Dear Republicans: Securing U.S. Competitiveness Requires a National Development Policy
Almost three decades ago, I had the honor of serving as the first executive director of the Rhode Island Economic Policy Council, a public-private organization co-chaired by Republican governor Lincoln Almond and Larry Fish, CEO of Citizens Bank. The governor had proposed the council because Rhode Island’s economy was second-worst performing in the nation. He understood that a healthy state economy depended on government playing an active role with its economic development policies. Congressional Republicans need to reach a similar conclusion today when it comes to the national development policies that will be required for the United States to compete with China.
Our council in Rhode Island was made up of business, university, and labor leaders, who crafted a 10-point economic development plan that included steps like reforming the state’s high-cost unemployment insurance system and creating the nation’s most generous R&D tax credit. But it also included more interventionist steps, like establishing the Samuel Slater Technology Partnership (Slater was the person who, in response to government bounties for skilled textile workers, came to America with the plans in his head to replicate a British textile factory), a state-funded industry-university research grant program, and funding to help small manufacturers be more competitive.
While Governor Almond was a “John Chaffee” Republican, he was no big government interventionist. He fought to eliminate a number of Rhode Island’s sclerotic regulations. He resisted (unsuccessfully) attempts by public sector unions to unreasonably boost their pension payments. But Almond understood —as many Republican governors do today—that while free markets and limited government might be ideal, states and other countries in the real world were competing fiercely to attract Rhode Island’s traded-sector business (or compete them out of business), so market forces alone would not suffice.
In other words, he knew the state needed an economic development strategy that “intervened” in the economy, not in a crony-capitalist way (a term libertarians throw out to disparage any government policies for the economy), but in ways that helped key traded-sector industries.
Rhode Island was and is a deep-blue state. As such, relying only on Democrats for an economic development plan would have guaranteed it would do too little to help business directly. As a Republican, Almond understood the risks businesspeople took every day, and their needs, not only for a streamlined regulatory system, but also for good infrastructure, top-notch research universities, and state programs around technology development and transfer. And Almond was able to work with the Democratically controlled Senate and House to pass virtually all of the proposals in our plan.
I think of that as I watch economic policy debates unfold in Congress today over measures to restore U.S. global competitiveness, especially in advanced manufacturing. Unfortunately, the United States is on the road to looking like Rhode Island did then: a jurisdiction that had lost its competitive edge. And yet some Republicans, particularly those who lean libertarian, ignore the idea of competitiveness and shrug at the loss of manufacturing, seeing it as Adam Smith’s invisible hand working its magic. And because many believe that a national development policy puts at risk what they see as the American tradition of free markets, they refuse to support commonsense measures like the Endless Frontier Act. (Only 17 Senate Republicans, including Speaker McConnell, voted for it.) Yet from the founding of the Republic to World War I, American leaders rejected Adam Smith’s counsel (which was designed for a nation that was economically dominant), and instead embraced a philosophy of national developmentalism. These included Federalists, Whigs, and Republicans like Alexander Hamilton, Henry Clay, Abraham Lincoln, and Teddy Roosevelt. Indeed, it is no accident that the Civil War years, when the Democratic South had no members in Congress, were the most productive in American history for national development policy: passing the Pacific Railway Act, the Homestead Act, the National Banking Act, the Morrill Land Grant Act, the Department of Agriculture Act, and instituting the Morrill tariff (passed right before the War, but after several southern Democratic senators had resigned from Congress).
In their sincere desire to limit government overreach and ensure economic freedom and personal liberty, many Republicans believe that a national development policy would put all of that at risk, and that only smaller government will advance the cause of national growth and competitiveness. But as important as the small-government framework might be to the non-traded sectors of the economy (e.g., grocery stores and dry cleaners), it is a poor guide to policy for the advanced industries that comprise the nation’s embattled traded sectors. And if America’s traded-sector economic engine is weak—as Rhode Island’s was in the 1980s and the United States’ is now—it will be very difficult to preserve the American Dream. Linc Almond understood that. Most of today’s Republican governors understand it, too.
Republicans need not become statists. Linc Almond certainly didn’t. But he knew that ensuring a stronger Ocean State economy required an active role for government in advancing economic development.
Republicans in Congress today face a similar choice. There is bipartisan legislation on the table (at least in the Senate) that would produce a more vibrant, dynamic, and globally competitive U.S. economy through a package of incentives and public investments in key foundation areas such as research and development and advanced manufacturing. If Republicans cannot bring themselves to support those plans, the result will be fewer manufacturing jobs, a bigger trade deficit, a weaker dollar, less tax revenue, and a loss of technology advantage to China. Democrats have their own challenges to address in this area. But I hope Republicans will once again embrace their long, proud tradition of national developmentalism.
