The Constitutionalism of Crony Capitalism

As bad as the economics of the Carrier shakedown may be—and it is entirely unclear in which direction the shaking went down, except to note that a supply of rents tends to create a demand for them—the constitutional politics are far worse.

It was problematic enough when President-elect Trump proclaimed that “companies are not going to leave the United States anymore without consequences. Not gonna happen. It’s not gonna happen.” The worst constitutional omen was his Caesarian declaration of personal will. According to the Washington Post:

“I think it’s very presidential,” Trump said of his personal intervention with Carrier’s parent company, United Technologies, and his plans to continue with other targets. “And if it’s not presidential, that’s okay because [emphasis added] I actually like doing it.”

The potential for economic disruption—or, what is just as bad, for inhibiting it—is immense. For example, does this practice of presidential intervention apply to mere layoffs?  To what level of business does it descend? United Technologies is a massive, publicly held company and so is relatively well-positioned to resist intimidation. But will the President of the United States be on the phone with the owners of privately held companies with hundreds of employees? Dozens?

All these questions are important, as is the issue of the President’s expertise in making these choices. Capitalism is characterized above all by decentralized economic decisions. But the political question looms largest of all: On what authority is the President of the United States pressuring, which is to say intimidating, the leaders of private enterprise to determine where goods are made and sold?

Answer: sheer personal will. “I actually like doing it.”

Vice President-elect Pence confirmed this in saying this weekend that the President-elect will decide whether to intervene “on a day by day basis.” But constitutionalism, like capitalism, depends on decentralized decisions. There is all the difference in the world between, on the one hand a macroeconomic policy of protection that makes it more expensive to move jobs offshore—a policy decided upon through the mechanism of separation of powers—and, on the other hand, a President of the United States personally stepping in to impede the rational decisions of individual economic actors.

The former may be unwise, but it is still constitutionally sound. F.A. Hayek would recognize the latter as a threat to the rule of law itself. The rule of law, Hayek notes, requires “that government must never coerce an individual except in the enforcement of a known rule.” Carrier’s decision to move jobs offshore was entirely compatible with known rules.

Presidential intimidation (threats of “consequences”) of individual companies is the very definition of coercion applied to an individual. Section 301 of the Trade Act of 1974 appears to authorize the President to take measures against countries that inhibit American commerce. Trump is threatening, here, to slap self-destructive 35 percent tariffs on individual companies that facilitate commerce.

The only apparent way the President could target individual companies would be by rewriting the 1974 statute by way of deliberate misinterpretation: in other words, presidential unilateralism. Consequently, this may well be the first test of Congress’ capacity to stand up for its own statutes against the other political branch. But even if these tariffs are legal, Hayek also warns that “the requirement of mere legality in all government action” is not the same as the actuality of the rule of law.

In this as in other matters, Trump’s actions represent the culmination, not the repudiation, of those of his predecessor, who, among other strong-arm moves, used executive orders to muscle federal contractors into raising their minimum wages. This anti-constitutional authority concentrated in the person of the President illustrates exactly why the separation of powers, and the resurrection of Congress, are so essential. They are what prevent the rule of a Caesar who is more dangerous for the popular fuel on which he draws.

The Carrier precedent will discourage investment. Businesses will not know to what extent they will be permitted to make economic rather than political decisions about their capital. But this kind of uncertainty is just as costly constitutionally. It is exactly what the separation of powers is designed to prevent.

As George W. Carey noted, the Madisonian system assumes the importance of predictability and thus prevents any single political actor from concentrating enough authority in his or her own hands to disrupt it. This is what Madison meant in describing the combination of powers as “the very definition of tyranny.” Even if these powers are exercised benignly, the subject still never knows what is coming next because combination creates a situation in which the powers might be abused.

The question thus is not whether the President-elect is likely to abuse the power to push companies into operating in the places of his choosing. Arguably, such a power is inherently abusive; even if one assumes it is not, though, the question is whether he could. If, for example, the location of capital depends on the personal judgment of the President rather than the diffuse demands of markets, a CEO might be prudent not to move a factory from a red state to a blue state, or vice versa, lest the phone ring with the Oval Office on the other end. (In that instance, the CEO might also be smart not to open one in a red state to start with.)

