Saturday, August 27, 2011

Economics From Polanyi to Spence

In 1944, the remarkable Austrian-born economic historian Karl Polanyi published The Great Transformation.
It is a sophisticated and erudite work and any attempt to summarize Polanyi's argument (even the summary provided by Joseph Stiglitz) is bound to come up short.
But here's my best effort.
The Industrial Revolution, Polanyi says, ushered in a massive transformation of society and economics. With the Industrial Revolution, markets were invented; land and nature became property, and that meant things that had been valued for themselves now had external economic value. People became labor, and they, too, were transformed from individuals with intrinsic human value into a commodity.
The big transformation, says Polanyi, was that instead of economics serving society, as one component of the way people lived, after the Industrial Revolution society served economics. Economics became the way everyone kept score; it became the ultimate point of the exercise.
Along with that came new theories. One of the most pernicious was the notion of a self-regulating market--that the market needed no external intervention, that it would automatically balance itself and produce its own equilibrium.
Polanyi says no.
He says that self-regulating markets inevitably fail. That they are a fabrication, a myth. And that when they fail, they bring about so much social pain and disorder that they invariably bring out the opposite of what they promise: they require government intervention to re-balance the social consequences of market failures.
And so, the myth of the self-regulating market produces the very thing it imagines to be unnecessary--government programs and policies to protect society (and particularly the poor) from the ravages of change and economic disaster.
Which brings us to 2011 and Michael Spence.
Writing in Foreign Affairs, Spence, a Nobel Prize winning economist, turns to the subject of globalization and unemployment. (My thanks to good friend Peter Sims, terrific author of "Little Bets", for calling this piece to my attention.)
Again, apologies for oversimplifying an in-depth piece of economic/political analysis.
Spence argues with clear logic and data that America's unemployment problem derives from the increasing globalization of business and work.
He divides our economy into tradable and nontradable sectors. The nontradable sector is that part of the US economy where goods and services must be consumed domestically; the tradable part of the US economy is the part that produces goods and services that can be consumed anywhere.
Between 1990 and 2008, Spence says, the US economy created 27 million jobs. Of those, 98% were in the nontradable sector. In that period, the tradable sector grew by a total of 600,000 jobs.
The problem: manufacturing has been moving out of the US.
Overall, jobs are being produced in the nontradable sector and in the upper end of the tradable sector, in such areas as finance, computer design and engineering, and top management in multi-national corporations.
This leads to an increasing gap between the rich and the poor in the US; it puts enormous stress on the middle class; and it makes education even more important for the country's economic and social well-being.
Free trade and free markets are good, Spence says--just not for everyone.
He writes, "Although everyone does benefit from lower-priced goods and services, people also care greatly about the chance to be productively employed and the quality of their work. Declining employment opportunities feel real and immediate; the rise in real incomes brought by lower prices does not. For example, according to recent surveys, a substantial number of Americans believe that their children will have fewer opportunities than they have had."
Spence is too polite to say it, but what's he talking about here is the end of the American Dream.
But he is quite blunt about who the market benefits and who it punishes: "In short," he writes, "companies' private interest (profit) and the public's interest (employment) do not align perfectly."
What is to be done?
One thing, Spence says, is for the US to put more effort into preserving what is left of our manufacturing base. "Specifically," he says, "the right combination of productivity-enhancing technology and competitive wage levels could keep some manufacturing industries, or at least some value-added pieces of their production chains, in the United States and other advanced countries. But accomplishing this will require more than a decision from the market; it must also involve labor, business, and governments."
What else?
He ends his essay with a section he calls The Big Tradeoff.
Instead of benign neglect toward jobs in the tradable sector, he says, the US must come to an agreement that good jobs in this sector is a fundamental national goal. Germany has done just that, he argues, with great success.
Then we need to focus on education: "A lack of commitment to education in families and in communities makes the entire field of education seem unattractive, demoralizing dedicated teachers and turning off talented students from teaching."
We need to invest in infrastructure and in technology that will boost employment in the tradable sector of the economy.
We need to fix the tax structure so that it promotes competitiveness, investment, and employment.
"Globalization has redefined the competition for employment and incomes in the United States," Spence writes. "Tradeoffs will have to be made between the two. Germany clearly chose to protect employment in the industries of its tradable sector that came under competitive threat. Now, US policymakers must choose, too."
Spence points out that America has been becoming increasing inequitable as a society.
The ratio of the average income of the top 20% of the population to the average income of the bottom 20% is 4 to 1 in Germany, but 8 to 1 in the US.
Spence's conclusion: ". . . tradeoffs between market forces and equity are possible. The US government needs to face up to them."
And he ends with a powerful quote from Paul Samuelson, a distinguished US economist: "Every good cause is worth some inefficiency," Samuelson wrote.
"Surely, equity and social cohesion are among them," Spence adds.
Michael Spence, meet Karl Polanyi.
The Big Tradeoff, let me introduce you to The Great Transformation.

