Chelsea Follett: Joining me today is economist Samuel Gregg, the Friedrich Hayek Chair in Economics and Economic History at the American Institute for Economic Research, an affiliate scholar at the Acton Institute, a fellow of the Royal Historical Society, and with too many other titles and honors. Today, his writing has appeared everywhere from the Harvard Journal of Law and Public Policy to the Wall Street Journal. He has won numerous accolades and awards, and he is the author of 17 books, including ‘The Next American Economy: Nation, State, and Markets in an Uncertain World,’ which will form the basis of our discussion today. How are you?
Samuel Gregg: Thanks for having me on. It’s great to be with you.
Chelsea Follett: So tell me about why you chose to write this book and why it is perhaps, unfortunately, more relevant today than ever, despite having been written a couple years ago now.
Samuel Gregg: Well, that’s a question I’m often asked, and the answer remains essentially the same. That back in 2015, 2016, I and many other people started sensing that something was starting to shift in the way that Americans at least thought about the nature of their economy, that they at least thought that certainly since the early 1980s that America had shifted back towards markets, free enterprise, limited government, et cetera, at least in principle. The policies might have been much more mixed, but at least in principle, that was the trajectory that had assumed a type of consensus authority within the country. You could find people on the center left and the center right who were more or less on board with that vision for the American economy. But that all changed, I think, in 2015, 2016, and with the emergence of people on the right and on the left articulating very different visions of what they thought the American economy’s future should be and the way in which they believed that that involved the state taking a much more proactive role in economic life, what I call state capitalism in the book. And I think since 2016, we’ve been involved in this ongoing intellectual battle for the future of the American economy. And nothing has changed in that regard since 2016.
Samuel Gregg: And in the book, which came out in October 2022, I wanted to really try and outline why I thought this had occurred. I wanted to outline some of the differences, the battle lines, if you like, between those of us who favor a free market economy and all the things that go with that, as opposed to those who favor state capitalism, but also to argue that I think that it was time for a lot of free marketers to realize that we weren’t living in the 1980s or even the 1990s anymore, that the tide had shifted when it came to the battle of ideas. And we needed to not change our message, but we needed to adjust that message so that we could continue to push that message in the conditions that we find ourselves in today.
Chelsea Follett: That makes a lot of sense. Could you walk us through some of the intellectual history here? Tell me about the revolution in favor of free markets, how many came to take the fruits of free markets for granted, and how support, unfortunately, has declined across the political spectrum in parts of both the right and the left for free markets, or as you put it in the first chapter of your book, how it all fell down.
Samuel Gregg: How it all fell down. Well, I think if we go back in American history, we can see that the roots of this are very deep. Americans have been arguing about things like tariffs, for example, for a long period of time, really since the beginning of the Republic. It’s always useful, I think, to remember that during the second half of the 19th century, tariffs was the position of the Republican Party and the Democratic Party was the party of free trade. And the establishment of a free trade consensus, which is a proxy for many other things, of course, is only something that emerged after the Second World War. But nonetheless, in the meantime, we’d had the state taking a much more active role, certainly at the level of the domestic economy in the form of the New Deal and the Great Society programs. And I’m surely not the first to observe that that changed in the late 1970s as Keynesian economics and Keynesian policies and interventionist policies more generally seemed to come into disrepute because we were getting high unemployment and high inflation at the same time, which we were told would never happen, of course. So then in the 1980s, we had a certain degree of a shift back towards markets, best symbolized by people like Margaret Thatcher and Ronald Reagan.
Samuel Gregg: And then in the 1990s, it was as if markets had triumphed. It was as if communism was gone. So the great competitor to capitalism had disappeared. And there were many people in the free market world who were arguing that, well, essentially, we’ve won the economic argument. And it’s really a question now of how quickly we can move in the direction of further economic liberalization. And that was a consensus you could find on both sides of politics, at least some parts of both sides of politics throughout the 1990s and into the 2000s. But then something changed, and I think a number of things changed. One was, of course, the financial crisis. I think that shook a lot of people’s faith in markets. Now, I could give you all sorts of reasons as to why I think that crisis was primarily a result of bad housing policy on the part of the federal government, mistaken monetary policy on the part of the Federal Reserve. In other words, it was largely a government-induced crisis. But unfortunately, people of my mind are thinking, we didn’t win that argument in the arena of public opinion. We lost that argument. And that, I think, injected more skepticism about markets as part of America’s future.
