Is Trump's Deal With Carrier A Form Of Crony Capitalism?

Dec 2, 2016
Originally published on December 2, 2016 10:01 am

On Donald Trump's visit to Carrier in Indiana on Thursday, he mentioned a phone call that he made to the CEO of United Technologies, the air conditioning company's parent. As Trump describes it, that call led to Carrier announcing it will not move as many jobs to Mexico as it had planned.

"We can't allow this to happen anymore with our country. So many jobs are leaving and going to other countries, not just Mexico," Trump said.

Trump made it sound as though the decision to keep 1,000 Carrier jobs in the U.S. was done over a handshake. The decision appears to have involved a grab bag of concessions from Indiana, including a multiyear, $7 million incentive package.

It's not certain, but there may have been some strong-arm tactics involved, too. United Technologies is a defense contractor that gets a lot of money from the government. Earlier this week, Sen. Bernie Sanders suggested that Trump should use that as leverage in negotiations to keep Carrier in Indiana.

Trump himself implied that such tactics will be part of his strategy to convince U.S. companies to remain in America.

"No. 1, we're going to treat them well, and No. 2, there will be consequences," he said.

Donald Evans, commerce secretary during George W. Bush's first term, says the deal definitely signals a change in approach between the White House and American businesses. But, he warns, dealing directly with each business as Trump did with Carrier is not likely to be a staple.

"You can't get involved in every business all across America. You have to create the environment for those businesses to do so well, and that's exactly what President-elect Trump has in mind," he tells NPR's Steve Inskeep.

But Tyler Cowen, professor of economics at George Mason University who identifies as a libertarian, worries that under a Trump administration, a kind of "crony capitalism" — where companies that are good to a presidency are rewarded — will prevail.

"This to me is scary," Cowen tells Inskeep. "It indicates an environment where business decisions are now about how much you please the president."


Interview Highlights

On what kind of message the Carrier deal sends

Evans: You cannot do it all the time. You've got too many things on your plate. There will be isolated situations from time to time. This happens to be one of them that was brought up during the course of the campaign. [Trump] wanted everybody to know that ... as president, he's going to fight for jobs in America. Now, exactly how this all came down and what added incentives were thrown in there or not thrown in there, I have no idea. But I don't think it's a bad thing for the president to send a strong message to the workers of America that he's going to create the environment for them to do well right here and send that same message to the corporations of America.

Cowen: We're supposed to live under a republic of the rule of law, not the rule of men. This deal is completely nontransparent, and the notion that every major American company has to negotiate person-to-person with the president over Twitter is going to make all business decisions politicized.

We don't know exactly what the company is getting. There's plenty of talk that the reason Carrier went along with the deal was because they were afraid their parent company would lose a lot of defense contracts, so this now creates the specter of a president always being willing to punish or reward companies depending on whether or not they give him a good press release.

On whether there's a right or wrong way to interact with American corporations

Evans: Certainly over the long haul you can't get into the mode of picking winners and losers. The great hallmark of this country is we love to compete. And so what I think government's role needs to be, should be, will be under this president-elect, I'm confident, is create a playing field for our companies in America to compete not only here at home but around the world and provide that environment so that companies here in America are willing to stay here, employ more people and build their companies here in America instead of some other country in the world.

On United Technologies, Carrier's parent company

Cowen: They do a lot of defense contracting; it's at least 10 percent of their revenue. Carrier from the state of Indiana was already offered the tax break before the election. They turned it down. Now all of a sudden Trump is president, Bernie Sanders is telling Trump to threaten the defense contracts of the parent company. And now all of a sudden the company takes the deal, and Trump is known for being somewhat vindictive.

On crony capitalism

Cowen: Trump and Bernie Sanders, for all of their populist talk, their actual recipes in both case lead to crony capitalism ... a system where businesses who are in bed with the government and who give the president positive press releases are rewarded and where companies who oppose or speak out against the president are in some way punished.

Copyright 2016 NPR. To see more, visit http://www.npr.org/.

STEVE INSKEEP, HOST:

Let's hear two of the many interpretations of a move to save some jobs in Indiana. President-elect Trump yesterday celebrated a deal that will keep close to 1,000 jobs at Carrier in Indianapolis, though other Carrier jobs will still go to Mexico. Trump fans cheered this move. Mr. Trump himself says he forgot his campaign promise to save Carrier but was reminded after the election by a TV report.

Bernie Sanders, the former presidential candidate, doesn't like this, noting that the government paid incentives to Carrier, which other corporations may now demand. The debate is especially stark on the right. And we're going to hear two views from the right on this move. First, Don Evans, commerce secretary under President George W. Bush, who likes the symbolism.

DONALD EVANS: I think what the president-elect is clearly doing is talking about how he's going to focus on jobs in America. It's clear that he's going to take the government's attitude toward the private sector in a different direction than it has been going for the last eight years, I would say. As to getting involved, I mean, you can't get involved in every business all across America. You have to create the environment for those businesses to do so well, and that's exactly what President-elect Trump has in mind.

INSKEEP: I think I'm hearing you say that this is a perfectly nice thing to do symbolically but not a good idea to do all the time.