In exploring such questions, Trump’s defenders today would do well to remember that someone else will be President in the not too distant future. This is always forgotten in the flush of victory. Even if one were to stipulate that Trump, as a businessman, has more acute judgment on the location of plants than the average chief magistrate, a successor surely will not. Even if one were confident that Trump is somehow untouched by traditional political considerations and thus will not abuse the power to intervene with executives, another President might—and will be likelier to do so if precedent has normalized the behavior.

Finally, if the claimed authority to pressure companies could be abused, so could others. A political regime in which the President can act not on a constitutional warrant but rather because he or she “actually like[s] doing it is one in which the rule of law has begun to corrode. The corrosion will start with seemingly salutary applications of power. It will not end with them.

Greg Weiner

Greg Weiner is a contributing editor of Law and Liberty.

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  1. Mark Pulliam says

    I am no fan of central planning, or industrial policy by executive edict. Interfering with the flow of capital can have seriously deleterious consequences. But the Carrier deal is the opposite of a barrier to exit (such as the WARN Act); it represents economic inducements for Carrier to keep the jobs in the U.S. Here’s the silver lining: companies make business decisions (where to locate plants, how many people to employ, compensation levels, etc.) based on tax policies, regulatory burdens (including burdensome environmental laws), legal climate, and similar factors under the control of government. If the type of dialogue Trump initiated with Carrier can lead to a transparent public discussion of tax reform, regulatory relief, and legal reform (as well as the impact of excessive labor costs in certain unionized industries), rather than the “black box” of lobbyist-influenced congressional lawmaking with plant closures as the only escape, the republic will be better off.

    So I urge my friend Greg to not despair so soon. We need to address the loss of jobs and industry in America one way or another. This might be a constructive first step.

    • djf says

      Exactly. And what is the effect on the distribution of political power of having an increasing percentage of the population idle/underemployed and government-dependent?

    • gabe says

      Mrk:

      Right-o!!!!

      Business are presumed to make rational decisions on plant location, employment, product, etc based upon various factors. Taxation and regulatory burdens are among those factors.

      When one looks at State level interventions of this sort, we find a wide variety of inducements designed to either keep or induce a company to locate within the State. As an example, in my state of Washington, numerous efforts have been made to keep the Boeing Company and it’s manufacturing operations within the State. Indeed, there are many who would argue that the inducements (reductions in B&O, L&I assessments/ taxes, etc) represent a far better deal for Boeing than the one Carrier obtained from The Trumpster.

      But the specifics are beside the point.

      What I suspect that Greg objects to (as do I to a lesser degree) is the fact that The Trumpster saw fit to unilaterally construct this inducement without recourse to the Legislative Branch. At the State level, and Mark may speak to this re: Texas, the Legislature is typically involved and passes suitable legislation.
      I think Greg is correct in highlighting the potential for abuse of power if further inducements are to be made unilaterally – it is indeed an exercise in Executive prerogative, which ought not to stand.

      HOWEVER, I read The Trumpsters “35%” tax not as an indication of a unilateral imposition but rather as a “bully pulpit” jeremiad against those companies which place their own particular interests above those of their employees and in some cases the national interest. There is nothing to be found in the “current” record to indicate that The Trumpster will not seek Legislative action to effect the same ends as Carrier.

      One may argue whether the Carrier, or similar deals, makes economic sense.

      I would ask that we also consider whether there is not a higher obligation that all of us, individuals and employers alike, are bound to respect. Simply put:
      1) Is there no higher end than maximum profit?
      2) Is there no responsibility to the rest of the polity, without which no successful corporate endeavor may be undertaken and sustained?
      3) Do we actually believe that “free market economics” is the ultimate end of human intercourse? Are we, in effect, nothing more than homo economicus?
      4) Is not manufacturing prowess and capacity essential to national defense? The loss of sufficient manufacturing capacity lessens our defense capabilities.
      5) Do we believe that we live in a world where all other nations / peoples observe these same “free market” precepts or that they are as enlightened as are we when it comes to the use of force in pursuit of perceived national interests? (Has not this belief that the rest of the world is as enlightened and virtuous as are we been one of the major pitfalls of American diplomacy and economic / trade practices for the last 75 years?).
      6) is there not some responsibility to provide for our own citizens EVEN if it means a lower profit?

      In short, if you do business in the polity, you, assume some obligations to further the health of that polity.
      Heck, even Hayek (and Friedman (?)) recognized this and advocated a guaranteed wage / payment. (No, I am not advocating that but it does speak to their own recognition of some measure of *obligation* to one’s own polity.

