In response to: How Economic Nationalism Hurts Nations
Sam Gregg presents something like a natural law argument against economic nationalism that expresses the notion of things we can’t not know about trade, economic growth, and the requirements that must be fulfilled for economic efficiency. He treats us to sobering examples of nations that chose to pursue versions of economic nationalism by relying on “industrial policy” to do various things that would boost their domestic economy beyond what private capital investment and entrepreneurship could accomplish on their own, or so they thought. Sam describes the policies and experiences of France, Japan, and China in their pursuits of an industrial policy. None of the results achieved should make us envious or willing to subscribe to a Chinese capitalism but with American characteristics.
Sam describes France’s postwar economy between 1945-1982 and its domination by dirigisme: nationalizations of key industries too important to be left in private hands, targeted government interventions in certain sectors, infrastructure ownership that went beyond basic public needs, and heavy management of industries deemed significant to national prestige. This perfect recipe for government control of the economy helps contribute to spending levels that roughly equal 58% of French national GDP in recent years. Of course, France in the last few decades has had to liberalize portions of its economy as an EU member, but it is hardly an economic success story, more of the economic equivalent of an obese, cigarette-smoking, alcoholic, cholesterol-ridden middle-aged man trying to jog one mile. France does so much to choke its economy, it’s a wonder that it goes at all. While many of its economic and fiscal problems can’t be directly attributed to industrial policy, it is hardly the case that reliance on such a policy has prevented the erosion of manufacturing jobs in France (the holy grail of economic nationalism), a phenomenon that exists in virtually every advanced western economy.
Sam also treats us to the long economic decline in Japan, a country whose postwar industrial policy, the so-called “Japanese model,” was a path that many business and academic elites in the 1980s called for America to follow. It proved instead to be the path to a moribund economy. Sam aptly notes the concluding note of the Japanese government’s own review in 2002 of its decades-long industrial policy: “The Japanese model was not the source of Japanese competitiveness but the cause of our failure.”
Arguments for economic freedom and free trade now face the various social crises that have emerged in the post-Cold War era, made worse by the inability of significant constituencies to find real political representation. However, we should be clear both on the causes of these problems and if economic nationalism will actually solve them. Concretely, economic nationalism manifests itself in an industrial policy with variations of tariffs, business and wage subsidies, favorable loans to industry, targeted investments, and government-corporate partnerships, among other policies. When we drill down to what drives the call for greater state intervention in the economy, there is a fideistic belief in the ability of the government to create manufacturing jobs, employ much larger numbers of working-age men who are currently unemployed, which will then lead to more family formation, more stable families, and an increase in the birth-rate. But this is a rather deep wishing well, as wishing wells go.
As I stated in a debate with Oren Cass regarding the adoption of an industrial policy, while manufacturing job losses were steep during the 2000-2011 period, frequently referred to as “China-Shock,” we usually overlook that six million net jobs were created during this time period. I think that we engage in a materialistic explanation if we attribute male unemployment, “deaths of despair,” lower marriage rates, divorce, and opioid use solely to free trade and Chinese imports. Most of the items I mention precede by decades the admission of China to the WTO in 2001. Decreasing male workforce participation starts much sooner than 2001 and coincides with the retreat from marriage and the rise of President Johnson’s Great Society programs. Family breakdown begins around 1960. So-called “deaths of despair” rise after 1998, but the 20th percentile of male pay had been rising for five years. Moreover, deaths of despair continue their growth in 2019, and affect much broader groups of Americans than white males without a college degree. Yet the economy continues to grow and pay for our low-wage earners continues to rise. We are in the midst of the best job market in the past 50 years, but most of these problems show no signs of abating. Male pay at the 20th percentile is nevertheless nineteen per cent higher today than 1993.
I noted at the outset that an industrial policy really can’t speak to these core problems. However, it can certainly make us poorer for all of the reasons Sam lays out, most obviously, mal-investment, crony-ism, and installing workers in jobs that are not supported by consumer demand, with all of this leading to the impairment of comparative advantage and its wealth-generating effects for investors, workers, and consumers. The problem, though, of persisting male unemployment and with it all the believed social crises can’t be laid at the feet of our current economy. As Nicholas Eberstadt notes in his recent Claremont Review of Books essay on Oren Cass’s The Once and Future Worker:
America’s overall unemployment rate today is lower than at any time since the 1960s, and the official unemployment rate for prime-age men is just 3%. Yet for every prime-age man who is out of work and looking for a job, there are four more who are neither working nor looking. This is not a problem that can be solved by more Keynesian stimulus, a new industrial policy, or other so-called “demand-side tools.”
Perhaps a focus on economic nationalism and its accompanying industrial policy obscures the rather unpleasant social facts of life in post-sexual revolution America. Here, I might draw an extended analogy to the problem with racial preferences in higher education. Shelby Steele has argued that many of the differences in educational ability between black students and other students (Asian and white) don’t begin at the age of 17 or 18 when students are taking SATs and applying for college admission, rather they began much, much earlier in their lives with family stability, educational attainment of parents, the ways their parents spoke and read to them, the incentives provided for homework and work ethic, etc. None of this, Steele notes, will be solved by racial admissions policies, but only by the recovery of necessary moral and social capital. Analogously, the prime-age male work dropouts without college or vocational training, didn’t suddenly materialize in 2001 with China’s WTO entry or in 2008 during the Great Recession, but can be more proximately located in the retreat from work with transfer payment programs and ways that work was in a sense made a cost rather than a benefit. In short, hiring labor for employers was made more expensive and the cost of working compared with the benefits that inure from not working became a closer call for many Americans, with the choice of not working made feasible for too many.
But this is to say nothing of the lack of stigma that once attached to men who didn’t work, absent real disability. In addition to the way we subsidize joblessness now, there is the retreat from family, religion, and civil society more generally. Economic nationalists blame this on the loss of industrial jobs. But that’s causally wrong. The retreat from these necessary societies begins with the just noted transfer payment state, but also with the rise of antinomian individualism that easily justifies separations from the hard obligations of family, children, and community. This willful individualism comes to underwrite divorce, secularism, and then with religion and family in decline—these two crucial pieces that form and hold communities together in free societies—we wonder why many men no longer value the work that marks and shapes their participation in these societies. We aren’t going to spend or policy-wonk our way out of this nexus of decline and anomie in certain segments of our population. It is not primarily our economic institutions but our culture that will rehabilitate the American worker.
To paraphrase one of the late Stan Evans’s many quips, Americans believe in strong religion, strong morality, and an honest day’s work for an honest dollar, or we once did. Qualities, in short, that we are now told are part of a climate of hatred and fear. But it is our job to bring a firm philosophical foundation to that hatred and fear. If we do, millions of Americans will experience not hatred and fear but the graceful lifting of loneliness and pain from lives led in separation and anonymity. We can do no less.
If comparative advantage is created rather than discovered, refusing to play the game has consequences.
No market exists in a social vacuum, and hardly any market exists in a political vacuum.
American policymakers and citizens should acknowledge that the benefits promised by economic nationalism are illusory.