Samuel Gregg: And then, of course, I think another precipitating factor has been America’s relationship with China, which has revolved so much around trade, especially since the 1980s, when China started opening itself up to markets. And China has now developed into a geopolitical rival of the United States. And there are many people who argue that this is a consequence of us naively letting them into global markets, et cetera, et cetera. And also, I think it’s important to keep in mind that there’s always been substantial reservoirs of opinion in America that have always been skeptical of free markets, or at least certain parts of free markets. So think about 1992, when one Pat Buchanan ran against George H.W. Bush for the Republican nomination for president. And part of his platform was that free trade had been a disaster for the United States. He literally said things like free trade had led to the deaths of lots of young Americans through despair or lack of hope or the hollowing out of industry. Many of these arguments, of course, we hear repeated today. So I think there’s lots of reasons why it all fell down, why it seemed that what had apparently been an unassailable case for markets had collapsed from within.
Samuel Gregg: And perhaps part of the challenge is that that came as a shock for a lot of people. We thought we had won many of these arguments, at least intellectually. We had won many of these arguments. But it turned out that substantial numbers of people, both in the, what you might call the policy, political, and intellectual elites, had turned against markets. And there was some evidence that some parts of the American population had also turned against markets as well. And part of my book was to say, well, we need to re-equip ourselves to argue the case for markets in these new conditions that are very different from those of the 1980s and the 1990s and even into the 2000s.
Chelsea Follett: So describe what we are up against. What is this state capitalism alternative that so many seem to be advocating? Obviously, you do still have some who would advocate for full communism or for socialism like Mr. Zoran Mamdani. But overall, the alternative seems to be this idea of state capitalism, right? So tell me about that.
Samuel Gregg: So state capitalism is a phrase that’s being used to describe things like certain Eastern Bloc economies that existed between 1945 up until 1989. But the way that I use it in the book, and I think this is a common use of the phrase now, is to describe an economy in which you have private property, in which you have markets, in which you have Americans, for example, trading with people from other countries and other peoples importing and exporting goods between our country and other countries. But state capitalism means that the state goes beyond maintaining things like rule of law and protecting property rights and basically providing a type of backing for certain institutions, certain legal and political institutions that markets need if they’re going to operate. And instead, the state starts to extend its reach into the economy to try and deliver outcomes in certain economic sectors that would be different than if markets were left to prevail. So this can take the form of tariffs, for example, or subsidies, but it also takes the form of things like industrial policy. And that’s the classic definition of industrial policy. It’s not trying to abolish markets per se.
Samuel Gregg: It is trying to, however, weigh the scales and trying to push consumers and producers, and particularly producers, in particular directions. So these are some of the manifestations of state capitalism. It usually, of course, involves a large and extensive welfare state. It involves using regulation and what Americans call the administrative state to try and put certain parameters and contours around the workings of markets, etc. So as I said, while you still have markets, while you still have competition, while you still have private property, while you still have actually most of the economy still located in the private sector, the state goes far, far, far beyond anything that would have been envisaged, for example, by America’s founders. All the types of limitations that, for example, classical liberals or limited government conservatives have traditionally seen as the role of the state in the economy. So that’s what I mean by state capitalism. And I think if you look around America today, that’s exactly what we’re living in.
Chelsea Follett: Absolutely. I think it’s difficult to say in a post-Liberation Day world that there’s still a consensus on free trade. So now that you’ve described this idea that’s gaining traction of state capitalism, let’s dissect it a bit more. Tell me about protectionism. You have a chapter in the book titled Why Protectionism Does Not Pay. So why doesn’t protectionism pay?
Samuel Gregg: Well, the classic arguments against protectionism, which are, as you know, very central to classical liberal arguments about politics and economics, they ultimately go back to Adam Smith and his Wealth of Nations when he was critiquing what he called the mercantile system around him. And his basic argument against tariffs was that they don’t actually increase wealth. What they do is try and push production or economic activity in particular directions by essentially incentivizing producers to try and produce certain types of goods and avoid doing other things in the economy. That’s essentially what protectionism tries to do. It tries to raise costs so that the idea is that you want to export as much as possible and import as little as possible. And that’s the classic argument of mercantilism, and protectionism is a manifestation of that. But the problem, of course, is that, first of all, it’s a type of hidden tax on consumers because the businesses that get charged the tariffs invariably pass the costs on to consumers. It encourages tariff walls, I like to say, encourage businesses to become lazy and to cease or try to look to the government to protect them from domestic and international competition.
Samuel Gregg: Protectionism also encourages what you might call cronyism, by which I mean businesses getting close to government to try and make sure that tariffs are leveled against their external competitors and sometimes even their domestic competitors as well. And it also shifts the balance of the economy away from the consumer and what you might call consumer sovereignty and much more towards an economy in which the emphasis is upon protecting the interests of the producer. And the problem with that, of course, is that in the end it doesn’t serve producers very well because in the end protectionism makes them lazy, makes them uncompetitive, and rarely ever manages to maintain a particular industry in place. It just delays the process of decay or disincentivizes them from actually changing the way that they behave. So protectionism, despite the word which implies, of course, that we’re protecting, we’re helping you, we’re making sure that you are able to weather the storm, It actually does enormous damage, both to consumers but also in the long term to the industries that it’s ostensibly designed to protect. I always like to say that if you look at a tariff, or if you want to understand why tariffs in the tariff code vary so widely and extensively, you just have to look and ask yourself, okay, which is the lobby group that has been successful in getting this particular thing in place?
