Brian Deese, a senior fellow at the Mossavar-Rahmani Center for Business and Government at Harvard’s Kennedy School, served as a senior adviser to President Barack Obama.
Friday is President Trump’s inaugural “jobs day,” the first time that official employment figures will be released on his watch. While it is far too early to assess whether his economic policies work, we do know that his approach to job creation is unconventional. Trump seems to be implementing a form of coercive capitalism — in which the president publicly picks winners and losers and uses the power of the office to force corporate leaders to make specific business decisions.
Early in the Obama administration, our economic team faced intense pressure to go down the road of coercive capitalism. As part of the team that restructured General Motors and Chrysler, we heard voices from all quarters recommending that we demand specific outcomes — from creating jobs only in the United States to building only certain types of vehicles to maintaining a set number of dealerships — in exchange for government financing.
Ironically, while our actions were derided by many on the right as excessive government interference, we made an explicit decision to prioritize competitiveness over government-favored outcomes, and to leave business decisions to the companies themselves.
This was not because we were agnostic about the ultimate policy results. In fact, the only reason President Barack Obama was willing to make the unpopular decision to rescue the auto industry was because he believed thriving U.S. auto production would be an engine for long-term economic and job growth. Instead, our review of history led us to the view that when the government substitutes its judgments for individual business decisions, such as where to locate a plant or how many employees it should have in certain geographies, the end result is less competitive companies that will ultimately produce fewer jobs and less prosperity.
Now, about eight years later, we can assess the effectiveness of this approach. Friday’s jobs report will put a capstone on the fact that manufacturing job growth since Obama backed GM and Chrysler has been the strongest in three decades. Manufacturing output since 2009 has recovered at twice the rate of the overall economy. The auto industry has added nearly 700,000 jobs in manufacturing and retail, the sector’s strongest growth on record. And U.S. companies are more competitive vis-a-vis their foreign counterparts, increasing their share of overall car sales in the United States for the first time in decades.
Indeed, the only reason Trump is able to talk with the Big Three automakers about where to locate their production is because Obama provided the industry with the support and flexibility to make the smartest business decisions that they needed to survive.
Unlearning the lessons from this period, and having government dictate to companies the terms of business decisions, carries several significant risks.
First, companies are adept at creating good optics around a government-favored outcome without actually changing their behavior. A close examination of the press releases on the business actions that Trump has highlighted thus far shows that they were either planned long before the election or were dramatically smaller in scope than headlines suggested.
Second, any impact is decidedly small ball. The 800 jobs that were saved at the Carrier factory that Trump visited, while themselves disputed, represent 0.1 percent of manufacturing jobs created since early 2010 . Trump would need the equivalent of five Carrier deals every week for the next four years to match Obama’s record.
Third, to the degree companies do distort their decision-making and sacrifice competitiveness out of fear of government sanction, it could well result in fewer jobs and less economic activity in the United States. That is why — to the degree any of the recent vaunted press releases reflect significant changes in business decisions made under duress — they should strike fear into the workers and communities across the country who rely on those companies for their livelihood.
This is not to say that a president should be shy about making the case for why companies should create jobs and make investments in the United States. Presidents must be willing to fight for American jobs and should set a central goal of federal policy of creating an environment that rewards companies for investing here and discourages them from moving abroad. Steps such as creating a network of manufacturing institutes and encouraging international businesses to select the United States for inbound investment should be continued and enhanced going forward.
But crossing the line between an aggressive and unapologetic pro-America policy agenda and coercive capitalism will hurt our companies, hurt our workers and hurt the economy. If President Trump continues to cross that line, we will see the results of this misguided economic policy on jobs days for months and years to come.
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