When I learned economics in the Carter years, there were three classic inputs; land, labor and capital. When I started teaching economics in the Dubya years, they had added a fourth- entrepreneurship. That's the ability to put the other three sets together in creative and productive ways.
Entrepreneurship is generally lacking in governments, for there is little reward for creativity as a government staffer. Private businesses have rewards for creativity in profit for the business and better wages for the workers if the creativity helps the firm.
This Andy Stern (Service Union boss) piece praising the Chinese political economy got folks on the right rather hot and bothered this morning. Let's drop back ten yards and look at how we got here.
What China has seen in the last 30 years is taking that fourth input and letting it work after having wrung it out of the system for the preceeding half-century. Also, capital was in short supply when no private capital was allowed. When you have a shortage of inputs, the value of adding them is very high at first; adding both foreign capital and foreign and domestic Chinese enterprise has allowed China to have 8-10% growth rates, since they were starting from a very low point.
Is China's secret central planning or just letting loose a healthy dose of capital and enterprise? Stern argued for the former, setting things up with this quote from Intel founder Andy Grove-
As Andy Grove so presciently articulated in the July 1, 2010, issue of Businessweek, the economies of China, Singapore, Germany, Brazil and India have demonstrated "that a plan for job creation must be the number-one objective of state economic policy; and that the government must play a strategic role in setting the priorities and arraying the forces of organization necessary to achieve this goal."
After an Occupier-flavored rant at the flaws of modern capitalism, Stern gives us this-
For those of us who love this country and believe America has every asset it needs to remain the No. 1 economic engine of the world, it is troubling that we have no plan—and substitute a demonization of government and worship of the free market at a historical moment that requires a rethinking of both those beliefs.
We're looking at a point in history where our system hit a nasty financial outlier in the mortgage market crunch of the late 00s; free markets don't handle outliers well, for bankrupt firms are worth zero regardless of how deep in the hole they are. A combination of a lack of smart regulation (reigning in the use of ARMs and acid-testing credit default swap formulas before relying on them) and too much bad regulation (encouraging sub-prime loans in minority areas, letting Fannie and Freddie have too much of the mortgage market) coupled with a spike in short-term interest rates created a perfect financial storm that we're recovering from still.
On that level, being a bit skeptical about the markets isn't a bad thing. However, being skeptical about the size of government isn't a bad thing, either. Stern has a point that government gets unfairly bashed by the right; it does have a place in looking after the little guy and keeping folks honest. How big of a place is a fair point of debate, something that Europe is having to deal with in spades right now.
Central planning rarely works well, unless the planners get lucky. Japan in the 60s-80s got lucky, not so much since then. Singapore has had a decent run with a strong central government; Beijing may well be looking at Lee Kwan Yew as a role model for a free-market authoritarian.
We're trying a bit of that in the Obama years. The takeovers of GM and Chrysler helped save some jobs that might have disintegrated had a messier bankruptcy been allowed to occur; you can make the case that the money the US lost on their investment is less than the carnage that would have happened had the markets been left to take their course.
However, we're also seeing some blooper-reel material as well, like the Solyndra debacle, where some well-connected investors made money while Uncle Sam lost his shirt. Creativity is not government's strong suit, nor is predicting what will sell and won't sell in a market economy. A corollary to that is that predicting what industries will deliver the best bang for the investment bunk with regards to job-creation isn't a strong suit of government either.
The US don't plan well, but that's as much a bug as a feature. Stern praises the "technological miracles of Andy Grove, Steve Jobs and Bill Gates." All good liberals (Gates and Jobs surely are/were and Grove seems pointed that way with his quote above) but all private-sector billionaires. It is unlikely that a Carter Administration functionary would have bankrolled Jobs and Woz's garage creations, nor would a Dubya team member look to plow billions into creating a MP3 Walkman or a cell-phone computer. Would Google have been green-lighted by a government staffer?
Government's job in job creation is giving a system where good ideas can thrive; there will be some infrastructure involved, some worker retraining where needed, some pure science R&D and a proper amount of regulation for safety and fairness, but the main driver will be new ideas and new products and services that people need and want (or will want in the future-part of Jobs' genius is thinking a step ahead of the present offerings out to what you would want if it were available). That's largely a private-sector job that government can referee but best not try being a coach or a player.
Most of that innovation happens in new goods, rather than in new services. That's where Stern's SEIU is a bit out of the loop; innovation in services hurts unions more than it helps (think how many cashiers have heen cashiered by the new self-check-out lanes at grocery stores). Government intervention on behalf of workers is one way to mitigatge those changes.
Recent Comments