Samuel Gregg: And typically, tariffs are presented as being in the national interest or the general welfare or the common good, etc. But actually, they’re not. They had everything to do with sectional interest and promoting the well-being of particular sectors or particular industries at the expense of everyone else. So to my mind, there’s really nothing redeeming about tariffs at all, and they’re a type of self-inflicted harm by governments upon the countries that they’re ostensibly trying to protect.
Chelsea Follett: Now, obviously, unfortunately, tariffs have some continued appeal to many people. What do you say to those who would argue that the world we live in today is very different from the world of Adam Smith? We need to worry about the rise of China. We have national security concerns, and all of this justifies tariffs in the modern context.
Samuel Gregg: Well, the first thing I usually say to that type of critique, and I hear it very often, is that actually our world is not that different from the world of Adam Smith. It’s not that different from the world confronted by countries like Britain and the United States throughout the 19th century or even most of the 20th century. There have always been national security challenges. There have always been powers, great powers, whether it’s the Soviet Union or communist China, who are doing nefarious things in the world that we don’t like. It’s also the case that there’s always been groups out there that have been pushing for economic nationalism. There’s always been populist groups around, for example. So in other words, I don’t think our situation is as different as that faced by, say, the United States in the aftermath of the Second World War or Britain in the 19th century when it was rigorously pushing forward for trade liberalization. Because things like national security challenges are real things, and free traders and free marketers have always acknowledged that national security, for example, is a legitimate exception. Adam Smith puts it this way. He says, defense trumps opulence.
Samuel Gregg: So someone like Smith is very aware that trade occurs in a world marked by political tensions and geopolitical rivalries. That’s always been the case. I’m not sure when we’ve ever had a case when that has not been the status quo. But the argument of a free trader is to say, but these are not good reasons to stop trade liberalization. And there’s several reasons for that. One is that through trade liberalization, we become wealthier. The United States becomes wealthier. Our economy grows faster and bigger than it otherwise would in the absence of trade liberalization. And you know what? That really matters for national security purposes because anyone who studies national security will probably tell you that the best books on national security usually begin by saying something like, the single most important element for a country’s national security is the size and dynamism of its economy. That is what causes countries like the United States in the end to be able to outlast, for example, Nazi Germany and Imperial Japan or, for example, the Soviet Union during the Cold War. Rich countries win wars. Wealthy countries are able to defend themselves. Smith pointed this out when he said that countries that become wealthy through trade, they’re able to, he says, to project navies and armies around the world.
Samuel Gregg: They are actually very good at defending themselves. So my typical argument when I hear these things is, yes, there are genuine national security challenges, but that’s not a reason to basically shut down the whole process of liberalizing trade between America and other countries. It makes it more difficult, but that’s not a reason to shut the process down, because in the end, shutting the process down, reverting to protectionism, ultimately hurts us. And that’s the thing that’s really important to keep in mind. Things like protectionism, things like industrial policy, we think that we’re using these as tools to combat our geopolitical rivals, but actually they hurt us. They make the cost of production higher. They make the prices higher for consumers. They cause our economy to grow slower than it otherwise would. And the question I always put out there is, how does this, a slower growing economy, a less dynamic economy, how does that help us in national security terms? Because the answer is, it doesn’t.
Chelsea Follett: That makes a lot of sense, and I think that covers protectionism. So let’s move on to industrial policy. Tell me, what is the trouble with industrial policy, and why do you think it has so much continued appeal?
Samuel Gregg: So the basic problem with industrial policy, I think, is something classical liberals talk about all the time, which is, as F.A. Hayek called it, the knowledge problem. Industrial policy assumes that governments can somehow know what is going to be a better allocation of resources better than the market. But that, of course, assumes that governments, and even very bright people who head governments, and even central banks and treasury departments that are full of economists who have lots and lots of data sets at their disposal, despite all that information, no government, no person can possibly know the best allocation of resources in a given economy at any one point in time. And you would need to know that information if industrial policy was going to work. But we can’t. So that means that industrial policy invariably fails because it cannot help but be based upon some type of misallocation of resources. It cannot help but be guided by mistaken assumptions and presumptions. So there’s an inherent, what you might call, intellectual flaw at the root of industrial policy that I would argue, and free marketers have generally argued, makes it inherently incoherent and counterproductive as a policy.
