It’s not easy being an options trader, like Rick Santelli has been for much of his adult life. You have to be smart and sharp and tough. And you still can fail on a regular basis. It’s called taking risk. Being, if you will, an entrepreneur. And most voters in 2016 do not care to take on too much risk. Especially, for example, when it comes to their homes and their jobs.

So when voters turn to Trump, as they did in large numbers in New Hampshire, they are asking the government to take a little of the risk out of their lives. The risks associated with competing for a job with a large illegal work force. The risks associated with taking out the wrong type of floating rate mortgage with too little downpayment, and losing one’s home, as a result of a counter-party crisis on Wall Street. The risks of having your skills become redundant as your former employer lays you off and outsources your job.

Have GOP voters turned their back on America’s unique quality of entrepreneurship? No, but they do want a revamp of the rules. Not every laid-off 45-year-old auto worker can pivot quickly to building a successful online business that actually pays his or her bills before they lose their home. Not every outsourced call center employee will find work that is equally well-paid. Or more accurately, that at least maintains their not-so-great wage level.

It should be remembered that Schumpeter – the Austrian-American thinker who coined the term creative destruction – did not view capitalism’s penchant for destroying the old to make way for the new as something healthy. He viewed it – in an extension of marxist critiques – as a self-destructive process that would sink capitalism. That he published the work during WW II’s darkest days in 1942, shows he was very much of his times.

Schumpeter was wrong of course, and his attack on capitalism was lustily turned into a defense of the creative genius that capitalism is capable of unleashing in human beings. But creative destruction produces – by definition – winners and losers. America’s challenge – as the living, beating heart of innovation around the globe – has always been how to incentivize creativity without unwarranted destruction.

So when Trump promises to make America Great (with a capital G) again, he’s promising a couple of things: to take away some of the risk that working families face from cheap labor competition inside America. And to take away some of the risk that American manufacturers face from less-regulated competition overseas. These are not necessarily mutually exclusive goals, but they can and will bump into each other over the following months.

To create a manufacturing revolution in America with the American worker at the center of it is an astonishingly ambitious goal and one that more than likely will be very difficult to achieve. Trump seems to have convinced workers – at least those in New Hampshire – that he can do it. Can he convince business?

Comments

  • Terry Dunross

    I’m encouraged to see that some are making the connection between what Trump is proposing and the writings of Schumpeter; however, in this case I think you have misunderstood the theory of Creative Destruction.

    Far from being a destructive process, Shumpeter viewed Creative Destruction as the driving force of capitalist innovation, and the root of the success of capitalist society. His ominous message was that through excessive regulation, and the resulting formation of large “Too big to fail” institutions, the mechanism of Creative Destruction would be stifled, and replaced with a more Perfectly Competitive (stagnant) Oligopolistically Competitive economy.

    This is exactly what is happening now: As you noted, large American firms are outsourcing their production to less regulated economies, or leaving the county all together, rather than investing in manufacturing process innovation domestically.

    In our current regulatory environment, it makes sense for large firms to do this: They are playing the game according to the rules set by Washington. But if those rules were changed to favor domestic investment we would be looking at a paradigm shift.

    Consider Tesla Motors, or Space X, as perfect examples of Creative Destruction. By utilizing improvements in technology, and implementing drastic production process innovations these firms have produced products that are orders of magnitude improvements over their competitors, and they produce those products entirely in the United States. United Launch Alliance, Ford, GM… These companies had previously resigned themselves to slow marginal product improvement, and cost reduction through outsourcing production, to remain competitive. Creative Destruction had been all but absent from their industries for decades, and the results are self evident.

    Schumpeter was spot on with his assessment of the critical role that Creative Destruction plays in the success of capitalism; further, he was remarkably correct in his suggestion of how the expansion of regulations and bureaucracy would impede the mechanism. Trump is likewise correct in his assertions that by levelling the international playing field, and incentivizing firms to invest and build domestically, we could achieve a renaissance of American innovation and economic growth.