Wednesday, August 24, 2011

Can Politics Self-Correct?

Here's today's counter-intuitive notion.
I'm not even sure I buy it, but it's worth thinking about.
Here goes.
Most systems have a self-correcting feature. Especially in nature. Too many bunny rabbits running around in your fields? Coyotes will take care of that and reintroduce something approaching equilibrium. (Okay, this may be a New Mexico-driven example, but you get the idea.)
Economics believes in this idea: supply and demand, balancing each other out.
Physics, too: for every action, there's an equal and opposite reaction.
How about politics?
Is there a self-correcting mechanism in the American political system?
You could argue that you see it in the way the country votes in national elections: a Dwight David Eisenhower brings out a John F. Kennedy, a Lyndon Johnson produces a Richard Nixon who then makes necessary a Jimmy Carter, who in turn delivers Ronald Reagan, George Bush gives us Bill Clinton, the second Bush produces Barack Obama.
Just like the laws of economics or Newton's third law. There are laws of politics.
But do those laws govern what happens inside a political party?
Conventional wisdom today says that to win a party's presidential nomination, a candidate has to start off appealing to extreme groups. They're the ones who turn out for primaries and caucuses, the ones who contribute serious money and are willing to do the hard and tedious work of political organizing.
So veer hard to the extreme to get the nomination, then move to the middle in the general.
But what if?
What if there is a self-correcting mechanism for political parties?
What if, this year, when faced with more and more candidates who appear to be running from the extreme for the Republican nomination, the party discovers its self-correcting mechanism?
What if Republicans wake up one morning to discover that it's lunacy to turn their party over to candidates who don't accept evolutionary science? To candidates who reject evidence of human contribution to climate change?
Or who genuinely think that the national economy can be rejuvenated simply by revoking all environmental regulations?
Or who want to restore the gold standard?
Or who think that being gay is a form of "personal enslavement"?
What if Republicans veer to the middle during these upcoming primaries and re-discover the old Republican roots?
Here's why that's an interesting idea to consider.
First, in the middle of a pack of candidates who do espouse extreme views, there are a couple of Republicans who are very clearly signaling to voters that they are . . . reasonable. Civil. Pretty mainstream, actually.
Wouldn't it be healthy, for the Republicans as a party, and for the country as a whole, if Americans suddenly discovered, or re-discovered actually, an appetite for reasonableness.
What if the Republicans, of all things, became the party that espoused a return to old-school politics?
What if the Republicans, who can take credit for inventing modern scorched earth politics, actually walked away from that technique and announced to American voters that the Republican Party was going to campaign on a platform of sensible, mainstream, non-culture war policies?
The Republicans could claim to have invented a whole new law of politics--a law with as much power and appeal as anything in nature, economics, or physics.
And I'll bet they'd find a lot of people who would jump at the opportunity to see what it's like to have the debate over America's future suddenly sound . . . sane. Positive. Practical. Down to earth. And back to reality.
But like I said, I'm not even sure I buy it.
Conventional wisdom is so hard to shake. Still, I'll be watching.
Maybe we'll start seeing some coyotes roaming around in the Republican primaries.