Samuel Gregg: So that’s one thing. Another problem with industrial policy is that it breeds cronyism. Because if you’re giving subsidies, if you’re offering different types of help for particular industries to try and, I don’t know, help manufacturing or particular types of manufacturing in particular parts of the country, it’s pretty clear, and you can look at through case study after case study after case study, that the industrial policy is not being determined by some detached godlike being who has somehow discerned in his or her wisdom that this is the best allocation of resources, invariably comes down to lobby. It comes down to who has the best and most influential lobbyists. So that I think is, there’s some of the basic problems with industrial policy. But you asked why is it so attractive to people? Well, I think it’s attractive to people because it gives us the sense, it provides us with the illusion that governments can do certain things that will deliver outcomes, even though if you look very closely at industrial policy, you realize it can’t. And underlying that are two things. One is a sort of hubris about the human intellect and how much you can know about the world, for reasons we’ve already discussed.
Samuel Gregg: But I also think it panders to people’s desire for security. Now, we all have a desire for security. Everyone has points in their life where they want a certain degree of stability or predictability in their lives. In fact, I think it’s very difficult for people to live lives without going crazy, unless there is some degree of predictability and stability in their lives, in politics, in the economy more generally. And I think some people look to industrial policy and say, this is what can provide my community or my economic sector with the stability that we desperately need. To which my response, of course, is, well, no, it can’t do that. It can provide you with the illusion that things are better. It can provide you with the illusion that things are more secure. But just as protectionism, I think, gradually corrodes an industry’s competitiveness, it can cause people to make bad decisions. It can encourage laziness and a sense of entitlement on the part of those who are being protected. Industrial policy does the same thing, and in the long term, I think, results in greater instability and lack of economic security over the long term. Industrial policy is very much about, I would argue, short-term things.
Samuel Gregg: Markets are about the long term. And so when you opt for industrial policy, you’re essentially opting in some respects for what I call short-term fake security over long-term real economic security.
Chelsea Follett: Now, there is this idea that is out there that the working class in the United States has been hollowed out because so many manufacturing jobs have moved overseas, and that to help these workers, industrial policy is the way to go. What would you say to those who have this concern?
Samuel Gregg: Well, there’s a lot of things I would say. One is that it’s certainly the case that in the area of manufacturing, we’ve seen a decline in the number of jobs since the early 1970s or maybe the mid-1970s. There’s no question the number of manufacturing jobs has fallen. But that actually has relatively little to do with outsourcing and a lot more to do with technological change. And that’s a good thing because manufacturing in the 1950s relied very heavily on manual labor, is very tiring, exhausting, high risk of injury, et cetera. And so technology has replaced many of those things and that’s made the industry more effective as well as more safe, I would argue. So in terms of cause and effect, I don’t think the outsourcing argument is the explanation as to why you’ve seen the decline in the number of manufacturing jobs. It’s a decline primarily driven by technology, but also people gravitating to the service sector of the economy, which is what you want. That is the path of economic development. Economies are not supposed to remain forever sort of stuck in an economy where manufacturing is everything. You want to move towards an economy in which the service sector is predominantly the major part of the economy, which is what we have in America today.
Samuel Gregg: The jobs are easier in many respects, they’re less physically demanding, they’re safer, and the jobs actually pay better as well. The other thing I would say is that most of those parts of the country that once had very big industrial manufacturing sectors and no longer have those sectors, most of those towns, most of those cities have actually transitioned towards something different. A great example would be a place like Pittsburgh, which I think has transformed itself away from industrial manufacturing to other types of industries. Now, I’m not downplaying the transitions can be hard, it can be difficult. Another city would be Grand Rapids, Michigan, which was very much a manufacturing town but has transformed itself into a medical hub now. And you only have to look at the contrast, contrast those situations, which are by far the majority of situations that we’ve seen, and contrast it with a place like Youngstown, Ohio or Detroit, Michigan, which did not opt to change, which opted to try, these towns tried to stay the same. They tried to stay the same through protectionism, lobbying for subsidies, and in some cases actually getting not one but two and three bailouts from the federal government.
Samuel Gregg: In other words, those towns and cities that opted to embrace change and work with the change, they have come out the other side quite well. Those towns and those regions that opted to not change have effectively made themselves poorer and less competitive in the American and global economy. I think the cause that we often hear for what’s happened to manufacturing is mistaken. I also think the description of what has happened to manufacturing in America is also false. Unfortunately, the myths that myself and others, including many people at Cato, have tried to combat, those myths have a powerful grip on a lot of Americans’ imagination. Challenging those myths, I think, is part of what we have to do.
Chelsea Follett: That’s what this book helps do. Now, you have a chapter with a rather counterintuitive title, perhaps to some, Business Against the Market. What do you mean by business against the market?
