Those of us born in the late 1970s and early 1980s experienced until our early adulthood a 20-year trend where almost everything got unmistakably better. Throughout the ’80s and ’90s, inflation and unemployment were vanquished, America’s air and water became cleaner, cities became safer, racism attenuated, the internet was born and became widespread, travel became cheaper and safer and opportunities for women increased.
Abroad, the Cold War ended, the Iron Curtain fell, global poverty plummeted, South African apartheid was overcome (and peacefully, no less), China and India brought their two billion-plus citizens at least into the periphery of the community of capitalism, smallpox was eradicated and peace came to Northern Ireland. While the era was not without its difficulties, the unmistakable overall trend was one of continuous improvement and seemingly unstoppable human progress.
Fast-forward one generation, and people worldwide are ensconced in an unmistakable malaise. A new generation now enters adulthood raised in times of perceived economic stagnation, social regression and finite opportunity. Simultaneously, and feeding off this perception, questions of identity, citizenship and national sovereignty have come to the forefront of political debates not just in the West but worldwide. Uncertainty around a panoply of seemingly settled questions drives risk aversion and a retreat to the known and comfortable.
Chief among these questions is the area of economic policy, where a growing chorus of conservatives and an increasingly assertive faction of progressives seek to breathe new life into corporate capitalism as a sort of social democratic order for the Anglosphere.
Into this fray steps Samuel Gregg with an impressive and accessible new book, “The Next American Economy: Nation, State and Markets in an Uncertain World,” out next week from Encounter Books. Gregg argues that timidity in the face of uncertainty is not only ill-advised for its practical consequences, but it runs counter to a deep and unique American exceptionalism that comes not from martial power but from liberal political economy and economic engagement with the world.
State Capitalism and Alternatives
“The Next American Economy” is divided into two broad sections. The first is devoted to stating and critiquing the case for what Gregg calls “state capitalism,” which he describes as “an economy in which the government, often with the aid of experts and technocrats and sometimes in partnership with different interest groups, engages in extensive interventions into the economy from top down.” The goal is not socialist-style central planning, but rather “to shape and even direct many activities within the economy through state action to realize very specific economic and political objectives.” To that description one could add social outcomes, especially relating to the status and precedence of various identity groups.
Aiming at an interested public and not specialists, the book walks readers through America’s history of protectionism, tariffs and industrial policy with simple (but not simplistic) explanations of economic phenomena and illustrative historical examples and stories. Gregg bolsters his case against protectionism and mercantilism not with formal models or economic diagrams, but with vivid quotations from economists ranging from Adam Smith (“Nothing . . . can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all other regulations of commerce are founded”) to Joan Robinson (who noted the logic of trade wars would lead countries to “drop rocks into our harbors because other nations have rocky coasts”).
The chapter on industrial policy and its failures is particularly strong and could stand on its own as a review of the literature around this au courant fad that has gained purchase on the left and right. Gregg reviews Japan’s history with industrial policy; oft-touted as a success, this simply was not the case, which Tokyo even acknowledged in 2002, simply stating that “The Japanese model [of industrial policy] was not the source of Japanese competitiveness but of our failure.” He then goes on to critique the recent Chinese experience with industrial policy—which, improbably, is treated with an almost mythical reverence by people like Senator Marco Rubio who should know better—before concluding with a review of various American attempts to undertake economic planning and the difficulties inherent in implementing technocratic policies through democratic political means.
The second section of the book is devoted to articulating a positive alternative to state capitalism and situating this alternative within the distinctly American tradition of “what some of its most influential Founders thought should be America’s political destiny; that is, a modern commercial republic.”
While unabashedly free market in its descriptions and prescriptions, Gregg’s analysis isn’t universalist; rather, it embraces American exceptionalism, and in particular an American spirit that is creative, entrepreneurial, hardworking and ambitious, different not just in degree but in kind from those attributes as exhibited in the Old World. Gregg articulates a future for America that is deeply rooted in American history and tradition.
