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Will Trump’s Crony Capitalism Corrupt the Republican Party?

Written by Kris Hammond

The great investor Warren Buffet famously observed that “It’s only when the tide goes out that you learn who’s been swimming naked.”

Following the election of Donald J. Trump to the presidency, America may soon witness the spectacle of a lot of naked Republicans, bereft of their principles.

On Thursday, Trump celebrated a deal with Carrier, a heating and air-conditioning manufacturer, in which the company will keep 1,100 jobs in the United States in exchange for receiving a $7 million incentive package from the state of Indiana. The tide went out and revealed some politicians who continue to stand against crony capitalism and for the rule of law, and others who believe that political benefits trump such principles.

In an op-ed published Friday on a website called Young Conservatives, former vice presidential candidate Sarah Palin went rogue. She questioned the wisdom of handing Carrier a pile of cash in order to incentive the retention of jobs. The op-ed was written in Palinese, but her position squares with conservative Republican orthodoxy of the past many years:

When government steps in arbitrarily with individual subsidies, favoring one business over others, it sets inconsistent, unfair, illogical precedent. Meanwhile, the invisible hand that best orchestrates a free people’s free enterprise system gets amputated. Then, special interests creep in and manipulate markets. Republicans oppose this, remember? Instead, we support competition on a level playing field, remember? Because we know special interest crony capitalism is one big fail.

Palin continued:

Politicians picking and choosing recipients of corporate welfare is railed against by fiscal conservatives, for it’s a hallmark of corruption. And socialism. The Obama Administration dealt in it in spades. Recall Solyndra, Stimulus boondoggles, and all their other taxpayer-subsidized anchors on our economy. A $20 trillion debt-ridden country can’t afford this sinfully stupid practice, so vigilantly guard against its continuance, or we’re doomed.

Basically, Palin argued that the Barack Obama administration’s guarantee of a $535 million loan to the solar-panel manufacturer Solyndra (which went bankrupt, leaving taxpayers on the hook for the loan) was a corrupt, socialist, crony capitalist, corporate welfare scheme. Trump’s Carrier deal is also a corrupt, socialist, crony capitalist, corporate welfare scheme. Therefore, fiscal conservatives who opposed the Solyndra loan should oppose the Carrier cash handout, as well. The tide receded and Palin emerged fully clothed in her principles.

Now for the naked: Speaker of the House Paul Ryan has in the past sung the praises of capitalism’s greatest defender, Ayn Rand. He gave away her seminal work, Atlas Shrugged, as Christmas gifts and forced his interns to read the 1,088-page novel. In a September 2011 commentary, Ryan slammed the Solyndra loan debacle as an example of “the folly of empowering government to pick winners and losers in our economy.”

Where does Ryan stand on the Carrier deal? He is singing from the Trump hymn now. When asked whether he was “uneasy” with the Carrier deal, Ryan spoke only about the deal’s supposedly positive aspects: “Well, I’m pretty happy that we’re keeping jobs in America — aren’t you?” The tide went out and Ryan stands naked.

No one knows what path the Trump administration will take from here and it is premature to conclude that Republicans will abandon free market principles. However, the waves will keep coming. Trump has railed against the North America Free Trade Agreement (NAFTA), which passed with support from 75% of Republican members of Congress. His call for a 35% tax on U.S. companies that move jobs or operations overseas must encounter stiff opposition from free-market Republicans if they wish to retain their free-market bona fides.

The potential damage to America’s capitalist system extends beyond anti-free market tariffs and cash handouts to corporations threatening to depart the country. Analysis of the Carrier deal suggests that the $7 million handout by itself wasn’t enough to convince the company to keep the jobs in Indiana. More likely, the deal made sense only after Trump won the election and, thus, could conceivably influence the ability of Carrier’s parent corporation to win large defense contracts.

Former treasury secretary Lawrence Summers observed in a Washington Post blog post that “It is not hard to see from the point of view of United Technologies, the parent of Carrier, that for a company with more than $50 billion in revenue it’s surely worth $60 million to not be on the wrong side of a possibly vindictive president of the United States.” Therefore, companies who bid on future defense contracts are right to wonder whether Trump’s deal with United Technologies, which resulted in positive media reports during what appears to be a shaky presidential transition, will result in favoritism towards that company during the bidding process. Crony capitalism is fundamentally incompatible with a healthy free market system; even if no actual influence ever takes place, faith in the fairness of the contracting process is still undermined.

Many concerns have been raised about Trump’s potential conflicts of interest, but marry those conflicts with a crony capitalist picking-winners-and-losers philosophy and imagine the possibilities. What if Solyndra had not been simply an ideological pet project? What if President Obama owned some or all of Solyndra? What if Obama had personally received a bailout worth hundreds of millions of dollars from the federal government when his company went bankrupt? Now imagine ten such Solyndras, with President Obama personally being bailed out with a billion dollars of taxpayer funds. Imagine the political blowback.

Free market conservatives will face some stark choices in the coming years between political expediency and economic principles. As with so much of what Trump says and does, the Big Reveal is often not what Trump said or did, but how political actors responded. The Trump presidency will separate the star swimmers from the skinny dippers.

 

Currently the principal of Everest Law Firm in Alexandria, Virginia, Kris Hammond has served as an attorney for a district court judge, the National Republican Congressional Committee, and the U.S. Department of Justice in its Civil Rights Division. He has run for office twice and was an elected delegate to the 2016 Republican National Convention.

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About the author

Kris Hammond

Originally from Indiana, Kris has lived in the District of Columbia since 2004. He has served as a federal judicial law clerk for a district court judge, assistant counsel for the National Republican Congressional Committee, and a trial attorney for the U.S. Department of Justice in its Civil Rights Division.

He has run for office twice in the District of Columbia, winning his race in 2006 for the office of Advisory Neighborhood Commissioner. On March 12, 2016, D.C. Republicans citywide elected Kris to be one of the 16 Delegates who will represent the District of Columbia at the Republican National Convention July 18-21 in Cleveland, Ohio.

In the Spring of 2016, Kris founded Everest Law Firm PLLC, located in Old Town Alexandria, Virginia.