Samuel Gregg: Well, I think there’s an assumption on the part of many people that being in favor of business is the same as being in favor of markets. And I always say, no, actually, I’m in favor of markets. I’m in favor of consumer sovereignty. I’m not actually in favor of business qua business because markets are not the same thing as business. Markets are relationships. Markets are institutions. Markets are forces like dynamism and entrepreneurship and all these things. Businesses are organizations that help to organize capital, labor, intellectual qualities, et cetera, that become productive units. They’re participants in markets. They’re not markets themselves. And that’s an important distinction because the interests of a given business may not coincide with the interests of 330 American consumers. Businesses in many cases don’t particularly like markets. I know plenty of business executive, business leaders who quite like subsidies, who are quite favorable towards tariffs, who resent competition, be it domestic or international, who don’t like being in a position whereby they’re constantly having to change to update what they do so that they can stay alive. And Adam Smith noticed the same thing in his own time. Adam Smith didn’t have a particularly high view of business leaders.
Samuel Gregg: He noticed how they tended to collude. He noticed how that they tended to get together and what he says, conspire against the public. And what he meant by that was to go and lobby the government in London for privileges, for literally license to be given monopolies, to be the only businesses that are allowed to trade in a particular part of the world, et cetera. And so that’s part of it. I was also arguing in that particular chapter that there’s a real risk of businesses being captured or drifting towards political causes that have very little to do with dynamic markets. And I use the example of ESG and DEI and these sorts of things as instances of political capture by interest groups or political groups of business, but also as a way for many business leaders to basically excuse poor performance. So there’s actually some empirical evidence showing that, certainly up until relatively recently, there are a lot of executives when it came to trying to explain poor performance in a given financial year, they would say things like, well, we have these responsibilities to the environment, or we can’t necessarily employ everyone that we might like because we have these different ethnic criteria or whatever criteria that we have to use, et cetera, et cetera.
Samuel Gregg: And so in other words, some of these political mechanisms have become ways for business leaders to excuse poor performance. But generally speaking, I think it’s really important for those of us who believe in markets to say that we favor markets. We’re not so much about business per se. Businesses are participants in markets. They’re not markets themselves. And that distinction, I think, is something that a lot of people, when they think of markets, they think of big corporations. They think of large businesses. They think of the local business around them. But those entities are organizations that sensibly are pursuing profit, that are competing with one another. So they’re participating in the marketplace. They’re not the market themselves.
Chelsea Follett: That is an excellent transition to part two of the book, Markets in America. You start out that section of the book with America as a creative nation. Tell me about that.
Samuel Gregg: Well, especially in the 20th century, the notion of entrepreneurship and creativity, which had been less emphasized by, say, the more classical economists of the Scottish Enlightenment, even into the 19th century, they had not said so much about things like entrepreneurship and economic creativity. I think it was more assumed rather than talked about. But in the 20th century, you have people like Joseph Schumpeter, for example, or in more recent decades, someone like the economist Israel Kirzner, pointing out that the entrepreneur and human creativity is essential for dynamic economy. In many respects, much economic activity begins with the entrepreneur. Entrepreneurs are those people who are not just making big discoveries like the iPhone that just fundamentally changed the entire economy. Entrepreneurs are those people who are making piecemeal changes on an everyday basis to processes, to the way that businesses function, to the manner in which products are delivered and sold, etc. And that creativity is constantly animating a market economy. And if you think about it, if you take away creativity from the market, then the market will grind to a halt very, very quickly. It will enter a stage of almost automatic stagnation.
Samuel Gregg: And I think it’s important for those of us who favor markets to talk about creativity as a type of driving force for markets, but also that’s something distinctly human. I mean, one of the things that makes us different from the animals is that we can be creative. We can use our intellect. We can use our imagination. We can use our capacity for free choices to reshape the world around us in ways that have been hitherto unknown. Animals can’t do that. They operate by instinct. And so I think that part of the case for reselling markets to people today is to say markets are part of who we are. We are made to truck and barter, as Adam Smith said, and we’re also made to be creative. And that, I think, is a very uplifting, very positive message that we can present about markets. And of course, people on the other side of the debate, economic nationalists, they tend to be rather suspicious of economic creativity because economic creativity creates disruption. It means change. It means you have to adapt. And dynamism is something that’s constantly working its way through an economy in which creativity is very important. So to that extent, I think reemphasizing creativity both as an economic force but as something that’s distinctly human is a very good way of helping people understand that markets are not this abstract theoretical thing that’s out there.
Samuel Gregg: It’s part of who humans are as they advance into a mature civilization.
Chelsea Follett: How do you think this idea of creativity as distinctly human changes, if at all, in the age of artificial intelligence?
Samuel Gregg: Well, I tend to see artificial intelligence as an extension of human creativity because in the end it was human minds working over long periods of time, traceable all the way back, I would argue, back to the Greeks, that have enabled artificial intelligence to emerge in the way that it does today. And I tend to think of artificial intelligence as a tool. I mean, we’ve been told in the past there are all sorts of different forms of technology that would render human beings redundant, but it never really happens. And so I think that to the extent that artificial intelligence accentuates human creativity by, for example, taking over and doing certain tasks that take up a lot of time but aren’t necessarily particularly productive, artificial intelligence is very good at doing those sorts of things. But I’ve also yet to see artificial intelligence develop the capacity, I’m not even sure it can, the capacity that I think is super important for life in a market economy or two capacities. One is imagination. I’m not sure that artificial intelligence has the capacity for imagination in the way that we typically understand that. It’s also not clear to me that artificial intelligence has the capacity for insight.
