Modern day capitalism has its roots in the 18th century in the period known as the Age of Enlightenment. It was one of the most intellectually productive periods in the Western world. This was particularly true in the field of economics. This productivity came on the heels of discoveries by men such as Nicholas Copernicus, Tycho Brahe, Johannes Kepler, Galileo Galilei and Isaac Newton. These thinkers, and others, sought to uncover the nature of the universe. What Newton ultimately concluded was that our universe is governed by inexorable natural laws.
During the incipient phase of the Industrial Revolution, the prevailing economic philosophy was known as mercantilism, the essence of which called for thorough governmental regulation of the economy. Thanks to some French thinkers known as physiocrats and a Scot named Adam Smith, a new economic philosophy emerged -- laissez-faire -- which contended that just as there are laws governing the operation of the universe, there are others governing the operation of economics. The conclusion was the economy that worked best was that which was most closely in harmony with the laws of nature. According to that theory, the principles of "supply and demand" and "competition" should not be interfered with by the government. To do so would be a violation of natural law.
Since the 18th century, there has evolved a variety of other economic theories, including socialism and communism, but as far as capitalism is concerned, the essential argument has been: How free should a free-market economy be or how much restraint, if any, should be placed upon it?
Now we have the 2002 version of free trade. President Bush told us he is a strong advocate of free trade and so is his U.S. trade representative, Robert Zoellick, who said a few weeks ago that tariffs "are nothing more than taxes that hurt the low- and moderate-income people." Now the Bush administration has imposed a 30 percent tariff on imported foreign steel. What would Adam Smith, the champion of modern day capitalism have thought of that? He would have said it was a violation of the principle of "competition." According to that principle, weak and inefficient systems of production should be allowed to go by the wayside. That view was re-enforced by Treasury Secretary Paul O'Neil, who, in describing the Enron debacle, recently told us, "Companies come and go. It's part of the genius of capitalism." Unlike Zoellick, Secretary O'Neil is reported not to be an advocate for Bush's tariffs on steel.
Is the adoption of this tariff by President Bush really a free-trade issue or is there something else afoot? On March 7, Washington Post columnist George Will said, "Bush's steel policy is what results when intelligent people take up intellectual slumming -- abandoning of proven free-trade principles -- for the pleasure of political opportunism." What is the political opportunism being referenced? Time magazine writer, Frank Pellegrini says Mr. Bush "sold his soul" in the name of "about 800,000 voting steel workers and retirees in West Virginia (and part of Pennsylvania), their unions and their unions' congressmen."
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It might be more correct to say that President Bush is analyzing the steel-producing states and the November 2002 and 2004 elections. In the year 2000 elections, according to a March 5th editorial in the New York Times, Mr. Bush won the West Virginia vote by a "razor-thin" margin. " He would like to add the rich electoral prize of Pennsylvania to his win column in 2004 and help Republican Congressional candidates from steel-producing states this November."
So it seems that President Bush had a dual reason for imposing his tariffs and was willing to risk doing damage to his free-trade image. George Will contends, however, that these measures, "will destroy 10 jobs in the steel-consuming sector of American manufacturing for every steel-making job they save."
Poor Adam Smith and his concept of free-trade have ran afoul of power politics. Bruce Bartlett, a former senior fellow at the Heritage House in Washington, D.C., said of President Bush on March 8, "He has now signaled to the world that he is willing to make important policy decisions based mainly on their political merit." He said he believed "George W. Bush has made the greatest mistake of his presidency by imposing additional tariffs on steel imports for the next three years."
It would appear political expediency is motivating our president rather than adherence to an economic philosophy. Milton Friedman, winner of the 1976 Nobel Prize for economics and guru of free trade, described "tariffs -- euphemistically labeled 'protection' -- a good label for a bad cause." Of course, it could be argued that unless President Bush is able to control the House and the Senate during the next biennium, he won't be in a position to get his programs through Congress, and if he doesn't win re-election in 2004, he will be unable to carry out his long-range agenda. Or, is President Bush a closet advocate of Keynesian interventionist economics?
Another side of this equation is that our policies around the world, economic and otherwise, are alienating us from those whose help we seek in fighting the war on terrorism. And they are potentially damaging to our economy as other nations retaliate with their tariffs, as they surely will.
Who ultimately pays for this protectionism? The U.S. consumer will. Clearly there has been a calculation by the administration that the imposition of tariffs on steel will cause less of a stir on the international scene than the benefits to be reaped by winning the national elections. This is a dangerous strategy that could easily backfire as well as a departure from free-trade economic principles. It also tells the rest of the world we don't really care who our tariffs hurt. Another example of U.S. unilateralism? As I stated in an earlier column, self-interest without recognizing the long-term effects it will have upon our economy, the world economy or the world at large could turn out to be a very short-sighted form of diplomacy indeed.
Russell is European historian and retired chair of the Social Science Division of Rochester Community and Technical College.
