Tuesday, December 06, 2016

Corporatism and the Cheetoh Kleptocrat: Why the Carrier “Deal” is a Problem

Please Note: For obvious reasons, including my complete lack of respect for him, I have taken to calling president-elect Donald J. Trump the Cheetoh Kleptocrat (CK for short).  

The Cheetoh Kleptocrat’s promise to “make America great again” hinges on CK’s claim that he will both retain and renew manufacturing jobs in the United States.  Later this month, I’ll write about free markets and economic development, so we’ll hold off on CK’s claim that he will bring more manufacturing jobs to the economy.  Spoiler alert: it’s bullshit.

For today, let’s explore the ways in which government (also known as the state) can help to maintain manufacturing.  This is a timely topic in light of CK’s bragging that he made sure the Carrier Corporation kept 1000 jobs in Indiana.  I’m thinking about the deal and the whole premise of government and manufacturing cooperation.  In the world of political economy this is called corporatism, and it’s fascinating.

Warning: political discussion to follow.  You may wish to close up the browser and call it a day.  My feelings won’t be hurt.

Corporatism is the word political economy scholars use to describe an economic circumstance in which the state is involved with private industry, typically in a cooperative fashion with shared benefits for workers, the state, and private industry. It not particularly common in the United States, though it did sort-of happen under FDR in WWII (think of the Detroit automobile production conversion to war material).  In the modern context, it’s more than the National Labor Relations Board managing a contract dispute between labor and industry, though it’s related.  Corporatism is an enmeshing of private industry, the free market, and the state.  In the contemporary western political world (and that should be our comparison, the U.S. is a representative democracy), corporatism is most often a tool of Social Democratic states —— think Norway, Finland, Sweden, Denmark, even Germany at various points in the post-war order.  It can be an enormously successful method of responsible economic management to ensure economic growth combined with support for the needs of labor in a capitalist, free market economy.

It can also be a tool of authoritarian power.  Corporatism was integral to Hitler’s Germany and to fascist Italy.  So the story here isn’t all cheerful and those facts make for a cautionary tale.

Traditionally, a corporatism model isn’t about one company in one place (the Carrier deal) but about support for an entire industry —— say automobile manufacturing.  Corporatism recognizes the free market need for profits, the labor market need for decent wages and good working conditions, and the government’s need for reasonable tax revenues.  It is always about shared benefits for all the parties.

In the United States, the auto-bailout of 2009 is an example of American-style corporatism, which tends to be modeled in a limited style, as was the auto bailout.  As a temporary solution to an immediate crisis,  it was a success.  The auto industry got some cash via government-sponsored loans, workers retained their decent-wage jobs, and the industry survived, prospered, and paid back the state.  But it was temporary by design.  Historically, the United States does not engage in corporatist policies.

That’s a shame: there is room for the government to work with industry and labor to structure economic incentives that benefit all three.  The corporatist model fundamentally seeks to preserve free market capitalism.  It creates a kinder, gentler, capitalism, with special focus on labor and wage standards.  It doesn’t shout about punishment for private corporations who export production in order to get lower labor costs.  Rather, it bypasses the private company motivation to do this by structuring incentives for corporations and labor to work cooperatively together within the domestic market.

That doesn’t mean that jobs don’t leave.  Low skill jobs are always at risk for export to nations where labor and production costs are lower.  That is a persistent effect of free market economies that cannot be erased.  Indeed, this sort of competition for labor and goods is exactly what is required for free market success.  But corporatist policies can seek to maintain manufacturing and industries within the framework of an advanced and developed economy.  That’s a good thing.

CK’s actions in Indiana were not about corporatism.   His announcement that he will  bully manufacturing employers into retaining jobs on a case-by-case basis (in the model of the Carrier deal) is not a developed and systematic plan to develop and maintain manufacturing jobs.   Carrier got $7 million dollars worth of tax breaks (and possibly more, the deal isn’t transparent) to retain 1000 jobs.  That’s an insanely good bargain for Carrier and an incentive for every manufacturer in the nation to threaten to take its jobs elsewhere.  It is a gross defiance of free market capitalism that incentivizes bad corporate behavior (what economists call a moral hazard).  

I’m not always a fan of capitalism, but its relationship to successful, stable, and thriving democracy is undeniable.  Capitalism can be made kinder, gentler, and more effective by thoughtful government-labor-industry partnerships.  Indeed, that should be our goal.  Something tells me that the CK is not the man for that job.

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