Politics & Policy

The GOP’s Future Is as the Party of Industry

(Dreamstime image: James Larkin)
Republicans have a chance to reshape American politics by offering a program for an industrial economy.

Donald Trump won the presidency in an upset victory largely because of his appeal to the white working class in a number of industrial states that have been reliably Democratic for years. His denunciations of Chinese mercantilism and U.S. transnational corporations that offshore jobs to low-wage countries resonated strongly in the parts of the South and the Midwest where most U.S. manufacturing is concentrated — while shocking defenders of the bipartisan orthodoxy in favor of unrestricted globalization and mass immigration. Trump’s astonishing success shows the potential in American politics for a party of industry.

Since the 1990s, the Republican and Democratic establishments alike have shared the view that the U.S. should shed “old” industries such as manufacturing to other countries, in order to specialize in “knowledge industries” such as software and social media that employ a college-educated “creative class.” The declining share of employment in the goods-producing economy, as a result of automation and offshoring, makes this view superficially plausible.

But the tradable sector — including manufacturing, industrial agriculture, energy, and minerals, and dominated by large firms and complex supply chains — is far more essential to American prosperity than its share of employment might suggest. A dollar’s worth of manufactured-goods sales generates $1.33 in output from other sectors of the economy — compared with 66 cents for retail and 61 cents for professional and business services.

Libertarians often suggest that the U.S. can import whatever manufactured goods it needs. But imports must be paid for by exports, if they are not to be paid for by unsustainable borrowing or the sale of domestic assets to foreigners. In 2015, the U.S. exported $2.23 trillion worth of goods and services combined. Manufactured goods accounted for 50 percent of all U.S. exports, far more than services (33 percent). Within the service-export category, the largest share was travel and tourism. Absent an unrealistically large expansion of service exports from Silicon Valley and Wall Street, a deindustrialized U.S. would have to radically cut back on its imports of manufactured goods.

The most compelling argument for a strong and dynamic manufacturing sector is national security. No country can be a great power, much less a superpower, without an innovative and advanced manufacturing base that is independent of potentially hostile suppliers. Neglect of this wisdom allowed the U.S. military, for a time, to become dependent on essential rare-earth minerals from China and rockets made in Russia. Allowing your military to become economically dependent on your major geopolitical rivals is never a good idea, as Alexander Hamilton recognized in 1791 when, in his “Report on the Subject of Manufactures,” the first Treasury secretary emphasized the need for federal promotion of manufacturing to make the United States “independent on foreign Nations, for Military and other essential Supplies.”

What if there were a party or movement in the United States that championed modern, large-scale, corporate-industrial capitalism rather than simply assuming its health or denouncing it as evil? A movement that championed American industrial capitalism would differ in significant ways from the anti-corporate Left and the libertarian Right.

A movement that championed American industrial capitalism would differ in significant ways from the anti-corporate Left and the libertarian Right.

Because of increasing returns to scale and high costs of entry, such industries as consumer electronics, aerospace, and automobiles tend to be dominated by a few huge, dynamic firms at a global as well as a national level. Both nation-states and their provincial sub-units compete to be the sites of high-value-added suppliers in regional and global supply chains coordinated by these oligopolistic global firms.

From this fact, two things follow. The first is that the neoliberal idea of writing neutral rules for world trade, enforced by states that are strictly indifferent to whether particular industries are located within their borders, is not so much wrong as anachronistic, when a growing share of what is called international trade actually consists of transfers of components across borders for assembly by a single transnational corporation.

The second implication is that the distinction between trade and domestic economic policy collapses, replaced by a single concept familiar to state and local governments: “economic development.” In a global economy in which the comparative advantage of nations is replaced by what might be called their “competitive attractiveness,” the American federal government must start thinking like a U.S. state government.

But this is only the beginning. An American party of industrial capitalism would evaluate domestic policies according to whether, in addition to achieving their stated goals, they helped or hurt the science-based, capital-intensive tradable-goods sector:

Taxes. Corporate income taxes fall most heavily on U.S.-based manufacturing firms and suppliers. They should be reduced or abolished and replaced by taxes on individuals.

Wages. Now as in the past, manufacturing companies benefit from a broad middle class that buys mass-produced goods and the services that go with them, rather than small, rich clienteles that prefer artisanal luxuries. Foreign markets are only partial substitutes for home-country consumers. A disproportionate number of successful transnational corporations are based in the three most populous industrial-capitalist nation-states — the U.S., Japan, and Germany — whose large domestic markets, thanks to increasing returns to scale, act as springboards to global success. Enlightened manufacturers should therefore prefer prosperous to poor service-sector workers — e.g., home health aides, hotel workers, and waiters — in the United States. It makes no strategic sense for science-based, capital-intensive industries to ally themselves in politics with cheap-labor employers in low-productivity, labor-intensive sectors.

Social insurance. Industrial corporations and their investors and employees have a natural interest in social-safety-net policies that minimize the collapse in consumer spending during periodic recessions. For this reason alone, they should prefer pay-as-you-go, tax-based systems of social insurance such as Social Security and unemployment insurance to the prefunded savings accounts favored by the libertarian Right. Social insurance is countercyclical, acting as an “automatic stabilizer” to keep the income of the unemployed and elderly flowing during recessions. But prefunded retirement savings accounts and unemployment accounts, of the kind favored by libertarians, are disastrously “procyclical” — when the stock market tanks, accounts decline with it, worsening the economic contraction.

#related#Immigration. An industrial-capitalist party in the United States, if one existed, would support an immigration policy that favored workers with skills useful to the tradable sector, though not in numbers that would reduce incentives for companies to hire and train Americans. But technology-intensive firms do not benefit from great numbers of uneducated workers. And unskilled immigration, both legal and illegal, might retard productivity growth by incentivizing firms to rely on low-wage immigrant labor rather than invest in labor-saving technologies and techniques.

Of America’s two major parties, the Republican party would be the easier to remake as a party of dynamic industrial capitalism in the national interest. Its voter base is the disproportionately white private-sector working class, its elite base includes much of the leadership of nonfinancial business, and its regional base includes the states most likely to depend on manufacturing, agriculture, or oil, gas, and coal, as opposed to the post-industrial “knowledge economy” and subsidized, uneconomical green-energy ventures favored by the Democrats. Donald Trump has proven there is a constituency. What is lacking is a program.

— Michael Lind is a fellow at New America and the author of Land of Promise: An Economic History of the United States. This article orginally appeared in the December 5, 2016, issue of National Review.

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Michael LindMr. Lind is a visiting professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin and the author of The American Way of Strategy.


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