Tuesday, August 23, 2011

The False Claims Department

Reading the papers this morning, two headlines catch my eye.
In Libya, Seif al-Islam, Muammar Qaddafi's son, the one who the rebels claimed they had captured? He made an appearance in public at a hotel in Tripoli.
Looks like he wasn't captured after all.
In New York, the district attorney has asked the judge in the Dominique Strauss-Kahn case to drop the charges. The woman who accused DSK of the sexual assault was deemed to have lied repeatedly to law enforcement officials. The NYT quotes prosecutors as saying, "the nature and number of the complainant's falsehoods leave us unable to credit her version of events beyond a reasonable doubt, whatever the truth may be about the encounter."
And then there's the headline about the rise in allegations of cheating in New York public schools--complaints of test-tampering and grade-changing have tripled. With bonuses, jobs, and reputations all on the line based on student test scores, the incentive to lie, cheat, and cover up have all grown.
So here's the headline I didn't read.
There are no secrets any more.
And if you think you have a secret, you won't have it for long.
Every since satellites detected the nuclear disaster at Chernobyl, it's gotten harder and harder to lie.
The second headline I didn't read is the one every politician has heard since Watergate. It's not the crime that will get you, it's the cover up.
No secrets, no cover ups.
Or as Mark Twain once wrote, "If you tell the truth, you don't have to remember anything."
It's worth a try, right?

Saturday, August 20, 2011

My Meeting With Rick

I know I've already blogged on this, but now that he's running for President, it's useful to re-tell the story of my meeting with Rick Perry.
It was a number of years ago. I was in Texas to give a speech. But I had a few hours free before the speech, and the very friendly fellow who'd brought me down to address his group made me an offer I couldn't refuse: How would I like to meet Texas Governor Rick Perry and sit in on a meeting he was having with two gentlemen from Mexico.
I soon found myself sitting in a small conference room in the hotel where my speech was to take place. I was introduced to the two gentlemen from Mexico: an older, distinguished looking man who, it turned out, was the publisher or Mexico City's largest and most influential newspaper, and a young, movie-star handsome gentleman who was a member of the Mexico Senate.
They were there, they explained to me, to ask Governor Perry about the open-meetings law and provisions of US law that required more transparency in government.
In Mexico, it seemed, there were no such laws, and they were researching the ways the laws worked in the US to make the case back home that Mexico would benefit from more open government.
After we waited awhile, the Governor came in. Sat down across from us. Put his big boots on the glass-topped coffee table so we could all admire his official state-seal-of-Texas cowboy boots.
And then, without warning, he started in on a diatribe about water that Mexico was illegally withholding from Texas.
"We know it's there," he said, twanging away like a hillbilly. "We got satellites kin prove it. Satellites show us real clear you all are keeping that water on yer side of the border. And that's wrong, see. That's against the treaty we have with you all."
And on and on. All about the illegal impoundment of water by the Mexicans, depriving Texans of their legal rights to all that water.
There was nothing to do but sit there with the two Mexicans and listen to him rail on about something these two gentlemen had no authority over and hadn't come to talk about.
Finally, having had his say about water, Perry turned to the matter at hand, government transparency, open meetings, sunshine laws.
"What ya got to understand," he said, "was these laws are a double-edged sword. Now you take the problem of bidness plans."
Let me stop here.
He actually said "bidness."
Not business. Bidness.
"Now you take the problem of bidness plans."
He looked at the two Mexicans.
"You all know what a bidness plan is, right? That's what you got to have when you want to start a bidness. Well, in Texas, if someone writes up a bidness plan and then goes to the government for some kind of assistance, well, they got to show the government their bidness plan. Now, under all those laws, that means that bidness plan could be read by just about anybody who wants to. So that's how transparency works, see? It's a double-edged sword."
The meeting was over soon.
After Perry left, I looked at the two gentlemen from Mexico
They shrugged.
I tried to apologize to them, although I had nothing to apologize for. Other than being an American and in the same room.
Finally, the young, handsome Senator said, "I'm glad he explained what a business plan is. That wasn't something we covered when I was getting my MBA from the Stanford business school."
Now Rick Perry is running for President of the United States.
He doesn't accept the science behind global climate change.
He wants to teach creationism in the schools on a par with evolutionary theory.
He sees nothing wrong with conducting a Christians-only prayer rally as Governor of Texas.
He threatened to look into Texas seceding from the Union.
I only got a glimpse of the remarkable insensitivity and mind-numbing simplicity of the way this man thinks, talks, works, and treats others.
Imagine what he could do in the White House.
Maybe it's time for another prayer rally--all denominations.
We'll think of something appropriate to pray for.