Notably, Gregg describes markets more robustly than do many market defenders, who all too often posit a view of markets as merely transactional loci of competition and price determination. Instead, Gregg defines a market economy as “economic arrangements characterized by entrepreneurship, free exchange, competition at home, free trade abroad, strong property rights, robust rule of law, and a constitutional order that defines and limits the government’s economic responsibilities.” In addition to these formal institutions, one might add mechanisms for sorting truth from falsity, procedures of adjudicating competing claims outside formal judicial systems and the means for developing and enhancing trust between parties. The market economy is not merely a means for exchange; it is also essential for a free and moral society.
Through this lens, he gives readers a bold and positive vision of what recommitting to distinctively American liberal values, not universalist free market ideas, could be. This vision isn’t only or even primarily about policy; it’s about society and culture, and in particular prizing America’s long-standing cultural affinity for entrepreneurial success far more than most other societies. This involves, among other things, seeing competition as a process rather than a state of affairs, viewing trade as a source of strength that achieves more than merely economic ends and embracing wholesale the creativity of Americans that politicians have long been quick to praise on the hustings but are frequently shy to embrace in practice.
A Commercial Republic
Gregg is a realist on trade, acknowledging that in a world of nation-states, national interests may conflict with economic interests (albeit far less frequently than protectionist rhetoric would imply). He further admits that trade was oversold as a force for liberalization in previous decades. “American policymakers and free marketers oversold the case for free trade from the 1980s onwards,” he writes. “By that, I do not mean that their arguments for free trade were wrong. But there was a tendency to overestimate free trade’s capacity to help shift many countries towards greater liberty, the rule of law, constitutionalism, and other Western ideals.”
Critics of trade often go too far in the opposite direction, of course; that China is a bad actor globally does not obviate the principle of comparative advantage generally. The underlying logic of free trade remains sound, and Gregg defends it well without overstating the case. Gregg further cautions his fellow free marketers to make the best possible case for free trade given the zeitgeist and concerns of the day, for instance by “seizing the mantle of patriotism . . . from protectionists” through being more explicit about how trade benefits Americans specifically, not just humanity in general.
Economic analysis is thus necessary but insufficient. “The case for free markets will lose if it remains narrowly economic in its content and emphasis,” Gregg writes. “Instead, that case needs to be wrapped into a broader story about America. For if American defenders of markets can only offer an argument for ‘more stuff produced more efficiently for more people,’ if they allow free markets to become associated with borderless utopias, or if they trivialize the very real bonds that many Americans have to their country and communities, millions of Americans will not listen to them—no matter how compelling the economics.”
This argument is deeply rooted in the particulars of American history. Indeed, Gregg’s story is one of America as a “commercial republic,” a phrase he attributes to philosopher Ralph Lerner and employs as the title of his ultimate chapter. In this telling, Americans need not make a choice between commerce (economic engagement with the world) and republican virtues (self-governance and national sovereignty); rather, these values not only can coexist but go to the heart of what at least many of the Founders believed America could be.
“In the 1790s,” Gregg writes, “key American Founders sought to create a republic in which the habits and institutions of commercial freedom, industry, enterprise, competition, and trade would be integral to its identity. These habits and institutions were also to mark America as a political entity different from most other European nations and from the Spanish territories to its west and south.” This is a story of American exceptionalism wherein a creedal nation was born not just to emulate the political economy of the Old World in the New, but to be something different altogether.
Contra State Capitalism
The single greatest contribution of Gregg’s book to current policy and cultural questions may be his placing these debates into greater historical context. The book is a sorely needed rejoinder to proponents of state capitalism, who are fond of employing one of two contradictory lines of argumentation.
