can't shield economies from powerful and global macroeconomic forces.
Indeed, Japan's economy was praised back in the 1980s by many Democrats as demonstrating the superiority of smart technocratic planning vs. more market-directed approaches, such as Reaganomics. But all advanced economies have seen long-term declines in manufacturing employment. Going back to 1990, according to a Congressional Research Service analysis, American manufacturing employment fell by 25 percent. That's actually a lower percentage than in Japan, 31 percent, and about the same percentage as in Germany, 24 percent. If American elites have somehow failed the working class, then elites everywhere made the same mistakes.
Germany is also an off-point example. Despite right-wing nationalists — also some left-wing progressives like Elizabeth Warren — pointing to the German economy as industrial policy done right, policymakers there have long avoided anointing their industrial companies as national champions deserving of special help. When Germany's economy minister suggested creating a state investment fund to pre-empt the foreign takeover of German firms earlier this year, some of his fellow party politicians, noted the Financial Times, "accused him of betraying the party's free-market principles. Business leaders have also lambasted the minister's plans, saying they will lead to excessive state interference in the economy."
One has to assume that conservative converts to industrial policy are smart enough to know the futility of a back-to-the-future economic policy meant to restore an industrial American economy long past. Even if the manufacturing share of the American economy rose, much of the work would be done by robots not humans. The age of mass industrial employment is over. And there are downsides. Even Cass correctly concedes that "opportunities for regulatory capture will abound, market distortions will emerge." Hardly small considerations in a demographically challenged economy plagued by historically slow productivity growth. And as of now, Trumponomics has hardly produced a manufacturing renaissance. U.S. manufacturing activity slowed to near a three-year low in June.
Then again, maybe it's not about economics at all. Perhaps this right-wing embrace of government intervention is little more than superficially signaling to a key interest group that this is a new Republican Party that won't backslide, even in a post-Trump era. But in the process, these nationalists are selling false hope in exchange for votes.