The Bear’s Lair: The Country-Club Country

President Biden’s lax immigration policy has one inescapable economic effect: it lowers the earnings of low-skill Americans. Conversely, the policy of the 1620s and 1630s that shipped convicts and the indigent to the American colonies as indentured servants had a remarkable positive effect in reversing the hundred-year decline in real English wages. The recent failure and the 400-year-old success have a similar principle: governments should treat their poorer subjects as members of a country club, whose happiness and welfare is of the utmost importance.

This principle, if adopted, has enormous implications for the conduct of policy. In the early decades of industrialization, it argued for keeping wages high, with a substantial “safety net” for the inevitable victims of industrialization’s new economic instability. Robert, Lord Liverpool (prime minister, 1812-27) followed this principle explicitly when he argued for high, not low wages (which themselves increased the incentive towards mechanization), praised the “outdoor relief” system of cash payments to the very poorest under the 1601 Poor Law (rather than the deliberately unpleasant Victorian workhouses of the 1834 Law) and fought for the 1815 Corn Laws, which provided a cushion for the agricultural laborers, the largest category of workers who would be immiserated by “free trade.”

Conversely Sir Robert Peel, repealing the Corn Laws and deliberately removing the tariff protection for British West Indian sugar (greatly increasing the market share of slave-grown sugar from Brazil and elsewhere), showed a lack of care over the welfare of the poorest typical of a man whose wealth had come from his sweatshop millionaire father.

In the United States, the tariff policies of Alexander Hamilton and William McKinley were typical of the “country-club country” approach to working class living standards. Through those tariffs they ensured that U.S. blue-collar wages remained the highest in the world, despite the flood of low-skill immigration throughout the 19th century. The McKinley tariff damaged the British steel industry, and British living standards generally, but that was not McKinley’s problem; he was elected to represent the citizens of the United States. McKinley could reasonably have responded that worsening British economic decline was due to that country’s unilateral free trade policy, which exposed the country’s workers to unlimited competition from every subsidized sweatshop in the world.

In the 1930s, Britain finally stopped subjecting its poorer subjects to global subsidized competition and adopted a 10% “Imperial Preference” tariff that gave priority to Britain’s overseas territories as well as domestic production. The result, despite depressed global trade conditions throughout the decade, was the fastest 5-year period of growth in Britain’s history, with living standards surging ahead, progress only reversed by the Second World War. The British people, finally treated like country-club members instead of as replaceable peons, enjoyed a rapid increase in living standards, with cheap and good housing available in a way never seen since in that overcrowded country.

Maynard Keynes, probably the most inept negotiator ever sent to a major global conference, gave away Imperial Preference for a bag of magic beans at Bretton Woods in 1944. As a result, the British people suffered a postwar penury far worse than that of the countries it had beaten in World War II. In an attempt to rectify this problem, Britain joined the European Union, a grouping that offered few economic advantages, certainly fewer than the old Imperial Preference grouping of countries with abundant raw materials. However, in practice it became clear that the EU bureaucracy, although highly protectionist, regarded protectionism not as a tool for improving the “country-club” living standards of its poorer citizens, but as a tool to inflate the power and influence of the central bureaucracy while the poorer citizens were immiserated further by unrestricted immigration.

This is a key to understanding the “country-club country” method of government. It requires the government to protect its poorer citizens (but not random foreign immigrants) from the forces driving down living standards to the global minimum. Protectionism is a tool towards achieving this, but today it is not sufficient. With transportation costs far lower and its availability far higher than in McKinley’s time, protectionist tariffs with an “open borders” immigration policy and lax enforcement of immigration laws fail to protect impoverished domestic citizens from the icy blast of global wage competition. That competition derives from a population growth that, with modern medicine, is essentially unlimited in poor countries, however modest it may be in the rich West. The inexorable and damaging tide of immigration is then intensified by sweatshop lobbyist employers and criminal gangs of people-smugglers.

The EU/Biden administration “woke” approach to government does not protect the poorest citizens; it oppresses them. Everything is organized for the benefit of the over-educated nomenklatura, whose social and lifestyle preferences are the only ones taken into account. Immigration, legal and illegal, is encouraged, without regard as to its effect on domestic wage rates. Regulations are passed that suit the prejudices of the nomenklatura, without regard to their effect on the living standards of poorer and less over-educated citizens. Taxes are raised, and handouts made, but many of those handouts go, not to the poorest citizens, but to the nomenklatura itself or to immigrants and other interlopers. In any case, handouts, as has frequently been demonstrated generally have ideological strings attached and thus may even have a detrimental effect on the life welfare of their recipients.

Poorer and less-skilled citizens need not demotivating cash with strings attached but an assurance of plentiful decently-paid jobs, that can enable them to rise a family in reasonable comfort – the dream of 1950s America, the ultimate country club society (albeit not for minorities, regrettably.) That Nirvana is achieved by tight immigration, moderate tariffs against cheap-labor products and plentiful encouragement of technological and economic progress.

The country-club country principle also involves country-club business management, surprisingly to those brought up in the Whiggish free-marketism of the 1980s business schools. During that decade, the idea took hold that existing U.S. companies were run by “country-club” managers – supposedly on the golf course by 3pm – and that a new more aggressive cadre of leveraged hotshots would improve corporate performance. The 90s tendency to grant massive awards of stock options to top management reinforced the tendency to swing aggressively for the fences, without much concern for the company’s employees, or even for its long-term survival if enough money could be made in the meantime. Then the outsourcing mania of the “oughts” which packed well-paid U.S. manufacturing jobs in their millions off to China, made matters still worse.

The country-club management approach is much better, both for the economy and the lower-paid workers. For one thing, top management is hugely cheaper; instead of hundreds of millions of dollars in stock options, a few million, membership of a good golf club and a corporate Lexus or top-end Tesla, of course U.S.-made, should be ample for the CEO. Little use is made of leverage and there are no share buybacks, so ordinary investors enjoy good dividends and there is little risk of the company going bankrupt in the next downturn. Production remains in the United States, or in other countries where the company has an established market position – that both secures the jobs of the U.S. workforce and renders the company’s supply chain impervious to disruption from adverse political events. And if the top management are on the golf course by 3pm, so what? – their most intelligent ideas for the company’s long-term flourishing can equally be generated at the 14th hole and mumbled onto a cellphone, and they are less likely to be tempted by shenanigans that don’t involve golf.

Country-club business management seems to have no discernable adverse economic effect. The fastest productivity growth in the U.S. economy was the period 1948-73, when country-club management of U.S. business was almost universal, buttressed by high top rates of income tax, a discouragement of stock options and a prohibition on stock buybacks.

The country-club country is thus a principle that should be adopted. Immigration should be discouraged, and President Trump’s wall built and reinforced, to prevent excessive competition to the domestic workforce in serving the gigantic U.S. market. Tariffs and import restrictions should at the very least be high enough to prevent any element of “unilateral disarmament” as the British foolishly suffered for 80 years following the 1846 Repeal of the Corn Laws. Top corporate management should be paid much less, encouraged to play more golf and prevented from buying back stock. Environmental and “climate change” regulations should as far as possible be eliminated.

Country clubs are good! It is thus only fair that the entire U.S. population should get to enjoy the benefits of a country-club country!

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)