Far from freeing the private sector from government shackles, the new Trump administration appears intent on meddling, at will, with business decisions that once were reserved for corporate executives and their boards.
Trump revealed both faces of his paternalism in a matter of days.
To fulfill a campaign promise, he showered tax breaks and other incentives on multi-billion dollar defense conglomerate United Technologies to save 1,000 factory jobs at UT’s Carrier subsidiary in Indiana.
Forget the fact that Carrier is still moving 1,000 other jobs to Mexico.
Then, he turned around today (Dec. 1) and warned companies he would punish them if they try to move their operations overseas.
“Companies are not going to leave the United States any more without consequences,” Trump declared. “Not gonna happen. It’s not gonna happen.”
Trump said as much about Carrier during the election. He threatened to impose a “damn tax” on the company, if it moved its furnace manufacturing jobs to Mexico.
In the end, however, he handed them lucrative tax breaks that will cost the U.S. Treasury, and ultimately taxpayers, millions of dollars. No details about the deal have been released.
Needless to say, free-market conservatives and Republicans in Congress are aghast, as well as Democrats, who called the deal blatant corporate welfare.
In a speech today at the Carrier plant, Trump said he intends to lower corporate taxes and reduce regulations to encourage companies to keep jobs in the United States. Those that head offshore will be penalized with tariffs on goods they try to import.
Trump’s statements put his own party and senior congressional leaders like House Speaker Paul Ryan (R-Wisc.) on the spot.
Ryan had sharply criticized President Obama for rescuing U.S. car manufacturers. A government-backed loan package during the 2008 financial crisis saved about 1.5 million jobs. All of the money has since been paid back.
To make matters worse, Trump’s actions smack of the same type of government paternalism practiced by Russian President Vladimir Putin. The dictator is propped up by a circle of powerful oligarchs, who benefit from favorable government policies.
The message Trump is sending is that corporations should focus on lobbying the incoming administration for political favors and incentives to gain a market advantage rather than engaging in free-market competition, according to some economists.
“It favors people with connections rather than favoring the country as whole,” Luigi Zingales, an economist at the University of Chicago told The Washington Post. “Rather than the idea of draining the swamp, this is like flooding the swamp.”
Instead of making decisions that are in the best interest of the company and its shareholders, corporate executives will be forced to weigh those decisions against drawing the president-elect’s wrath.
In addition, corporations that do favors for the administration, like Carrier, have a right to expect favors in return down the road.
United Technologies is a case in point. The conglomerate earned a $7.6 billion profit last year thanks largely to more than $6 billion in defense department contracts, according to published reports.
In that sense, the Carrier deal is a drop in the bucket. But Trump clearly owes them.
In the wake of his political success in Indiana, Trump made clear he intends to keep his finger in private sector, despite criticism that his actions are not “presidential.”
“I think it’s very presidential. And if it’s not presidential, that’s okay because I actually like doing it,” Trump said.
“But we’re going to have a lot of phone calls made to companies when they say they’re leaving this country, because they’re not going to leave this country.”
Oddly, United Technologies had all but decided to move the jobs to Mexico and had already started construction on a 645,000-square-foot factory, where it intended to pay workers $5 an hour, compared with $25 an hour for its U.S. workers.
The company had even rejected a state and local tax incentive package. But suddenly the numbers started adding up when Trump got involved.
UT Chief Executive Greg Hayes said Trump gave him “a renewed confidence” in U.S. manufacturing. Trump obviously made him an offer too good to refuse.