The Constitutionalism of Crony Capitalism

As bad as the economics of the Carrier shakedown may be—and it is entirely unclear in which direction the shaking went down, except to note that a supply of rents tends to create a demand for them—the constitutional politics are far worse.

It was problematic enough when President-elect Trump proclaimed that “companies are not going to leave the United States anymore without consequences. Not gonna happen. It’s not gonna happen.” The worst constitutional omen was his Caesarian declaration of personal will. According to the Washington Post:

“I think it’s very presidential,” Trump said of his personal intervention with Carrier’s parent company, United Technologies, and his plans to continue with other targets. “And if it’s not presidential, that’s okay because [emphasis added] I actually like doing it.”

The potential for economic disruption—or, what is just as bad, for inhibiting it—is immense. For example, does this practice of presidential intervention apply to mere layoffs?  To what level of business does it descend? United Technologies is a massive, publicly held company and so is relatively well-positioned to resist intimidation. But will the President of the United States be on the phone with the owners of privately held companies with hundreds of employees? Dozens?

All these questions are important, as is the issue of the President’s expertise in making these choices. Capitalism is characterized above all by decentralized economic decisions. But the political question looms largest of all: On what authority is the President of the United States pressuring, which is to say intimidating, the leaders of private enterprise to determine where goods are made and sold?

Answer: sheer personal will. “I actually like doing it.”

Vice President-elect Pence confirmed this in saying this weekend that the President-elect will decide whether to intervene “on a day by day basis.” But constitutionalism, like capitalism, depends on decentralized decisions. There is all the difference in the world between, on the one hand a macroeconomic policy of protection that makes it more expensive to move jobs offshore—a policy decided upon through the mechanism of separation of powers—and, on the other hand, a President of the United States personally stepping in to impede the rational decisions of individual economic actors.

The former may be unwise, but it is still constitutionally sound. F.A. Hayek would recognize the latter as a threat to the rule of law itself. The rule of law, Hayek notes, requires “that government must never coerce an individual except in the enforcement of a known rule.” Carrier’s decision to move jobs offshore was entirely compatible with known rules.

Presidential intimidation (threats of “consequences”) of individual companies is the very definition of coercion applied to an individual. Section 301 of the Trade Act of 1974 appears to authorize the President to take measures against countries that inhibit American commerce. Trump is threatening, here, to slap self-destructive 35 percent tariffs on individual companies that facilitate commerce.

The only apparent way the President could target individual companies would be by rewriting the 1974 statute by way of deliberate misinterpretation: in other words, presidential unilateralism. Consequently, this may well be the first test of Congress’ capacity to stand up for its own statutes against the other political branch. But even if these tariffs are legal, Hayek also warns that “the requirement of mere legality in all government action” is not the same as the actuality of the rule of law.

In this as in other matters, Trump’s actions represent the culmination, not the repudiation, of those of his predecessor, who, among other strong-arm moves, used executive orders to muscle federal contractors into raising their minimum wages. This anti-constitutional authority concentrated in the person of the President illustrates exactly why the separation of powers, and the resurrection of Congress, are so essential. They are what prevent the rule of a Caesar who is more dangerous for the popular fuel on which he draws.

The Carrier precedent will discourage investment. Businesses will not know to what extent they will be permitted to make economic rather than political decisions about their capital. But this kind of uncertainty is just as costly constitutionally. It is exactly what the separation of powers is designed to prevent.

As George W. Carey noted, the Madisonian system assumes the importance of predictability and thus prevents any single political actor from concentrating enough authority in his or her own hands to disrupt it. This is what Madison meant in describing the combination of powers as “the very definition of tyranny.” Even if these powers are exercised benignly, the subject still never knows what is coming next because combination creates a situation in which the powers might be abused.

The question thus is not whether the President-elect is likely to abuse the power to push companies into operating in the places of his choosing. Arguably, such a power is inherently abusive; even if one assumes it is not, though, the question is whether he could. If, for example, the location of capital depends on the personal judgment of the President rather than the diffuse demands of markets, a CEO might be prudent not to move a factory from a red state to a blue state, or vice versa, lest the phone ring with the Oval Office on the other end. (In that instance, the CEO might also be smart not to open one in a red state to start with.)

In exploring such questions, Trump’s defenders today would do well to remember that someone else will be President in the not too distant future. This is always forgotten in the flush of victory. Even if one were to stipulate that Trump, as a businessman, has more acute judgment on the location of plants than the average chief magistrate, a successor surely will not. Even if one were confident that Trump is somehow untouched by traditional political considerations and thus will not abuse the power to intervene with executives, another President might—and will be likelier to do so if precedent has normalized the behavior.

Finally, if the claimed authority to pressure companies could be abused, so could others. A political regime in which the President can act not on a constitutional warrant but rather because he or she “actually like[s] doing it is one in which the rule of law has begun to corrode. The corrosion will start with seemingly salutary applications of power. It will not end with them.