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Trump Isn’t Draining the Swamp, He’s Deepening It

Ryan Bourne

Drain
the swamp!
” was a powerful rallying cry during Donald
Trump’s presidential campaign. The businessman promised to
govern in the public interest, and end the revolving door between
politics and lobbying. If anyone had the chance to overturn special
carve-outs, subsidies, regulatory barriers and access generated by
special pleading, it was surely a wealthy populist insurgent
unbeholden to major donors.

Yet eight months in to the Trump presidency, there appears to be
little momentum behind his pledge to overhaul the relationship
between big vested interests and the US government.
A poll in late May
found that 32 per cent of voters thought
Trump had made the swamp worse, against 24 per cent who saw
improvement. More worryingly, the President’s arbitrary
conduct risks exacerbating crony capitalism in future.

The first ominous signs came with Trump’s cabinet
selection. Appointing
a former CEO of Exxon Mobile
to head the State Department,

a former Goldman Sachs partner
to the Treasury,
the daughter of a shipping company magnate
to the
Transportation department and
an investor in steel, automotive components and coal
to
Commerce, hardly screamed an intent to break links between business
and government.

Eight months in to the
Trump presidency, there appears to be little momentum behind his
pledge to overhaul the relationship between big vested interests
and the US government.

Assigning conventional politicians to other positions did little
to suggest major change was coming, either. A
Newsweek analysis
found that approximately 70 per cent of
Trump’s White House staff were working in DC before the start
of the administration too.

Trump’s picks for key government agencies likewise raised
eyebrows.
Professor Luigi Zingales of the University of Chicago Booth School
of Business has highlighted
how the lawyer
Walter Clayton
was appointed as Chairman of the Securities and
Exchange Commission, for example, having previously represented
many major Wall Street firms in fraud cases — and despite
being married to another Goldman Sachs employee.

True,
one of Trump’s early executive orders
sought to stop a
“revolving door” by preventing administration employees
from taking up lobbying posts for five years after their government
jobs, and for government employees to recuse themselves from
actions that affect their former employers. But this did not go
anywhere near as far as Trump had promised.

In
a Wisconsin rally last October
, he pledged to oversee similar
legislation applied to Congress too. He also promised campaign
finance reform to prevent foreign lobbyists from raising money in
US elections. No such legislation has been forthcoming.

What about policy? The Trump administration had a real
opportunity to end government-granted regulatory, spending and tax
privileges. But little progress has been made here either.

Trump has used a host of executive orders to set frameworks to
constrain the growth of regulation, and the Congressional Review
Act to eliminate many rules passed under Barack Obama. Though an
imperfect measure, there are some indications this is working. In
May, the Federal Register for 2017 stood at around 20,000 pages
(which would imply a level around 62,000 for the full year). This
was much lower than whopping 95,894 of 2016 under President
Obama.

A substantial deregulatory effort could theoretically help
reduce cronyism by reducing the scope of regulation that can be
shaped by special interests. In fact, reducing the size and scope
of government more broadly can eliminate many specific perks and
instances of favouritism towards certain sectors. Trump’s recent
budget showed this, and he is to be commended for proposing cuts,
for example, to farm subsidies, which are perhaps the most
egregious form of privilege with concentrated benefits and diffused
costs across taxpayers.

Yet the President could be going much further to eliminate
government involvement with business.

One obvious example is Trump’s
flip-flop on the Export-Import bank
— the pinnacle of
corporate cronyism. As a candidate, Trump pledged to dissolve the
bank, which divvies out loan guarantees and direct taxpayer funds
to facilitate the exports of some of the US’s biggest companies,
such as Boeing and General Electric. But in office, the President
appears to have been nobbled by its beneficiaries. He now claims it
is vital for them to have access to this kind of export
finance.

On trade, Trump has been more consistently anti-market. But more
protectionist measures, particularly those designed to insulate the
US steel industry, will adversely affect consumers and downstream
industries in order to protect one of the President’s favoured
sectors. Worse, they will embolden other sectors facing strong
foreign competition to lobby the government for similar treatment,
exacerbating cronyism.

That is not to say that all of Trump’s actions reflect a desire
to favour corporate interests. One certainly could not accuse Trump
of listening to big business in his decision to withdraw from the
Paris climate agreement — a decision which brought a stinging
rebuke from a range of company heads and industries keen on the
deal, and the loss of Tesla’s Elon Musk and Disney’s Robert Iger
from his business panel.

But the President’s failure to take a principled, consistent
position on the role of government in business means that these
individual decisions tend to come with strong assumptions about
motive. If Trump thinks protecting steel is acceptable, then it is
understandable why others believe his decision on Paris reflects a
desire to protect fossil fuels.

While the effect of Trump’s policies on the swamp are ambiguous,
his personal conduct is surely deepening it.

The principle that companies should be treated equally under the
law, and that government should avoid picking winners and losers,
is a mainstay of market economy. But even prior to coming to
office, Trump used the bully pulpit of his Twitter account to
praise Ford for a decision not to build a new plant in Mexico,
alongside tweets which warned ominously that companies that
“want to do business in our country, have to start making
things here again”.

He and his team seemingly changed the business decision of
United Technologies, which cancelled plans to move a plant to
Mexico, through a range of proposed US tax incentives and implicit
threats to some of the company’s revenues from government
contracts. The stock prices of other businesses have risen or
fallen based on Trump’s musings on Twitter. Just last week,
Trump and the White House made lots of noise about the Foxconn
plans in Wisconsin.

As a candidate, Trump
threatened Amazon with antitrust action
, following critical
coverage of him in the Washington Post (owned by Amazon
CEO Jeff Bezos). More recently, there have been strong indications
that
the Trump team are using implicit threats
against CNN by
hinting at interventions in the proposed merger between AT&T
and Time Warner (CNN’s parent company). All that is not to
mention the shameless use of public office to boost the value of
Trump properties, and
the use of Mar-a-Lago as a means of access
to the
President.

This behaviour all threatens worsening crony capitalism, because
companies will be more likely to base their business decisions
according to expected political reaction rather than servicing
consumer demand. Innovation and entrepreneurial activity will be
less likely — the easier path for big business will be to
become a “favourite” of the administration. Already we
have seen instances of this politicisation, with companies
re-releasing job announcements to seek the President’s
approval
and recipients of Export-Import bank funds justifying
them using Trump’s protectionist language.

As business becomes politicised, the incentive to invest more in
lobbying, government relations and political donations to meet the
demands and desires of government, rather than consumers, will be
irresistible. And if the electors perceive the negative results of
this cronyism to be a consequence of enterprise rather than
political failure, government control will ratchet up further.

Of course, the Trump presidency has a long way to run. The
Republican Congress and White House could eliminate many of the
opportunities for cronyism by shrinking regulatory agencies, and
ending direct government subsidies. But judged so far on his
government construction, policies and conduct, it is difficult to
conclude that Trump is “draining the swamp”.

Ryan Bourne
occupies the R. Evan Scharf Chair for the Public Understanding of
Economics at the Cato Institute