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America’s Commercial Republic or State Capitalism?

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Conservatives have a disposition to believe that there is little new under the sun. It is why conservative thinkers study the past as a guide to understanding the present and shaping the future. They show a reverence for arrangements, and the ideas that support them, inherited from the past—unlike their postmodern opponents on the Left, who believe the principal reason to examine the past is to deconstruct it.

In recent years, lively debate on the American political Right has seen the emergence of two propositions that challenge conservatives’ traditional belief in the virtues of limited government. The first argues that defeating the Left in the culture wars requires the impressment of the state to promote traditional values and the role of religion in the public square. The second proposition is economic. Conservatives should deploy the power of the state to intervene in the economy and impose trade tariffs to sustain jobs in disadvantaged regions of the country and protect industries deemed vital.

Both propositions involve harnessing state power, but the context, modes, and implications of its utilization are different. In the case of the culture wars, all too often, the state is already a combatant on the opposing side. It is difficult to mount a practical case that state neutrality constitutes a winning strategy when the state itself is not neutral. In these battles, one side loses when the other wins. To be sure, economic interventions create winners and losers, but the losers are not combatants in a war of social and cultural values. They are innocent bystanders, participants in economic processes that the government is tilting against them. Interventions in these economic processes, because they are beyond the comprehension of any single intelligence, inevitably set off ripples of unintended consequences that can lead to worse overall outcomes than doing nothing.

Over the years and decades, the case for economic liberty has been made by some of the world’s foremost economists. What distinguishes Samuel Gregg’s “The Next American Economy: Nation, State, and Markets in an Uncertain World” is its making of a political and economic case for markets and commerce and its argument against the latest reincarnation of mercantilism drawn from the American founding and the American-British Enlightenment—if “British” can be stretched to encompass two Scotsmen, Adam Smith and David Hume, and an Irishman, Edmund Burke. For American conservatives don’t go quite as far as the writer of the Book of Ecclesiastes in saying that there is nothing new under the sun. In their forefathers’ bringing forth a new nation, conceived in liberty, and dedicated to the proposition that all men are created equal, conservatives recognize that the American Revolution was an event without precedent in history.

The freshness of Gregg’s eloquent and elegant essay on political economy is relating current debates about industrial and trade policy in today’s world of geopolitical rivalries to the character of the American republic and to similar debates in the era of its founding. This makes for a much more compelling book than attempts to rekindle nostalgia for the 1980s, at the same time illustrating the timelessness of the economic and political benefits of markets and trade and reminding us that George Washington envisioned America as “a great, a respectable & a commercial nation.”

As Gregg makes plain, we live in a different era from the 1980s. China is now the world’s second-largest economy. The hopes that Bill Clinton and George W. Bush invested in the expectation that economic liberalization would lead to the political liberalization of China’s communist dictatorship have proven illusory. “Trade policy cannot be separated out from foreign policy considerations,” Gregg writes, something the author of “The Wealth of Nations” understood when he wrote that national defense “is of much more importance than opulence.” Indeed, Adam Smith supported the Navigation Acts—a British 18th century equivalent of the Jones Act that ensured that Britain had enough ships and sailors to protect its empire—because he saw the military necessity for a commercial island state to have the means of resisting a naval blockade during wartime.

Smith and David Hume saw free trade not as weakening the nation-state but increasing its wealth—and therefore its ability to fund the costs of war for longer. Neither did they envisage free trade leading to a nation-free world or subscribe to Immanuel Kant’s supra-nationalist vision of perpetual peace. Although Smith and Hume lived cosmopolitan lives, “they did not develop cosmopolitan affections,” Gregg writes. “Their approach to foreign relations was marked by deep realism about human nature.”

Smith would have been unsurprised, then, by the use of national security as a pretext to protect favored industries. The prospect of any new law or regulation of commerce, Smith wrote in “The Wealth of Nations,” ought to be examined “with the most suspicious attention.” In 2018, the Trump administration imposed 25 percent tariffs on steel and 10 percent tariffs on aluminum on the grounds of protecting national security. It took three years for a Department of Commerce report to emerge that explained that “national security” included “the general security and welfare of certain industries.” Favoring certain industries means harming others. An analysis of the economic impact of the steel and aluminum tariffs by Federal Reserve economists estimated that they resulted in a net loss of approximately 75,000 jobs. That conclusion accords with Alexander Hamilton’s reasoning in Federalist 35, in which he argued that tariffs “force industry out of its more natural channels into others in which it flows with less advantage.”

Capitalism is, above all, a process of continuous, organic change. Protecting manufacturing jobs gives rise to calls from Left and Right for industrial policy, which is another way of forcing industry out of its more natural channels. According to one estimate, the “China shock” accounts for less than one in five manufacturing jobs lost between 1999 and 2011. The other four out of five manufacturing jobs are likely to have disappeared as a result of technological progress, the shift toward high-skilled, high-end manufacturing in which Americans have a comparative advantage, and changes in the structure of the economy.

What Gregg calls state capitalism is made up of three main elements: industrial policy, protectionism, and stakeholder models of business—the latter a model highly conducive to corporate woke ideology. There are varieties of state capitalism on offer, from European social democracy to that on display at the Chinese Communist Party’s recent quinquennial congress, with its slogan of a “people-orientated economy,” meaning a “a state-led, self-reliant and patriotic economy,” language that should sound warning bells.

Foreign models of state capitalism have long held attractions for supporters of state capitalism on the Left of American politics, but to those on the Right, they pose a contradiction: American exceptionalism must extend to adoption of any model of state capitalism for America to avoid the economic, political, and moral pathologies that arise when the state systematically intrudes into the very sinews of commerce. This would be a case of expecting something new under the sun. Gregg cites a study of the 1930 Smoot-Hawley tariffs that amounted to “a mass of private legislation carried out with little regard for national interest.” Similarly, a study on late 19th-century tariff legislation notes the endemic corruption to which it gave rise.

In 18th-century prose with as much relevance today as it had 234 years ago, Federalist 62 anticipates the danger of turning honest businessmen into parasitic rent-seekers. Every new regulation presents, the author of Federalist 62 writes, “a new harvest to those who watch the change, and can trace its consequences; a harvest reared not by themselves but by the toils and cares of the great body of their fellow citizens. This is a state of things in which it may be said with some truth that laws are made for the FEW, not for the MANY.”

The purpose of “The Next American Economy” is to show that the case for free markets is and should be about more than economics; that if it is limited to economics, it will lose. It must be grounded in America’s founding and in its national identity as a commercial republic. Free market economics cannot exist in a moral and institutional vacuum, a truth shown by the failure of economic reform in Russia after the collapse of communism.

To this end, Gregg highlights the passage in Washington’s Farewell Address emphasizing religion and morality as the “indispensable supports” of “political prosperity.” This sentiment, says Gregg, reflects the belief that the foundations of the new republic should be shaped by Hebrew and Christian scriptures. In turn, the habits that make for commercial success reinforce republican virtues against the habits that threaten them—indolence, hubris, venality, and the absence of restraint. Few things would elevate these destructive habits more than gifting residents of the Washington political swamp with state capitalism and the power and riches that go with it. In warning about this prospect, Gregg makes an invaluable contribution to the debate between American conservatives.

From RealClearWire

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Rupert Darwall

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