Carrier, Trump, and America’s lurch into crony capitalism

The term “goon squad” has gone through a modernizing evolution since its 19^th century origins as a group of criminals or mercenaries associated with union violence or anti-union violence.  More recently, it moved on to become thugs or persons hired to threaten or terrorize political or industrial opponents.

With the clash between the Carrier Corporation (and its parent company United Technologies) with the incoming Trump administration, the term has evolved further to encompass situations where the (veiled) fist of government is utilized to force a company to knuckle under to the will of government.

We don’t know all the facts, but here is a brief rundown of the history of this sorry, unfolding episode. Carrier, which is a leading manufacturer of air conditioners and other heating and cooling equipment, had announced some time ago that it was closing several plants in Indiana and moving production to Mexico (the company has paid back to the city of Indianapolis some $1.2 million in tax incentives).

During the presidential campaign Donald Trump, as part of his vow to “Make America great again,” promised to stop US firms from moving jobs abroad, particularly to Mexico.  He railed against politicians who had “pursued a policy of globalization—moving our jobs, our wealth and our industries to Mexico and overseas.” And he specifically zeroed in on Carrier, vowing that he would thwart its planned move: “That’s what’s going to happen. It’s not like we have an 80 percent chance if keeping them, or a 95 percent. One hundred percent.”

After the election, Trump dispatched his vice-presidential running mate, Mike Pence, who is also the governor of Indiana, to broker (read “force”) a deal.  The result is now partially public: Carrier and its corporate owner United Technologies have agreed to save about 1,000 jobs of the 1,400 originally slated to be terminated. It is unclear whether United Technologies will also rescind a prior decision to close another 700-worker Indiana plant.  In return, numerous news sources report that Carrier/United Technologies will receive substantial new tax incentives from the state of Indiana (read “Gov. Mike Pence”), plus the promise of new national tax and regulatory policies favorable to the companies — the total of which will far exceed the estimated $65 million that would have been saved from the move.

I will leave to others and other accounts to show the futility of the larger goal of this intervention: to bring back the thousands of manufacturing jobs that no longer exist in the United States.  Suffice it to say that trade policy and trade agreements had little to do with this shift in our economy: economic research has demonstrated that some 80% of the manufacturing jobs lost in the past two decades came from technological advances (automation) that have also produced an increase of US industrial output of some 30% since the year 2000.

Economic research has demonstrated that some 80% of the manufacturing jobs lost in the past two decades came from technological advances (automation) that have also produced an increase of US industrial output of some 30% since the year 2000.

I want to focus on the political and political economy implications. First, despite the triumphant hype, not least from Sanders/Warren wing of the Democratic party, the Trump/Pence intervention is a lawless action.  I am not naïve here and, yes, I know that at times the US government has initiated ex parte actions (viz.., late night call from US Commerce Secretary to warn Sprint against contracting with Huawei for alleged security reasons).  But the distinction here is that there is every indication that this will become the modus operandi when Trump and Pence actually come to power.  Trump has already challenged the Ford Motor Company and Apple regarding their vital and highly efficient supply chains that involve moving parts and components back and forth across borders (Mexico, Canada, and East Asia).  In the present case, Trump picked up the phone and coerced the United Technologies CEO directly. Absent a highly improbable legislative assent from Congress, he will no doubt continue to act with unilateral executive actions.  Or as Treasury-elect Mnuchin put it in defending the Carrier action: “(We are) going to have open communications with business leaders.”

Second, another larger implication is that, if Trump is serious, his minions in government will have to monitor thousands of actions like those of Carrier, as modern competition demands sourcing from the most efficient producer.  This will entail a huge number of public interventions, tracking and punishing companies with supply chains that are fed by workers in other countries. But as noted above, the government payoff for companies that reverse course will be substantial.  Obviously, the lesson for the US manufacturing sector: threaten to move jobs to Mexico and rake in the goodies.
The loudest cheerleaders for Trump’s actions here are leaders of the anti-global Democratic left, who favor a European, dare I say French, dirigiste regime. It is no coincidence that Bernie Sanders and liberal economist Jared Bernstein have applauded Trump’s action.

Third, ironically, as noted above, the loudest cheerleaders for Trump’s actions here are leaders of the anti-global Democratic left, who favor a European, dare I say French, dirigiste regime. It is no coincidence that Bernie Sanders and liberal economist Jared Bernstein have applauded Trump’s action. By chance, I flipped on CNN’s Anderson Cooper two nights ago to find Paul Begala ecstatic over the Carrier put down and crowing that this is just what Democrats have been demanding for years—and harkened back to Franklin Roosevelt’s clashes with corporations.

Finally, as my colleague Mark Perry has noted with derision, there is the sheer hypocrisy of Trump personally: ”When it comes to political hypocrisy and intellectual consistency, Donald Trump deserves a gold medal.”  Having criticized Ford, and now Carrier, for moving to Mexico, Trump himself “has made significant  investments in companies around the world, including Panama, Brazil, Canada, India, Turkey, Uruguay Philippines and South Korea…(f)or Trump to operate , outsource and invest globally while criticizing companies like Ford to doing the same is the ultimate hypocrisy.”

Later today, Trump and Pence will land in Indianapolis no doubt to tumultuous acclaim. Pundits are calling the Carrier incident a great coup for the president-elect.  The extent of the loss to the US economy from this lurch to crony capitalism will only become evident in future years.