Friday, August 19, 2011

One Cheer for The Pope

According to this morning's papers, Pope Benedict XVI is in Spain, where he gave a speech on the problems caused by pure bottom-line-driven capitalism. Not a bad theme to take up in a country where, last time I checked, the unemployment rate was above 20%--one of the highest, if not the highest, in Europe.
(So even though I'm not a fan of this particular pope, let's give one cheer to him for raising the right issue in the right place at the right time.)
Seeing the coverage reminded me of a conference I attended in Rome some time back at the invitation of the Opus Dei-affiliated university there.
The theme was capitalism and social change.
The opening text was a papal encyclical on the subject, and the participants ranged from academics who wanted to debate the history of capitalism in Europe and the fundamental properties of the free market to social activists using their faith as the basis for economic and social activism to the former head of the IMF and the current head of the Vatican Bank.
Talking with one of the university professors after the formal conclave was over, I was struck by a huge opportunity--and reminded of it just now by the pope's speech in Spain.
The idea goes something like this.
Capitalism, as we practice it in the United States, isn't working--or, to be more accurate, needs to work better.
As the pope said in Spain, capitalism that focuses only on the bottom-line leaves out too much--too much social, environmental, emotional, even spiritual value.
Voices around the world are joining in this discussion; Michael Porter's recent piece in HBR is one example; the rise of social entrepreneurship globally is another; the efforts by finance professors to generate interest in integrated reporting, yet another.
But who can lead the conversation?
It seems unlikely, maybe even undesirable, for the US to lead such a discussion, a gathering compared by a friend in Vienna to a "Geneva Convention on Capitalism."
Who might have the standing to bring together the nations and interests for a convocation on the rules of capitalism?
My thought after the conference in Rome: What if the road to the future of capitalism runs through Rome?
What if a pope--not this one, but perhaps the next one, a younger, more enlightened one--were to take up the message that capitalism needs to find a new basis, a new way of keeping score, a more fully articulated set of values?
Could the future of capitalism emerge from a forum in Rome? Could we some day be talking about the Rome Convention on Capitalism, the way we talk about the Geneva Convention?
So: here's one cheer for this pope. And we'll hold off on the other two until we see who his successor might someday be.

Thursday, August 18, 2011

America, In Reverse

All it takes is one quick read-through of this morning's New York Times--a superficial read of a superficial view of America, admittedly--to get me thinking that my wonderful country, like Jubilation T. Cornpone in 'Li'l Abner,' is leading the charge, right back to the rear.
A few articles of note.
The Republicans (except Mitt Romney) hate the EPA. They want to shut it down, board it up, stop it from enforcing environmental regulations.
Which means, what?
They want children drinking dirty water. Breathing dirty air?
I thought we all agreed, a long time ago, that a clean environment and a healthy economy aren't opposites--they're mutually reinforcing.
Now, the Republicans are charging, straight back to the rear.
Then there's the article on mass transit in America.
Let's review the situation.
Gas prices are high and likely going higher. Auto ownership, with insurance, is expensive. The cost of living is up. Jobs are scarce.
Ordinary people need transit to get to work. They need a good transit system for their own needs. America needs transit to conserve energy.
So the news is, transit fares are up, service is down--and ridership is way up, 10 billion trips per year, levels not seen since the 1950s.
And this is good for America, how exactly?
But don't despair.
The op-ed page has a great solution, offered up by a guest columnist, Jennifer Finney Boylan, an English professor at Colby College. Jennifer's father had a wonderful practice at dinners where all kinds of people who were quite happy to disagree with each other would gather around the table and argue the issues of the day.
Then, at a certain point in the dinner-table debate, Jennifer's dad would announce that it was time for every guest to argue the opposite side of the issue they were debating--to reverse their earlier position.
Jennifer's suggestion: the Democrats come up with $2 billion in tax cuts, the Republicans are assigned $2 billion in tax increases.
Ding! Everyone argue the opposite side!
Maybe that's a way to get our country moving ahead, instead of charging full speed, right back to the rear.

