Bloomberg View’s Michael Schuman argues that Trump’s proposed economic policies, including intensive government management of private businesses, risks pushing the United States into a version of Japan’s lost decades.
Factory workers should be cheering. Donald Trump, actually living up to a campaign promise, has been badgering corporate America to keep manufacturing jobs at home. On Thursday, Trump announced that Carrier Corp. will maintain about 1,000 jobs in Indiana rather than shift them to Mexico. He has prodded Apple Inc. to build plants at home rather than outsource to China. And he has taken credit (dubiously) for rescuing a Ford Motor Co. factory in Kentucky.
Many of you are probably saying: Hey, why haven’t we done this sort of thing all along? Finally, we’ve got a tough guy in the White House who can stop those fat cats from moving our jobs overseas!
The problem is that Trump’s bullying will undermine the rule of law — and ultimately prove detrimental to the U.S. economy. We know this because he’s far from the first government official to try such meddling. In Japan, bureaucrats were once famous for it. And the results there should serve as a warning.
During Japan’s high-growth decades, its bureaucrats interfered in the economy in ways big and small. One of their favorite methods was to issue missives known as “administrative guidance.” Such directives usually had no force of law, and they weren’t proper regulations. The bureaucrats were trying to control business decisions in areas where they lacked formal authority. Companies very often abided by this guidance anyway, however, because if they didn’t, they knew the bureaucrats could find some way of punishing them — for instance, by blocking necessary raw materials or withholding a critical permit.
Japan’s bureaucrats believed, much as Trump seems to now, that their actions protected the greater interests of the nation by controlling the self-serving motivations of individual firms. And when Japan was booming, they won kudos from analysts who saw their economic stewardship as a key factor in the country’s success. Some even advocated that the U.S. emulate their state economic management to become more competitive.
But administrative guidance soon became part of a wider system of government interference that ultimately proved Japan’s undoing. In effect, the practice created two sets of books — one official, one unofficial. Since the latter was informal, firms had no real recourse to challenge it. That allowed bureaucrats to wield ever more influence. They sometimes employed their guidance to circumvent market forces — for instance, to form production cartels or impede foreign companies, which limited competition and protected weak firms. Even consumers complained that the web spun by the bureaucracy was hiking the cost of living to exorbitant levels.