The first view, held principally by smarter critics of capitalism on the right, is that a managed economy is in line with the Founders’ vision for the country and that the early American republic (in particular Henry Clay’s “American System”) grew prosperous through tariffs, protectionism and government-driven infrastructure investment; in this view, free markets and entrepreneurial capitalism were a British import to North America and not culturally indigenous. These critics see today’s analogue to the American system in policies that would ostensibly seek to “sponsor innovation, mandate domestic sourcing in critical supply chains, and discourage the financial speculation that . . . bears little resemblance to the work of building productive capacity in the real economy.”
A contradictory and less sophisticated view is that free markets have been allowed to run amok in America for a half century, with (fictional) financial deregulation or spurious claims about particular industries held up as evidence. In this telling, the economy has become unmoored from the nation-state, and the libertarians secretly running Washington can be confounded by anodyne statements like “we are a nation with an economy, not an economy with a nation.”
Of course, neither of these views is correct. While calls for a protectionist, economically interventionist government are as old as the country, Gregg points out that they were never a majority view, much less representative of an actually executed plan. Clay’s American System, for instance, was realized only in “a watered-down compromise . . . and the implementation was anything but noble.” Rather, the internal improvements funded by Congress provided a platform for patronage and pork, and tariffs aggravated tensions between different regions.
The idea that America was in thrall to doctrinaire laissez faire over the past 50 years is so fanciful as to deserve little rejoinder; nevertheless, Gregg patiently documents the rise of the regulatory state over this period and ties it to entrepreneurial sclerosis in the form of fewer business startups, among other indicators.
This is of a piece with Gregg’s style; nuanced and clear, he is careful in his critique of protectionism but full-throated in his defense of an open, dynamic economy. To his credit, he avoids straw-man arguments, and his descriptions of arguments in favor of trade restrictions would pass an Ideological Turing Test; that is, they would be cognizable to proponents of trade protectionism, neomercantilism and economic nationalism. Throughout, he reads the advocates of state capitalism with a great deal of charity—indeed, perhaps more than they deserve.
The chapter on economic and social governance, for instance, tries valiantly to make sense of phrases like this gem from the Davos Manifesto 2020: “A company that has a multinational scope of activities not only serves all those stakeholders who are directly engaged, but acts itself as a stakeholder—together with governments and civil society—of our global economic future.” Gregg correctly notes that this manifesto “effectively advocates a new economic system,” but he extends perhaps too much charity in not stating outright that it’s a fallacious system based on free-lunch assumptions and woolly-headed thinking extruded into insipid pablum.
Further, Gregg is perhaps somewhat too generous when he writes, “With the exception of extreme outliers, American advocates of some version of state capitalism are neither proposing measures like the formal collectivization of property, nor insisting that Americans should never trade with people from other nations, nor looking to abolish the stock market.”
This is of course true, strictly speaking, but Gregg charitably overlooks the desire of many of the proponents of state capitalism not just to direct the means of economic production to political ends, but to benefit preferred identity groups and indeed to use the levers of power “to reward friends and punish enemies,” in one popular formulation employed by the anti-market right. Such views and proposals cannot be reconciled with “advocates of protectionism, industrial policy, and stakeholder capitalism [who] claim to be promoting the common good of Americans.”
Still, excessive charity is hardly a vice—and moreover it is a phenomenon seldom seen in today’s discourse.
Recognizing the Importance of National Identity
Gregg is a realist with a gimlet-eyed view of the world as it exists, not as he might want it to be. National identity and sovereignty, he writes, “have become key reference points around which international politics flow. To pretend otherwise is quixotic.” Thus it is necessary to make the case for liberal political economy in relation to these points.
In such an environment, the institutions and economic order that brought about the prosperity that formed the world in which those now in our early 40s grew up should be not merely defended, but renewed for a new generation. Gregg does this and much more with wit and aplomb, giving us a necessary corrective to ascendant ideas that—while perhaps well-intended—would be deeply destructive in practice.
And the destruction would be not only economic, Gregg shows. It would also be cataclysmic to the very ideas of American exceptionalism that made our country great.