Marco Rubio’s Flawed “American System”

By Nancy Spannaus

There is no question but that Florida’s Senator Marco Rubio aspires to be the new voice for the “American System” of economics. His latest initiative occurred on December 8, when he keynoted the inaugural Henry Clay Lecture in Political Economy at Hillsdale College’s Washington, D.C. Kirby Center. The event was sponsored by the American Compass group, an institution founded approximately one year ago with the explicit aim “to restore an economic consensus that emphasizes the importance of family, community, and industry to the nation’s liberty and prosperity.”

In his relatively short speech, which I will discuss further below, Rubio had some highly relevant criticisms to make on the misconceptions underlying U.S. economic policy over the recent decades. He also accurately identified two key elements of Clay’s American System: his commitment to American economic independence and to expanding the industrial capacity of the U.S. economy.

Yet it’s clear that Rubio’s idea of an American System policy for today is seriously flawed. He has basically reduced the “issue” to a call to wage economic warfare (or worse) against China, and ignored the kinds of Federal government policies required to put the American economy back on track. A closer look at Clay’s American System will begin to illuminate the problem.

What Was the American System?

In his long political career, through which he served as a Congressman, a Senator, and Secretary of State, Henry Clay sought to rally the American people behind what he dubbed the “American System” of economics. While the cutting edge of his polemics was often the adoption of protective tariffs for U.S. industry (against the declared British imperial policy to “strangle” American manufactures in their cradle), the full program involved two other essential elements: the establishment of a National Bank and a policy of Federal support for internal improvements (or infrastructure) throughout the nation.

The intellectual foundation for this three-part program was laid by none other than Alexander Hamilton, especially in his Report on Manufactures. U.S. national sovereignty absolutely required sovereign credit and home production of the most vital necessities of life for the population, Hamilton thought. It also required binding the nation together through infrastructure projects that would bring mutual economic benefit to various sectors of the country, and simultaneously ensure political unity.

At the heart of such a program was the understanding that success required support for industry, for the productivity of the labor force (thus, its living standard), and for scientific and technological progress. The Federal government’s commitment to the “general welfare” was a commitment to do precisely that through, among other things, its role in the economy.

Clay’s shortcomings on pursuing such a program, especially on the issue of slavery, are well-known, but those shortcomings do not invalidate the sound principles upon which the American System was based.

Rubio’s Critique

In his Henry Clay lecture, Rubio quickly shifted from noting Clay’s vision of industrialization to taking up the trade issue. He defined the key problem lay as letting China join the World Trade Organization in 2001, which opened up huge avenues for trade and, most importantly, the export of U.S. industry to China.

The empirics would seem to support Rubio’s argument: the massive outsourcing of industrial production, the disproportionate growth of finance, and the increasing market dominance of China, with its formidable productive capacity. He even gives lip service to the role of Wall Street in this process, noting that these prominent bankers are perfectly happy to see American industry hollowed out, as long as they can make more profits.

Rubio also trenchantly and accurately identifies some of the major delusions which allow this system to continue.  The first was that the United States should become a nation of consumers, not producers (the post-industrial society argument). The second was that the rise of the stock market was equivalent to increasing wealth in the U.S. economy (an argument that can easily be demolished by looking at the stagnation of wages against skyrocketing financial profits). And the third was that opening up to China (free trade) would give the United States (or “the West”) more influence over that nation – i.e., extend control. Au contraire, he argues. China is destroying us instead.

What Really Happened

Rubio has turned reality upside-down.  Rather than Wall Street helping the Chinese communists (sic) destroy us, Wall Street and associated international bankers (heavily in London) initiated the process of destroying the U.S. economy, especially its industrial base, and used the Chinese (among other means) to do it. At the time of the opening up with China in the 1970s, this process didn’t bolster the Chinese at all. They were being used as a cheap labor source, and had little power over what was being done.

That opening-up coincided with the heavy promotion by the U.S. Establishment of precisely the illusions which Rubio mentions: the post-industrial society and the financialization of increasing aspects of the economy. Working systems were broken up in the name of decentralization, but, in fact, were simply turned into vehicles for increased profits. The telecommunications, energy, and airline industries are cases in point.

Over the decades that followed, this process accelerated, and a bipartisan “consensus” (among the elite) emerged that permitted the dismantling of nearly all of the Federal regulatory measures that were instituted by American System President Franklin Roosevelt. Rather than use its powers to direct resources toward economic progress, the Federal government used them to stymie economic development on the one hand, and to remove obstacles to unfettered speculation and looting on the other.

Much of this happened long before the Chinese were brought into the WTO, which itself is an agency antithetical to national sovereignty of all countries.

American Compass researchers, including Executive Director Oren Cass, understand this process of devolution of the U.S. economy very well.  Yet, they have apparently yielded to Rubio’s political agenda, which virtually reduces the entire decline of the U.S. economy to the evils of the “Chinese communists.”

The Proof of the Pudding

I have looked in vain for any indication that Sen. Rubio is supporting, much less initiating, action in Congress toward resolving the core U.S. policy problems that have led to our current decline.  Where is the legislation to re-establish national banking for the sake of massive investment in upgrading of our infrastructure, for example? Where is the legislation to attack Wall Street speculation, by re-instating Glass-Steagall and SEC bans on stock buybacks?  Where is the support for a desperately needed high-speed rail network linking the country, or for an increased minimum wage and labor rights to help the working-class families which Rubio claims to be championing?

True, Rubio has raised the banner of “industrial policy,” and championed Federal government support for investment and R&D in industries such as computer chips and space. But these are put in the context of calls for a “balanced budget,” a dramatic increase in military spending to fight alleged enemies Russia and China, and opposition to the necessary Federal government role to radically upgrade U.S. infrastructure. While protesting he really was for infrastructure, for example, he voted against the $1 trillion infrastructure bill along with all other Senate Republicans.

From what I can see, even Rubio’s positive initiatives, such as on advancing the U.S. space program, are put in terms of attacking the Chinese “enemy.” His financial “reforms” concentrate on delisting Chinese firms, not cutting speculation and incentivizing long-term industrial investment.  As for space, China’s scientific accomplishments are no attack on the United States, any more than the original Moon landing by the United States was an attack on the rest of the world.  Yet Rubio’s bill on this issue starts from the premise of a deadly conflict of interest and enmity, rather than advocating cooperation for the common interests of mankind.

This is not the American System. Indeed, the Chinese funding and building of their own national high-speed rail system (known to many U.S. lawmakers as putting the U.S. transportation network to shame) is more in line with Clay and Hamilton’s American System than U.S. infrastructure policy has been in recent decades!

Nor is the American System correctly seen as warfare against other nation’s economic development. Hamilton and Washington conceived of it not only as a nation-building policy, but also part of expanding peaceful commercial relations with other nations. And under the Grant administration, American System experts such as E. Peshine Smith were sent to other countries to expound their principles and share the “secrets” of U.S. economic success.

Rubio is right that we need to revive the American System, not simply by copying Clay’s policies, but following the principles that underlay them. But to do so requires that we recognize precisely where we went wrong in giving virtual control of our financial system to Wall Street interests, and finally re-establish sovereign control to advance the General Welfare. That would represent reviving a modern version of the American System.

I have laid out both the history and the general principles of that system in my book Hamilton Versus Wall Street. Should he ask, I would be glad to donate a copy to Senator Rubio.

Nancy Spannaus is the president of American System Now where this article was first published.