Making Manufacturing Great Again
With Carrier’s announcement that they made a deal with President-elect Trump to save 1,000 jobs in Indiana, we have our first glimpse of Trump’s industrial agenda in action.
Unlike Marco Rubio’s “new American economy,” Donald Trump ran on a campaign to revitalize manufacturing the way Americans have always known it - the gritty, blue-collar work for those looking to live comfortably. It has all the appeal of that “Make America Great Again” nostalgia that enthused his campaign. To be sure, minerals, energy, and manufacturing jobs are unlike service sector jobs in that they have a ripple effect across the economy. Economic policies geared toward saving and creating those jobs have tremendous appeal. If a manufacturing renaissance is even possible, free market principles hold the key.
As a candidate, Trump railed against the idea of using tax incentives to save and repatriate jobs. He claimed, “that isn’t what the businesses want.” Instead, he insisted the only way to keep jobs in America is to “slap a big, beautiful tariff” on products they make overseas. In this case, candidate Trump was wrong. Tax abatement was exactly what Carrier wanted. The promise of a tax holiday on overseas profits holds real promise for Carrier’s parent company, United Technologies. Reports indicate UT is also keen to placate Trump in order to secure contracts with its largest customer, the Department of Defense.
The deal of up to $7 million was partially facilitated through Indiana’s economic development corporation. These slush funds offend free market principles. They amount to venture capital firms run by government officials and are inherently vulnerable to bribes and extortion. Almost every state has them, though, and some run them better than others. The ones that work as intended are equally accessible, transparent, and overseen by state legislators forced to balance the budget. The Department of Commerce has about 50 such programs. If the Carrier deal is any indication, expect more crony capitalism in the pursuit of rescuing manufacturing jobs from the jaws of inevitability.
There is a better way. Federalism provides the perfect platform for revitalizing the economy through competition among states and localities. The federal government could play a pivotal role by lowering, or eliminating, the corporate income tax and moving from a unique global tax structure to a normal, more competitive territorial system.
To make America the best place to invest and create good-paying jobs, we should look to what conservatives call “the Texas miracle.” While the rest of the country was shedding jobs, especially in manufacturing, Texas was adding them. Governor Rick Perry traveled around the country, and around the world, touting Texas’ low taxes, limited regulatory environment, and loser-pays legal system. He would unapologetically compete for jobs and get entire companies to relocate in Texas.
Donald Trump’s pledge to call up CEOs and tell them “you’re not moving!” would be best complemented with a similar strategy to lower taxes and reduce regulations to measures supporting transparency and fair treatment. Commerce should be taken out of the practice of subsidizing private companies and Congress shouldn’t pick winners and losers through the tax code. If the states wish to continue with their economic development slush funds, that is their prerogative.
Unleashing the states and localities to innovate and compete is exactly how the system is supposed to work. The Constitution contains only one mention of commerce, the interstate commerce clause, which was solely intended to keep states from imposing tariffs against one another. Beyond that, the 10th Amendment declares that all powers not granted to the states, or prohibited to them, are the domain of the states and the people respectively. The Supreme Court has ignored all of this, but competition holds the key to sustained economic growth.
Automation and globalization are real but it’s nothing the country can’t handle. Our universities attract the best minds from around the world. We have the most high-value consumers. And we have an idle workforce that is desperate for careers to guide their lives. We have vast natural resources that could make us the world’s leading energy exporter and could reduce the cost of manufacturing by 10% or more. That is especially important because most manufacturing jobs will come from the energy-intensive “high technology” sector. America can lead the world in high tech manufacturing. Carrier made the right call, and if the new administration takes the right approach, others will follow.
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