Feb 26, 2012
Many American voters seem ready to run our country as if it were a business.
Some businesses take a long-range growth perspective, and honor all their stakeholders. A country run that way would be OK.
However, other businesses believe their markets are "unattractive," to use the business school expression. If your business is in an unattractive market, your smart business move is to defer investment in new plant and equipment, cut back on worker training, freeze or terminate pensions, reduce R&D, extract as much value from the business as possible, return the cash to shareholders, and dump whatever remains. I wouldn't run a country that way.
For decades, industrialists have looked at America and concluded that our domestic economy was unattractive compared to low-wage alternatives. We don't invest in industrial capacity, we treat our schools as a cost to be minimized rather than a social investment in our children, we terminate pensions, we reduce our investment in infrastructure to a fraction of other countries', and what R&D we fund seems to create jobs in "more attractive" places, outside the United States.
In business school, this is called a harvest strategy. Economists explain that harvest strategies can be good, pruning away the old to make way for the new.
Something like this occurs in biology, when old dead organisms are scavenged by vultures, dung beetles, funguses, larvae, and bacteria. In biology, scavengers are not "good or bad." Scavenging is just something that scavengers do for a living. They don't get paid 400 times the average wage, nor do other biological organisms treat them with great respect.
Over the last few decades, one American industry after another has been harvested -- home electronics, steel, shoes, clothing, household appliances, wood products, textiles, furniture, power tools, televisions, and domestic manufacture of those delightful Apple products, among others.
Companies harvest to please their investors. Harvest automatically "works," since the purpose of a company is to please shareholders. We have mastered the harvest part, where we prune away the old.
We do a poor job of making way for the new. Creating new industrial capacity doesn't just happen, as if by an invisible hand. It happens when we have well-designed public policies.
The purpose of public policy is to invest in the future and raise our standard of living, not harvest the legacy of past generations.
That's one difference between a company and a country. Markets are notoriously short-sighted. Markets under-invest in future growth.
A dynamic, healthy political system would never permit a harvest business strategy into our political life. In America, we have a strong free press, and established institutions of civil society like good public schools, strong unions, respect for science, a strong social safety net, a strong middle class, citizens who are secure in their futures and willing to defend their interests, and effective institutions for the environment, civil rights, women's rights, human rights, and public health. We have strong historical and constitutional values about one-person one-vote and a government responsive to local communities.
Well, no. That's not right. Quite the opposite.
Economist Jared Bernstein describes a dramatic shift in economic bargaining power as unions declined. State governments in Wisconsin, Ohio, South Carolina, and Indiana insist that unions are still too powerful, and must be diminished further. Unions are one institution of civil society, but why stop there?
Education is underfunded and is distracted by repeated testing and fear of failure, rather than teaching problem-solving and critical thinking. Science is distorted for political purposes, and environmental standards are following wages in the global race to the bottom.
Our free trade policy is a template or blueprint for putting investor interests first, dismantling and sweeping aside civil society. The principles of free trade policy are a tidy match for domestic policies that take us back to the gilded age, where wealthy people bought influence and operated government for their personal profit.
In our "winner take all politics," wealth dominates political process. Political power for the top 1% and top 0.1% has grown in direct proportion to their share of wealth. Near the close of the gilded age, William McKinley's campaign manager said, "There are two things that matter in politics. The first is money. I can't remember the second."
Our top 1% do well, but the rest of us are headed for a Lesser America. Ask any struggling small business owner the Henry Ford question, "Which would you rather have, lower wages or prosperous customers?" They want prosperous customers!
Our problem is political. Civil society has lost political influence to the top 1%.
First, we need to restore a social contract. As Paul Wellstone put it, "We all do better when we all do better."
Second, and equally basic, money is smothering democracy. In the Supreme Court's worst decision in living memory, it gave corporations the judicial breath of life. The Court may feel that way, but no one gave powerful global corporations citizenship. Large multinational corporations don't act like citizens. They feel no obligation to our country, they don't have families or children to provide for, and their values often conflict with values shown by natural people.
Third, serious work has started on a 21st century industrial policy. Like any other policy, we can have good industrial policies or bad ones. We currently have terrible industrial and trade policies. See above. They are harvesting the legacy of previous generations. Japan, Korea, Taiwan, Singapore, Denmark, and Germany found good industrial policies. China's industrial and trade policies are ugly, disturbing but extraordinarily effective. I'm just sayin'.
American industrial and trade policies have performed well at times in our history, and we can do them well, again.
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