STI: Your new book, The Next American Economy: Nation, State, and Markets in an Uncertain World, lays out a stark choice for the United States in terms of its economic future. You portray it as a choice between what you call “state capitalism” versus “a dynamic market economy.” Definition is often everything, so tell me what these options mean.
SG: By state capitalism, I don’t mean socialism. I’m thinking of an economy in which basic features of the market economy are maintained, but the state takes a highly directive role through measures like protectionism and industrial policy as well as attempts to regulate virtually every aspect of economic life from the top-down: a process that’s overseen by technocrats. By a “dynamic market economy,” I mean things like private entrepreneurship, robust competition, and dynamic trade inside and between countries but also strong institutional commitments to private property, rule of law, constitutionally limited government, as well as a culture characterized by the type of commercial, classical, and religious virtues to which people like Adam Smith and the American Founders referred.
At different points of its history, America has moved perilously close to state capitalism. It was, and remains, the vision of progressives for America. It also underlay FDR’s New Deal and LBJ’s Great Society. There’s no doubt in my mind that this is the left’s economic vision for America, but sections of the American right have also embraced a not-dissimilar economic vision.
STI: So, there are conservatives for state capitalism?
SG: Oh, yes. In fact, since 2015, there’s been a significant shift on much of the American right towards a positive view of tariffs and industrial policy, and an openness to putting faith in technocrats to manage wide swathes of the US economy. The reasons for this turn are complicated, but I think that it’s a serious mistake, not least because it means adopting the methods of progressives, and that means significant departure from something that American conservatives are supposed to care about, which is the American Founding.
STI: What was Donald Trump’s role in all this?
SG: He reflected and facilitated some of these unfortunate trends. He was always a skeptic of free trade, and he certainly breathed new life into protectionism in America. Trump also shattered what had been somewhat of an un-thinking consensus vis-a-vis America’s policies toward China. As my book argues, China is certainly a challenge for America, but protectionism and industrial policy are not wise means of addressing this and other problems . . .
STI: Why?
SG: Because protectionism and industrial policy hurt those who implement such policies as much as they seek to hurt one’s opponents. It’s like cutting off your nose to spite your face. In Chapters two and three of my book, I lay out in considerable detail all the many well-established problems with these policies: the cronyism they facilitate, the higher prices they make 330 million Americans pay, the massive misallocations of capital they involve, and the hubris associated with technocrats thinking that they can outguess markets, to name just a few! I also provide many examples of how America’s use of these policies in the past has inflicted considerable damage on the U.S. economy, American politics, and, of course, everyday Americans themselves. Yes, America must address the China issue. The regime in China is a serious threat to America’s interests. It also happens to be an authoritarian and genocidal regime run along Marxist, Leninist and Maoist lines. But there are ways for America to face these challenges without using methods that undermine and damage the American economy and American interests.
STI: You’ve said a great deal about America so far but less about some of the arguments that were used for promoting free markets in the past. We were told, for example, that free markets and free trade bring about peace and harmony in their wake . . .
SG: Which was always a bad argument. Why? Because it’s not true. Greater trade with China, for instance, has been immensely beneficial for American consumers. But it hasn’t softened the nature of the regime in Beijing, let alone promoted wider liberties in China. Leaving aside the fact that China’s embrace of economic liberalization was always selective and limited, I never bought into the economic determinism that often underlies the argument that market freedoms necessarily promote peace and harmony. Nor, by the way, did some of the people who numbered among the first systematic advocates of free trade, most notably, Adam Smith . . .
STI: That surprises me.
SG: Smith is clear that while he believes that free trade tends to ameliorate relations between countries, there was nothing necessary or inevitable about this. He didn’t think that there was some type of crypto-pacifist, borderless-world utopia potentially lying at the end of the trade liberalization road.
In fact, I point out in my book that, like his friend David Hume, Smith thought that the nation-state was here to stay and that there would always be some tensions between nations. Both men also argued that free trade makes countries rich, and wealthy countries can afford to build up strong militaries. These countries, they noted, also possess the economic resources to fight wars for long periods and the capacity to project military power. Think, for instance, of nineteenth century Britain. Its steady embrace of economic liberalization at home and free trade abroad gave it the economic resources to enforce the Pax Britannica throughout the world in a way unmatched by any country at the time.
More generally, I think some pro-market people allowed themselves to get caught up with the frankly Hegelian “end of history” arguments that became popular on parts of the right and even some of the left in the early-1990s. I firmly believe in the reality of free choice, and that individuals, communities and even nations can make free choices, for better and for worse. I also think that culture is far more powerful than some of my fellow free marketers do. Yes, I believe that all humans can know the same moral truths, not least because I do believe there is a thing called natural law that all humans can know because we all possess reason! But I also believe it’s a mistake to project Western assumptions about social development upon cultures as ancient as China’s and India’s.
STI: Let’s get back to America. What do you think is motivating the turn of some American conservatives towards economic nationalism?
SG: Many things. First, it’s obviously the case that America has some significant cultural and social challenges, whether it is young men declining to work or the continued implosion of the family. Who can dispute this? Second, I think that many conservatives are frustrated with the American right’s failure to restrain the growth of the regulatory and administrative state and have concluded, “Well, why shouldn’t we just take it over and use it to realize our own goals?”
