There is nothing new in how economies work. Unless you are a subsistence farmer, trading goods and services are driving forces in economics. As far back as 8000 BC, there were already established trade routes in Asia, Africa and Europe. Trade was responsible for the emergence of cities and eventually nation-states. Commodities and finished goods were moved from producer to consumer. Merchants and artisans began to gather in trading centers to sell and make products. The very idea of what constituted national and individual “wealth” was invented.
By the time of the Roman Empire, agricultural goods, mining and slavery were the underlying basis of the economy. As the Empire grew so, too, did trade with China, India and Africa for luxury goods such as silks, spices and wild animals. Rome developed one of the most complex coinage systems in the ancient world. The movement of goods, labor and capital were further encouraged, increasing the wealth of the Empire and the entire ancient world.
The free movement of capital, goods and labor between nations has always been the foundation of wealth for nations and their citizens. When a nation seeks to protect its economy based on limiting the flow of capital, goods or labor, that policy produces slower growth. As nations begin to limit that growth through protectionist policies, the national economy inevitably suffers.
Companies and industries ultimately need to adapt to change and the forces, as Schumpeter stated, of “creative destruction” in order to promote economic growth. When government inhibits these mechanisms from occurring through corporatist policies, economic vitality declines. The Luddites of early 19th century Britain could not smash enough machinery to stop the expensive inefficiency of making wool by hand looms. Factories using the new technology began to produce finished goods for the masses. That was the beginning of our industrial age. The new U.S. administration wants to keep the factory as created at the dawn of the 19th century humming away. Our industrial base is not enshrined in the technological and demographic world of 1820, 1930 or 1980.
The United States prided itself on its dynamic economy. We were able to adapt to technological change swiftly creating new jobs and new industries, which increased national wealth. Much of this was because government allowed labor and capital (management) to set the terms of manufacturing the product. It is foolish to believe that by regulation, corporate incentives or threats and tariffs you can keep antiquated industries operating.
What happened in Argentina is a prime example of how government interfering in markets produces disastrous results. At the beginning of the 20th century Argentina had the 8th largest economy in the world. France and Italy were half Argentina’s per capita income and Argentina was 180% higher than Japan’s. Argentina is now ranked 65th in the world far behind France (28th), Japan (30th) and Italy (37th). This squandering of the economy began with an over reliance on its agricultural sector in the early 20th century. The Great Depression of the 1930s resulted in the statist government’s implementation of high tariffs on imported goods. With the ascension of Juan Peron and Peronism that favored large state-owned enterprises over private businesses, the economy was set for continued subpar growth. These protectionist populist policies for almost a century have produced an economic basket case.
You cannot stop technological change from affecting an economy. By definition these changes will make workers’ skills and industries obsolete and unable to compete with other more adaptive economies in the world. Adaptation and flexibility are needed to survive more so today than at any other time in economic history. You cannot protect the un-protectable. Though it appears that the Trump administration is going to give this losing strategy another try.
Attempts to stop innovation and competition have been unsuccessful since the dawn of commerce. Policies promoting protectionist views will continue to be unsuccessful. The government subsidization of particular businesses and economic sectors promotes inefficiency and has a self-defeating result. Government funds are better spent to protect individual citizens, not companies, from economic dislocation. The worst thing we can do for those workers in dying industries is promise to keep jobs that are no longer economically viable or relevant.
Statistics would tell us we are at full employment, but there are pockets of hardship such as coal country. The answer is not to promise the return of coal mining. It isn’t viable long term. The United States is the land of the future not the past. It is a land where we should welcome people who want to work and start businesses. It is not a place of exclusion but inclusion. Government should not have a corporatist economic policy. Let the market decide what should and should not be produced. Let the flow of capital, labor and goods continue as unabated as possible. The United States, as a whole, will be the beneficiary.