To Tether Big Business to the National Interest, Read Hamilton

Emerging from a Palm Beach gathering of people who have contributed more than $175,000 each to the Republican National Committee since 1992, Senate Majority Leader Trent Lott (R-Miss.) said last week that six-figure contributions are “the American way.”

At least there’s a bipartisan consensus. Despite public outrage at last year’s campaign-finance scandals, President Bill Clinton praised Democratic fat cats at a million-dollar fund-raiser in New York for exercising what he called their “constitutional right” to make $10,000-plus contributions to Democratic senatorial campaigns.

Not since 1953, when then-GM President Charles E. Wilson shocked the nation by asserting that what was good for General Motors was good for the United States, have we seen such naked assertions of the right of private wealth to shape public policy.

Yet, Lott, Clinton and Wilson aren’t entirely wrong. The relationship between economic power and political power in a constitutional republic like the United States is a complicated question. We can attack special interests for trying to hijack the government, but what is the national interest except the sum of the special interests that make up the nation?

This question has vexed American politicians since the founding fathers wrote the Constitution, and nobody has ever thought more clearly about it than Alexander Hamilton. Unlike many modern reformers, Hamilton didn’t try to keep government and business apart. He tried to bring them together by articulating a vision of the national interest that would unite special interests behind a program benefiting the entire country.

Hamilton proposed what came to be known as “the American System”--a national economic strategy that offered business vast opportunities. Highways and canals would reduce transportation costs; protectionist trade policy would defend what were then cutting-edge industries and technologies from British competition.

To a larger degree than most people realize, Hamilton’s “American System” still plays a critical role in American economic development. The government still uses investment and trade policy to promote American industry, and thus American jobs. President Dwight D. Eisenhower’s Interstate Highway System was a 1950s version of Hamilton’s system of canals. When acting U.S. Trade Representative Charlene Barshefsky signed an agreement last Monday opening world telecommunications markets to U.S. companies, she was following in Hamilton’s footsteps. Profits for the rich and jobs for the rest of us: The special interests and the national interest walk hand-in-hand.

For most of U.S. history, this system worked brilliantly and the federal government’s support helped the American economy become the largest in the world. This is what GM’s Wilson was talking about. Back in the 1950s and ‘60s, great companies like General Motors employed American workers and sold goods to U.S. consumers. If the American economy grew, that was good for GM. If the wages of American workers went up, GM might have to give its own workers a raise, but richer workers would buy more cars and, ultimately, GM would make more money.

For Wilson and the business leaders of his generation, it really was true that what helped the United States helped their bottom lines. For Hamiltonians, today’s crisis in American politics isn’t primarily a problem of campaign contributions; it’s a problem of policy. In the global economy, the connection between the national interest and business interests tends to break down. Moving a factory from Los Angeles to Tijuana might be bad for the United States, but good for the company that makes the move. Pollution laws that clean up the American environment might be good for the United States, but they penalize U.S. businesses with higher costs that foreign competitors don’t have to pay.

Special interests--business, labor, environmentalists, agriculture--want as many favors as ever, but we have lost our sense of the broad national interest that can tie all the special interests together in a common vision.

Does this mean the American System is finished? Pessimists say yes. As the economy develops, it will continue to globalize. The gap between global corporations and ordinary Americans will grow wider and wider, and special interests will increasingly crowd out the national interest in our politics.

Hamilton would be more optimistic. The American System has passed through more than one crisis in our history, and, so far, we have always found a way forward. Take the Depression. Up until the 1930s, the United States had been a “free rider” in the world trade system. Foreigners, and especially the British empire, opened their markets to us, but allowed us to protect our domestic markets. As the Depression deepened, American Hamiltonians passed the infamous Smoot-Hawley tariff to protect U.S. markets and jobs. When the British retaliated with a protective tariff of their own, world trade collapsed. It seemed that the American System had come to the end of the road.

As it turned out, American Hamiltonians found an alternate route. Instead of an American system based on protection, the next 50 years saw a new American system based on free trade. By aggressively opening foreign markets to U.S. goods, the American government was able to support American business and American jobs.

Today, the American System faces a new crisis. Is there a way that the American government can continue to stimulate American jobs and the growth of American business in a global economy?

Don’t be too sure the answer is no. The economy of the 21st century is going to be different from the economy we see now. The big growth--and the big profits--of the future are unlikely to come from manufacturing. Entertainment has replaced aerospace as the linchpin of Southern California’s economy; more generally, service-based industries will continue to grow faster than manufacturing for decades to come.

Some service industries, like banking and insurance, are linked to the global economy, but many more are local. Take medical care. Hospitals and nursing homes can’t move to Guatemala, no matter how much lower wages are there. Education works the same way. However much computers and the Internet change education, teachers will still need face-time with their students.

If Hamilton were living today, he would promote the development of the locally based, employment-creating service industries of the future. He would rewrite the tax code to favor sunrise industries, like health care, entertainment, education and software design, at the expense of less dynamic sectors like agriculture and steel. He would see partial privatization of the Social Security system as an opportunity to develop a huge pool of capital for investment in U.S.-based service industries that create jobs at home.

If American Hamiltonians rise to the challenge today, the United States will develop economic policies that create more jobs and more opportunities for the American people at home--and more profits for the corporations that employ them. That could revive the American System and bridge the gap that now looms so large between the special interests and the general, national interest.

Hamilton was a realist. He did not think human nature would change, and he knew that there would be corruption as long as there was politics. Still, he believed in win-win solutions that would benefit fat cats and thin cats together. That, not $100,000 campaign contributions, is what the American way is all about. Let’s hope Clinton and Lott keep that in mind.