EVANS: Well, I'm just saying you cannot do it all the time. You've got too many things on your plate, you know? There will be isolated situations from time to time. This happens to be one of them that was brought up during the course of the campaign. He wanted everybody to know that, as president, he's going to fight for jobs in America.

Now, exactly how this all came down and what added incentives were thrown in there or not thrown in there, I have no idea. But I don't think it's a bad thing for the president to send the strong message to the workers of America that he's going to create the environment for them to do well right here and - and send that same message to the corporations of America.

INSKEEP: Is there a right way and a wrong way for a president to intervene economically with different companies?

EVANS: Well, look, you can't - certainly, over the long haul, you can't get into the mode of picking winners and losers. I mean, the great hallmark of this country is we love to compete. And so what I think government's role needs to be, should be, will be under this president-elect, I'm confident, is create a playing field for our companies in America to compete not only here at home but around the world and provide that environment so companies here in America are willing to stay here, employ more people and build their companies here in America instead of some other country in the world.

INSKEEP: Sounds like you very much favor the direction that tax policy seems to be going here. Republicans in Congress and the new president want tax rates - corporate tax rates, especially - to be lower. What do you think of the new president's approach to free trade?

EVANS: Fair trade - I think he wants fair trade. That's what I would want. I think the world is continuing to become more integrated all the time. Ninety-five percent of the people live outside the borders of the United States. We've got to trade with the rest of the world. We're going to trade with the rest of the world, but it's got to be fair trade.

INSKEEP: If President-elect Trump goes after one of his signature campaign promises - to revoke NAFTA or renegotiate it - it sounds like maybe you would hope for the renegotiate side - tweaking it but keeping it.

EVANS: Yeah, no, I'm absolutely for keeping it, no question about it. Are there some provisions in it that need to be reviewed and looked at? I'm sure there are. But the idea that you're going to shut off trade with countries around the world and turn it into some kind of trade war makes no sense.

INSKEEP: Don Evans, it's a pleasure talking with you. Thanks very much.

EVANS: Thank you. Great - yeah, enjoyed it very much.

INSKEEP: Don Evans was commerce secretary during the first term of President George W. Bush. A different view of President-elect Trump's move with Carrier comes from Tyler Cowen, who is a professor of economics at George Mason University and identifies as libertarian.

Don Evans says this is a way for the president-elect to send a strong message to workers and to corporations about what his priorities are. What's wrong with that?

TYLER COWEN: We're supposed to live under a republic of the rule of law. Not the rule of man. This deal is completely non-transparent. And the notion that every major American company has to negotiate person-to-person with the president over Twitter is going to make all business decisions politicized.

INSKEEP: What do you mean it's nontransparent, first of all?

COWEN: We don't know exactly what the company is getting. There's plenty of talk that the reason Carrier went along with the deal was because they were afraid their parent company would lose a lot of defense contracts. So this now creates the specter of a president always being willing to punish or reward companies depending on whether or not they give him a good press release.

INSKEEP: Why don't you explain to me the thing about the parent company, which is United Technologies?

COWEN: Yes, they do a lot of defense contracting. It's at least 10 percent of their revenue. Carrier, from the state of Indiana, was already offered the tax break before the election. They turned it down. Now, all of a sudden, Trump is President. Bernie Sanders is telling Trump to threaten the defense contract of the parent company, and now, all of a sudden, the company takes the deal. And Trump is known for being somewhat vindictive. This, to me, is scary. It indicates an environment where business decisions are now about how much you please the president.

INSKEEP: Now, you just said an interesting thing. Bernie Sanders, a socialist of the Democratic Party, did, a few days before the deal was announced, say that Trump ought to use the leverage of the defense contracts to get United Technologies to change its behavior. We don't know on a factual basis that's actually what happened, but - but you're noting that this is kind of a leftist thing to do.

COWEN: That's correct. Trump and Bernie Sanders, for all of their populist talk, their are actual recipes in both cases lead to crony capitalism.

INSKEEP: What's crony capitalism?

COWEN: Crony capitalism is a system where businesses who are in bed with the government and who give the president positive press releases are rewarded and where companies who oppose or speak out against the president are, in some way, punished.

INSKEEP: David Wessel of the Brookings Institution said on our air the other day that this act reminded him of something that is done from time to time in France - under the socialist government in France. And I'm also thinking of Venezuela, where the late President Hugo Chavez would go on TV and denounce companies and demand that companies do specific things. And of course, the economy there has ended up being a complete mess. Is that - is that a fair comparison at all?

COWEN: Well, we're not close to that point yet, but we're taking baby steps in that direction. And the way you avoid getting to that point is by having people speak out when they see the baby steps.

INSKEEP: If the president-elect gets results, at least some of the jobs - at least for now - are staying in Indiana. Does it really matter how he does it?

COWEN: Well, keep in mind the broader numbers. Since the year 2000, Indiana has lost 150,000 manufacturing jobs. And this, at best, assuming all goes well, saves a thousand of those. So to actually make a dent in the problem, jawboning isn't the way to do it. It's changing economic incentives and making it more cost-effective to hire people in the United States. And none of this really does that.

INSKEEP: Tyler Cowen, thanks very much.

COWEN: Thank you.

INSKEEP: He's with George Mason University, and he's one of the views we're hearing about a deal to save some jobs at Carrier. Transcript provided by NPR, Copyright NPR.