American Compass Releases Conservative Economic Agenda for 118th Congress
Hayek’s Broken Promise
Comparative Disadvantage

Our latest Compass Point is by James M. Roberts, long-time research fellow at the Heritage Foundation and co-editor of their Index of Economic Freedom, reflecting on his experience in the conservative establishment and the perils of a political movement running on autopilot.

“Conservatives are fond of warning that a government program, once established, never dies,” he observes wryly. “The same, it turns out, can be said of conservative institutions.”

Roberts brings to life many of the same challenges that I’ve witnessed first-hand working in and with right-of-center institutions, and which I suppose probably afflict the left-of-center in equal measure. The echo chambers that form and the sclerosis that sets in are not the result of greed, dishonesty, bad faith, or incompetence. They are the natural consequence of institutions doing their best to cope with change and choosing among a limited set of unattractive options.

When people ask me why I think so many conservative institutions remain stuck in the 1980s and either unwilling or unable to adapt to modern reality, I point them to the private sector. The same dynamic unfolds when corporations become so large, successful, and profitable, that they find themselves incapable of reacting to competitive challenges coming straight at them. On this point, I highly recommend Megan McArdle’s discussion of General Motors in her book, The Up Side of Down.

“It took the most successful company in the world more than forty years to finally acknowledge that the magic was gone,” writes McArdle. “As GM entered its death throes, every business journalist in America tried to answer the same question: How do you let your company lose market share for forty years running without, y’know, doing something about it?” The answer is that big institutions, which means the people running them, are programmed to ignore problems and resist change. As McArdle explains:

You’ve often heard it said that companies or people are “victims of their own success,” but in the case of GM, that was literally true. “The great problem with successful companies is that they have been successful,” says [turnaround consultant and University of Chicago business professor James] Schrager. “Most don’t call people like me until they are quite obviously unsuccessful. They don’t develop their own internal thinking to say, ‘Yup, we used to be great, but that was yesterday.’” But it isn’t just nostalgia that makes the turnarounds so hard. That history of success means the potential losses are enormous. Years of wealth building means that everyone has more to lose—and thus, that people will try very hard to avoid the losses.

The many moving parts of a large institution are interdependent, and their relationships and operating models become entrenched. At GM, this meant the factories, the unions, the dealerships, and so on. In a think tank it is the donors, the management, the scholars, and the media outlets. Where do you start? Find new donors with different priorities to fund the same scholars? Find new scholars and hope the same donors will fund them? Pitch a different set of arguments to the same reporters and pundits who have been delivering the old ones for years? Large ships turn slowly.

And because change is both difficult and risky, it is easy for people, especially in a group where they all share the same incentives, to convince themselves that staying the course is the better choice. Back to McArdle:

At GM, too, the herd thinking seems to have made everything worse—in part because of the stakeholder battles, but mostly because the management talked themselves into behavior so bizarre that it bordered on mass psychosis. … [S]omehow, thousands of people decided that the laws of mathematics no longer applied to them. It took actually running out of cash—plus a bankruptcy court, a special task force, and about 300 million angry taxpayers—to get GM to stop pretending and do what had been obvious for decades.

The discipline of market forces operates less effectively in the nonprofit sector. The discipline of democracy, on the other hand, operates with a vengeance. This may help to explain the gaping maw that has quickly opened between the conservatism’s legacy institutions and the leaders and candidates of the Republican Party. It also suggests those institutions will have staying power even as their relevance wanes.

Roberts offers a number of interesting suggestions for reform, but they share in common the prerequisite that conservative leaders must do what GM’s did not: accept the need for change though plodding along still seems the more comfortable choice. The first step, then, is the one Roberts has already taken, and many others will have to take, of speaking openly about the problem.

Read Taking the Right Off Autopilot.

Oren Cass
Oren Cass is the executive director at American Compass.
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American Compass Releases Conservative Economic Agenda for 118th Congress

Today, American Compass is releasing New Direction: Conservative Principles & Policies for the 118th Congress, an agenda for economic renewal, focused on the interests of worker, their families and communities, and the nation.

Hayek’s Broken Promise

It is a tragedy that Friedrich Hayek’s excesses, invested with the authority of his (deserved) reputation, became the unexamined default for right-of-center economic thinking in America.

The resulting orthodoxy too often combines a Panglossian insistence on defending market outcomes regardless of their quality with a reflexive belief that policy intervention can only be distortive for the worse.

But when it comes to international trade’s effect on the American economy, a knowing assertion that nothing should be done, followed by yet another “analysis” working backward to an argument that nothing needs doing, will no longer do.

Comparative Disadvantage

If comparative advantage is created rather than discovered, refusing to play the game has consequences.