      • Paul Binotto says

        Mr. Gabe,

        You and the Author make some very good points, pro and con. I tend to be OK with the Carrier intervention, but, the concern for risk of abuse is well founded and worth raising here. I also tend to think, there was very likely some Trump/Congressional consultation and backing, (at least at the Leadership level) preceding the Carrier meeting. The leadership likely saw some political benefit in the staging of the meeting as purely/primarily a Trump initiative, and a political deposit was likely gleaned in exchange from letting Trump claim all/most of, the credit.

    • Greg Weiner says

      Thanks, Mark, for keeping me honest and sorry to be late to the conversation. You, Gabe and others make fair points. The only point I would urge on all is to consider a counter-factual: Six, seven years ago, Barack Obama threatens *individual companies*–not industries or countries, but individual companies–with 35 percent tariffs if they do not accept taxpayer-funded incentives to locate not where the market but rather where government dictates. What would the reaction from this side have been? I am actually not despairing over this one deal. The issue in this as in all cases is the potential for abuse, not the actuality of it in individual cases. And it is not difficult to imagine such a power, especially exercised capriciously–which is essentially what Mike Pence promised (“day to day”)–being abused: for political or personal reasons, etc. We don’t have to believe Trump would do this to believe a successor could. Is there a way to subject it to predictable and generally applicable rules? Seems to me not. And if not, it presents a rule of law problem, not to mention an economic one.

      • Paul Binotto says

        You are right, of course. And, to be sure, there are pit-falls to this sort of governmental intervention, even on the state and local level. Aside from the very serious threat to the rule of law, the taxpayer often turns out to be “stuck with the bill” for another type of interventionism, the subsidized public-private project, which too often doesn’t ultimately pan out as predicted. I can point to more than a handful of these so-called private-public partnerships that did just this, most notably, Pittsburgh International Airport in the wake of its largest tenant, U.S. Airways, withdrawing its hub. The better solution, is of course, for government to keep taxes low and regulations that only create enormous added costs to doing business, to a minimum.

  2. says

    This is an interesting analysis of the need for each branch of the federal government to do its job according to the preamble to the constitution for the USA and the articles that follow.

    However, Trump has little to do with the sad state of affairs. 1) George W. Bush created more czars than any president in history. See en.wikipedia.org/wiki/List_of_U.S._executive_branch_czars . In this regard, Obama said, “Me too,” and repeatedly blamed Bush. The system moves so slowly the people have not defense against czars.

    The Congress legislates to relegate their constitutional duty, in effect to czars, who have all authority—have no obligations to the people.

    The courts go along with the charade of law and order with no laws and no order. And justices opine about opinion with practical disregard for the constitution and the people. Justices focus on opinion about opinion.

    We the [civic] People of the United States (who trust and commit to the preamble) may reform from not being intolerant of opinion that does not comport with The Facts. We the civic people had better wake up and come out of the closet fast. (I think 2/3 of inhabitants are of a civic people but don’t have the words and phrases to appreciate their sovereignty. For example, they’re too inculcated in social morality to imagine civic morality, yet they practice civic morality rather than social morality.)

    Which brings me to Trump. So far, Donald Trump has shown that no one can depend on what he says, because he speaks with slight-hints of what he is pondering. When his intent becomes clear, he says, “Did you expect me to share my strategy before I executed it?”

    Perhaps with Carrier, he simply let them know that if they move to Mexico, they will be sorry for the economic opportunity they missed by not waiting for his administration. Meanwhile, he twists the powerful media with innuendo they love to drive hard to their bitter realization: “He enticed us to display our prescience again.”

    We live in a new era, and it reminds me of Obamacare-Pelosi: I can’t wait to read how it turns out. But I hope the result is better. My mood is expressed well in youtube.com/watch?v=oXvJ8UquYoo and has been since I discovered “bring me sunshine all the while” during the time my doctors and body beat lung cancer.

    I hope Trump will add to the joy. Conservative law professors and conservative lawyers may help establish a civic people of the United States.

  3. John B. Say says

    One the whole I agree with you.
    That said those of us who beleive that governments role in the economy is limited may by right – but we have lost the argument.

    A Pres. Clinton or Obama may violate the rule of law differently than a PResident Trump, but they do so far more ergregiously.

    Much of the role of modern government is rent seeking and economic carnage.

    In oh so many ways President Trump is so wrong on so many things – this among them.

    But I still am very hopeful that the country will prosper under him.
    Not because he will be a good president – but because he will be a less bad president.

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