Samuel Gregg: And by insight, I mean something our minds suddenly apprehend something in front of us that we haven’t noticed before, we haven’t seen before, or very few people have seen exhibited in a particular way. And it’s not clear to me that that type of spontaneity, which I think is partly what explains when we have an insight into something, it’s not clear to me that artificial intelligence can replicate that. I could be wrong, but it’s not clear to me at this point in history that that’s likely to be the case.
Chelsea Follett: So that covers creativity. Now tell me about America as a competitive nation.
Samuel Gregg: Yeah, well, that’s interesting as well, because as you can probably tell by my voice, I wasn’t born in the United States. And so I come at this as someone who’s lived in America for a long time now and is an American citizen, but who has a sort of outsider’s perspective as well. And Americans are very competitive people. They’re very, very competitive people. And that goes right back to the, I think, to the founding and even further back in the history of the American colony. Americans are very, very competitive people, and they don’t see competition as a bad thing. It’s not seen as something that’s distasteful or something that you do, but you don’t really want to talk about it too much, etc. Americans, I think, are highly competitive people. And that’s important because it’s not about, competition is not about destroying other people. Competition is adapting and changing so that you can do things faster or more efficiently or more creatively than other people. The objective is not to destroy other people. It’s to improve the way that you’re doing things by noticing what other people are doing, seeing where they’re not doing things quite as efficiently as they might otherwise be able to do, and also following the initiatives to become more competitive.
Samuel Gregg: So I think Americans are, compared with so many other peoples. They have a sort of natural instinct for this. And if you look at a lot of international ratings of economies, we’re still relatively competitive compared to most other economies in the world. And I think that if anything, we need to be thinking about how we enhance that competitiveness, because there’s plenty of things in America today that corrode competitiveness, whether it’s regulation, but also things like social norms. You have a sense among some segments of American opinion, ranging from the far left to sort of uber traditionalist groups, that competition is something that at best is to be tolerated rather than celebrated. And my sense is that if we want to be living in a dynamic economy, we need to embrace competition, but we also need to see it as a positive force that builds rather than destroys.
Chelsea Follett: And finally, you discuss America as a trading nation. Please tell me about that.
Samuel Gregg: Well, again, Americans have been trading right from the very beginning of, or even before the Republic. So it’s interesting, you can even go back before ratification of the Constitution, and even before the American Revolution, to see North American colonists trading all around the world. We’ve never been a people that has said that, okay, trade just begins in the United States and ends in the United States. Americans have always been trading among themselves, but also outside the country as well. At the same time, there’s also been immense debates about trade, political debates in the United States about trade. So I often like to point out that in the 19th century, the single issue that most divided Americans, apart from slavery, was the topic of tariffs. In the 1830s, we even had some states threatening to secede over tariffs, because they wanted to be able to freely trade with European countries. I’m thinking of South Carolina, for example. So we’ve always had these debates about trade. And one of the things I think that we need to do in advancing the idea of America as this dynamic market economy is to really embrace trade, not just domestically, but internationally, for some of the reasons I’ve already mentioned, that it makes us more competitive, it improves our national security.
Samuel Gregg: I think it makes us more entrepreneurial. It creates markets for Americans to export goods, etc. These are all very, very good things. And I think that we have a certain history of trade, we have a certain tradition of trade, we have a debate that’s going on about trade, which never really, I think, comes to an end. But I think instead of seeing trade as a zero-sum game, which I think is the tendency in which many people on the left and now on the right have tended to think about trade, like I win because you lose. One of the things we need to do to rehabilitate markets in America is to show people that trade is a win-win situation. The more trade we have, the more winners we have. We might not win to the same extent when you or I engage in a trade, but both of us are nonetheless winners. And breaking away from that zero-sum mentality when it comes to trade, which comes up again and again and again, is, I think, crucial if we’re going to revive markets in America today.
Chelsea Follett: Bring together all of these ideas of valuing creativity, American spirit of competition, and our tradition of free trade into this idea of a commercial republic. Please tell me about that.
