On this business of Carrier’s factories in Indiana, and the dreadful signal it sends to defense contractors
When President-elect Trump and Senator Sanders team up on both economic and military policy, I have reason to be wary. Last weekend, Roberta Rampton reported for Reuters how The Bern asked The Donald to “use defense contracts as leverage for Carrier jobs.” The manufacturer of air conditioners is but one division of United Technologies, which also sells billions of dollars in aircraft parts through UTC Aerospace Systems, and billions in jet engines through Pratt & Whitney. Much of these go to air lines, and much go to air forces—particularly the air arms of all the US armed forces. We might hope Sander’s demand was just collectivist braggadocio, but Matthew Nussbaum’s article for Politico explained quite clearly what was new:
…John Mutz, a former Indiana lieutenant governor who sits on the agency’s 12-member board, told POLITICO that Carrier turned down a previous offer from IEDC [the Indiana Economic Development Corporation] before the election. He said he thinks the choice is driven by concerns from Carrier’s parent company, United Technologies, that it could lose a portion of its roughly $6.7 billion in federal contracts.
At the intersection of socialism and capitalism lies crony capitalism, and as my former teacher Luigi Zingales has warned, that’s why capitalism periodically requires rescuing from the capitalists. All this arm-twisting can quickly lead to economic regimes that are not so much pro-market, but pro-business, or at least pro-businesses that play ball with the politically powerful. Take note how Sanders wrote today under his own name in the Washington Post that all this wasn’t good enough, because Carrier would be moving about 1100 of its 2100 positions to Mexico after all. In short, there’s no satisfying these people.
Take further note, then, that one of the more notable rebukes from industry of the president-elect's haranguing during the election campaign came from Ray Connor, the retiring president of Boeing Commercial Airplanes. That’s a company that has some experience with working the governments of both Washington State and the United States in its efforts to keep Airbus at bay. Like UTC, both Airbus and Boeing sell to both commercial and military customers, and participation in each market is very useful for maintaining a competitive edge in the other. The entire business of international trade in airliners has been an decades long-effort in mutual assured destruction. If Boeing is spooked, you know something has gone too far.
So trade—just the power, the devastation is very important… wait, that’s not the quote. And that’s because trade is not a zero-sum game. Tariffs are economically inefficient. Indeed, they're self-impoverishing. Demonstrating so is a trivial exercise in microeconomics. But at least don’t make this about national defense. Home air conditioning units have only the slightest role there. The danger lies in the message that this microcosmic dirigisme sends to industry: if you want to streamline operations, dump your defense divisions first. Forget about integration of advanced technologies from civil sectors into military products. You’ll have to spend way too much time explaining to the new Jobs Czar where you’ll be making the cell phones and whatever else. And that will be a tragedy for national security.