The problem with the first claim is that it suggests that these challenges – which, I stress again, are real – have strong economic causes that some conservatives associate with economic liberalization. I think that this is a very mistaken analysis, not least because I think the causes of contemporary social dysfunctionality in America have much more to do with social and cultural changes associated with the social revolutions of the 1960s and 1970s, the decline of religious belief and practice, and the associated decline of civil society that followed the massive expansion of welfare programs as a result of Lyndon Johnson’s Great Society programs. The economy, I argue in my book, is pretty much a non-player in that story, with the exception that welfare states and entitlement programs tend to exacerbate these social and cultural problems.
As for the second argument, it implies using progressive methods to try to realize conservative ends. That’s a problem because the more you use progressive methods, the more you start to think about the world in progressive terms: by which I mean you start to believe that salvation lies in technocracy, you cannot have enough bureaucracy, and individual liberty should be viewed with some suspicion. The progressive mindset also represents departure from the best insights of the American Founding, especially the idea of America as a commercial republic rather than something akin to a Western European social democracy.
STI: Let’s focus on that phrase, a “commercial republic.” You argue that this should be the future of the American economy. How many Americans even really know what the expression means?
SG: Yes, it’s an expression that has dropped out of public discourse, including in America. Basically, it is the idea of a sovereign state largely defined by its commitment to free commerce and dynamic trade, but also buttressed by limited government constitutionalism and what might be called republican virtues. If you read important documents of the American Founding like the U.S. Constitution, The Federalist Papers, or George Washington’s “Farewell Address” of 1796, it’s abundantly clear that this is what the authors of those documents wanted America to be. All these documents have as one of their objectives the bestowal of a particular form of political economy upon the new republic. It’s a vision of a republic in which entrepreneurship and competition, buttressed by institutions like rule of law, are the norm. Such things make a commercial republic very different from the type of militaristic republic like the late Roman republic or the republic that existed in France between Louis XVI’s execution and Napoleon’s seizure of power.
A commercial republic is also a political entity that takes its place in the world, isn’t afraid of engaging with extensive and dynamic trade with the rest of the world, and isn’t interested in transnational projects. In that sense, a commercial republic is not a globalist entity, but nor is it a society that cowers behind tariff walls. It’s a republic that gives enormous scope to economic freedom, and yet insists that this freedom be culturally embedded in a certain set of virtues . . .
STI: But has America ever really been like that? Surely, it’s never been quite like that.
SG: Well, it’s certainly true that America has never lived up to the full potential of that ideal. Indeed, from America’s very beginning, there were fierce arguments about things like tariffs. This was a major dividing point in nineteenth-century American politics. When you think of that, you realize that many of the economic arguments dividing the right in America today, and America more generally, aren’t new. But I’d argue that a commercial republic really is what America is meant to be, and that means prioritizing Americans’ economic freedom domestically and having a positive view of free trade, while being fully aware that we live in a dangerous world and that there are no utopias.
In other words, Americans need to hold out for themselves the ideal of America as a commercial republic, and continually ask themselves whether the country is living up to that ideal. At present, it’s clearly not.
STI: In the book, you present an essentially optimistic vision and possible future for the American economy. What is it that gives you hope?
SG: As you know, I’m not American by birth. I grew up in Australia, lived and did my doctorate in England, and have lived and worked in America since 2001. I sometimes wonder if these circumstances have given me the good fortune to recognize things about America that make it truly unique. It’s not uncommon for migrants to America to appreciate some of its truly wonderful features, perhaps more clearly than some native-born Americans. After all, some of the best observers of America have been from outside America – Alexis de Tocqueville, for example, or Jacques Maritain in the twentieth century . . .
STI: Both of whom wrote very insightful books about America . . .
SG: Now I am very obviously not in their class, but I do think that “outsiders” often see things that sometimes escape the attention of “insiders.” But the genius of the American Founding is truly genius: it reflects some of the best parts of Western civilization by integrating the best of the classical world, the Jewish and Christian religions, and the genuine contributions of moderate Enlightenment thinkers, especially those from the Scottish Enlightenment. The more Americans return to America’s particular integration of these sources, the more they can see clearly where they have been faithful to that Founding, and where they haven’t. And that includes the economy!
STI: It sounds like you believe that the future for America and its economy is bright. Is that right?
SG: I sure hope so. I do think there are plenty of Americans who have no interest in their country becoming yet another creaky, boring social democracy. That’s especially true of migrants to America. They are generally more entrepreneurial than native-born Americans, and many of them have bad memories of socialist dictatorships like Venezuela and Cuba, or of the economic disasters inflicted throughout Latin America by left-wing populist governments. Yes, there are a good number of Americans who, I’m afraid to say, have given up and see state capitalism and managed economic decline as America’s future. But that, I often say, is not what America is meant to be or what Americans are meant to be. As long as America continues to draw upon the principles of the Founding, there’s every reason to believe that America can enter a new economic age: an age of America as the Commercial Republic that it’s meant to be.