Samuel Gregg: So one of the things about the United States is that from the very beginning, and it’s not just Americans who have noticed this, but lots of external observers have noticed this, is that America begins as a commercial nation. So it’s not a feudal society. Even mercantilism was not particularly strong in the American colonies compared to, say, continental Europe and Britain. Commerce has been central to Americans’ identity right from the very beginning. And external observers see this because they look and they say, Americans are obsessed with money. They’re so competitive. They’re perpetually being entrepreneurs. When Alexis de Tocqueville came to America in the 1830s, he looked around and said, “Everyone is an entrepreneur”. So this idea of commerce, far from being this slightly distasteful thing that we really don’t want too much to do with, we need it for practical purposes, but let’s not invest too much value in it. Americans have never been like that when it comes to commerce. Commerce is part of our identity, of who we are as a people. And that has gone along with this attachment to republicanism. And by republicanism, I don’t mean literally a republic as opposed to a monarchy.
Samuel Gregg: What I mean is a certain set of classical, commercial, and even religious virtues that have animated a commercial society like the United States for a very long period of time. In fact, I think you can find a very good description of what America is as a commercial republic in George Washington’s farewell address, where he talks very explicitly about how he sees Americans trading among themselves and also trading throughout the rest of the world without fear or favor, without expecting protection from the government, without expecting subsidies or any of these sorts of things. And if you read the Federalist Papers, Federalist 10, Federalist 11, it’s very clear that this new republic is envisaged as one in which commerce is central to its identity and central to its activities as a people, which is very, very different from the types of regimes that for the most part existed, for example, in continental Europe at the end of the late 18th century. And even during despite the Great Society, despite the New Deal, commerce remains something that Americans and people looking at America have traditionally seen as something very, very important for Americans that goes far beyond. It includes, but goes far beyond economic development and the growth of wealth.
Samuel Gregg: And if we lose sight of that, I think the country is in big trouble. The line I always use is, we’re not meant to be just another Western European social democracy. That’s not what America is supposed to be. There are some Americans who do want America to become like that, but that is not the vision that the founders have had of the United States, and I don’t think it’s a vision that even today large numbers of Americans are simply not willing to abandon, because they understand there’s something about this that makes us different from other countries. That doesn’t mean that other countries can’t become commercial societies. Of course they can. But in the case of the United States, there’s particular things in its history, particular things in its founding ideals, particular aspects of American culture that lend itself to America being understood as a commercial society rather than something that’s not.
Chelsea Follett: I agree with you, obviously, that this idea of the United States as a beacon of freedom and economic dynamism is something to aspire to, but given current events, what do you foresee in terms of the future economic direction of the United States? Are we going to move closer to that ideal or self-conception as this haven of freedom, or do you see things moving in a different direction?
Samuel Gregg: Well, the battle of ideas never ends, right? Even in the 1980s, in the 1990s, there were plenty of people expressing deep reservations about markets, about limited government. The New Deals and the Great Society programs still overhang a lot of American political culture. It informs the assumptions that many Americans bring when they think about the economy as a whole. What we’ve also seen added to that since the mid-2010s, of course, is a type of nationalist populism. Now, that’s manifested itself on large parts of the right. I think it’s the dominant force now in, I guess you would say, a lot of the Republican Party. But that’s not to say that we don’t see similar things happening on the political left as well. There’s left-wing populism, and that tends to be very class-orientated. It tends to feed off a sense of the idea that inequality in itself is always bad, that inequality of outcome is something intrinsically wrong with that, and we need to correct it. And it’s interesting, actually, that some of the mythologies that you hear on among nationalist populists and left-wing populists, a lot of the mythologies are very much the same.
Samuel Gregg: There’s sort of the diagnosis of what’s happened to America, the critiques you hear of capitalism, their explanations of what’s happened to particular parts of the country. They’re not that dissimilar. In fact, I often like to say to people, if you look at some of the economic policies proposed by someone like, say, the Trump administration, both first time and second time, but you compare some of those policies to the economic policies of Senator Bernie Sanders, there’s a lot of commonality, right? There’s the sense that blue-collar workers have been, have done poorly as a result of economic liberalization, that manufacturing has been emptied out by trade, etc., that we should actually be giving more by way of benefits and welfare to particular segments of society rather than trying to wind these things back. So there’s a type of new set of parameters, populist parameters, that crisscross the left and the right that make it harder to articulate the case for markets. Now, I’m not saying that we have to abandon what I think are the very solid intellectual arguments. We need to keep making those over and over and over again, because I think in the end, that’s where the real battle comes down to.
Samuel Gregg: If we don’t engage in those arguments, we don’t win those arguments, we lose everything else. At the same time, those of us who believe in markets, we need to find ways of combating this type of new populist consensus that has enveloped parts of the right and parts of the left, because when you have a cross-party consensus on particular issues, it gets very, very difficult to change that or to challenge that. Not least because there’s very few incentives for political leaders or legislators to adopt a contrary position, because they’ll get primaried or they’ll be pushed out at some point in their political career. So, in addition to all the usual problems that we have when it comes to making markets, the fact that arguments for markets are often counterintuitive, that markets are about the long-term rather than the short-term, that markets force us to face up to certain realities of the human condition, that we have limited knowledge, for example. In addition to all those usual ongoing problems, we now have this cross-party emerging populist consensus, which is going to be very, very difficult to dislodge.
Samuel Gregg: Now, in the end, I think those policies will fail. Those policies will inflict enormous harm, because they always do. I think economic history is full of examples like this. But that doesn’t necessarily mean that we’ll move back in the direction of markets very quickly, because the argument, well, we didn’t do enough, we clearly needed more intervention, and we needed the state doing more things in the economy. Otherwise, these things would not have failed. So the clash of ideas is ongoing. There are new problems that face us, and that means that we need to keep making the same arguments, but we also need to find new media for getting our arguments across to some of these broader audiences, because whether we like it or not, in the conditions of a democracy like the United States, that’s what a lot of these decisions come down to. Whether you can win first the battle of ideas and second the battle of public opinion. If you win both of those ideas, you win everything. If you lose one of those ideas, one of those particular battles, I think you lose the whole thing.
Chelsea Follett: On that note, what would be your closing argument to someone who remains skeptical of free markets and whether they’re on the left or the right, remains interested in these new ideas of industrial policy and protectionism as worth pursuing?
Samuel Gregg: There’s lots of different ways. It would depend on the specific type of audience. So for example, if I was talking to people who are concerned about poverty, for example, who are concerned about the least among us, for those who are struggling in the economy, my closing argument to them would be, markets have done more in history to lift people out of poverty than any other force that we know of. And that’s not just in the developing world, especially in places like East Asia. That’s the sort of constant lesson throughout history. So if you really care about the poor, you should really care about markets. If I’m talking to a group of people who are very hostile or skeptical of business, I would say, well, if you want to discipline business, if you want to make sure that business serves consumers, you want to make sure you’re in as dynamic a market as possible, because in the absence of a dynamic market, cronyism and favoritism and neo-mercantilism will prevail. And all the bad things that you don’t like about business will only get more magnified throughout the economy. If I’m also talking, however, to people, to a group of people who believe in their country, who are patriotic, who want to see America succeed, I would basically say things like industrial policy, things like protectionism, these things will not produce American greatness.
Samuel Gregg: They will cause serious regression in our economic life and therefore in our political and I would even argue in our cultural life as well. So if you want an America that’s free, if you want an America that’s faithful to its founding ideals, if you want an America that’s strong in the world, if you want an America that truly provides the possibility of opportunity for people, then you should really be on the side of markets because the people on the other side, the economic nationalists, the protectionists, the interventionists, though that’s not their concern. Their concern fundamentally is sectoral interest, special interests, interest groups. It’s not what the Constitution calls the general welfare of the United States. So there are a variety of ways in which I would answer those sorts of arguments. But I do happen to think that we can make those types of arguments to people who, even after they’ve heard all the economic arguments, need to hear normative arguments to seal the deal.
Chelsea Follett: Because this is the Human Progress podcast, I always try to end on a positive note. So I’m curious, what do you feel hopeful about or most hopeful about with regards to the future of the United States of America?
Samuel Gregg: Well, in terms of the economy, I would say I’m very hopeful and inspired by the fact that we remain the world’s most entrepreneurial economy, by far, by far. Even despite all the regulation, despite Roosevelt, despite Johnson, despite all sorts of very bad policies, entrepreneurship continues to flourish in the United States. There’s something about American culture that inclines people to view entrepreneurship as a positive rather than a negative. So that’s one thing. And if you have a strong culture of entrepreneurship, then I think you’ve got a lot of room for hope. The second thing I would say is that despite all the regulation, despite all the welfare programs, despite all these things that have been laden onto the American economy, it’s kind of amazing how resilient American capitalism is. It’s kind of amazing how it bounces back over and over and over again. And that is something that’s less evident in a lot of other economies. I look at, for example, Western Europe and I see a lot of stagnation. I also see a reluctance to change. I see a sort of gradual drift in what I call the sort of European social democratic direction. Now, that’s not to say that the same trends aren’t evident here.
Samuel Gregg: Some of those trends are evident here. But nonetheless, the sheer resilience of American capitalism, I think, never stops, never ceases to amaze me just how resilient that economy is and the way that it produces the type of economic growth that is so essential for everything else that leads to a dignified and flourishing life. So those are the two things, the persistence of entrepreneurship, the sheer cultural influence of it in every sector of America, but also the sheer resilience of American capitalism. It’s if, it’s battered, it’s being punched around, it’s had lots of things laid upon it, but nonetheless, it keeps powering forward. And that I think is both those things are sources for optimism today.
Chelsea Follett: That is a beautiful note to end on. This has been a fascinating conversation. The book, again, is the next American economy, nation, states and markets in an uncertain world. Please check it out if you enjoyed this podcast. And thank you again so much for speaking with me.
Samuel Gregg: Thank you, Chelsea. Great to be with you.