Wednesday, August 17, 2011

Rick Perry: Republican Mike Dukakis

Conventional wisdom says Rick Perry is the second coming of George W. Bush--only worse.
I say he's the Republican version of Mike Dukakis--only worse.
Now, most Americans who think of Michael Dukakis--if they do--only remember the Presidential campaign. The goofy shot with the tank and the helmet, the awkward answer in the Presidential debate about what he'd do if his wife were raped, the Willie Horton ad. They remember a man who looked about two sizes too small for the job.
I wrote speeches for Michael Dukakis when he was Governor of Massachusetts.
That was a job he excelled at.
He had a terrific team working for him; he was smart, shrewd, in command. He was the longest tenured Governor in the history of Massachusetts. He had techniques and programs that he put to work in Massachusetts that got results.
Remember the Massachusetts Miracle?
Probably not. But that was one of Dukakis' campaign themes: that he had brought jobs and economic growth to Massachusetts in the middle of an economic downturn, and he could do the same thing for the country, if he were President.
Remember the response the Greek community gave his candidacy?
Probably not. But that was another of Dukakis' secret weapons--he was the first American of Greek descent to run for President and gain the nomination.
Which brings me to Rick Perry.
He's running on the basis of his record in Texas--his version of a Texas Miracle. In an economy that's flat on its back, his state has generated a stunning percent of the nation's total new jobs.
And he's running as a Texan--his version of the Greek identity. Texans love their own, take care of their own, support their own, and, most important, finance their own. Already the call has gone out through the Longhorn State (and through the President of the University of Texas, who, apparently, has already put out the word for alums to whip out their checkbooks and write some big numbers for Perry) that it's time to bring the White House back home where it belongs.
But just a few days into his campaign, and already you get the feeling that he's too small for the job.
He's never run a national campaign before, and it shows.
What worked for Dukakis in Massachusetts, where he could be a technocrat, a liberal, a guy who rode the T to the office every morning, didn't work for America; he came off as a man without big ideas, out of touch with ordinary people, and, frankly, a little odd.
What worked in Texas may not play in the U.S.--especially not when people hear his voice and catch his style.
The swagger and boots and big talk, threats and cavalier dismissals of complicated issues could very well get him the nomination.
The field, other than Romney, looks kind of weak, splintered, undistinguished. Kind of like the field Dukakis beat.
And like Dukakis, Perry will have his core supporters and their money.
But I'm also betting that, like Dukakis, Perry will find, if he does get the nomination, that the job is several sizes too big for him.
He could well be another Texan who's all hat, no cattle.

Thursday, August 11, 2011

We Need More Ray Andersons

Ray Anderson's obituary appeared in the New York Times today.
I'd gotten an email two days ago telling me that Ray had died. And while the obituary was okay, it hardly did him justice.
The headline read, "Ray Anderson, a Carpet Innovator, Dies at 77."
A carpet innovator?
How about, "Ray Anderson, A Giant, A Great Man, A Hero, Dies Too Young."
I shared a platform with Ray about a year ago in Atlanta at a conference on design and the environment.
He gave a simple talk, speaking in a simple way.
He told us he had cancer. That was how he started. Just like that.
Then he told us that America was sick, too. That our national way of doing business was poisoning the environment.
He talked about his own epiphany and transformation.
How he'd made a commitment to turn around Interface. To make a carpet company into a green company.
It wasn't a business decision. It was a crusade.
And it has been a wonderful crusade, a brilliant campaign, a teaching lesson, a preaching lesson.
The company thrived when Ray turned it into a model of environmental practices.
Carpets, which are typically the greatest contributor of waste to landfills, under Ray's guidance, became a source of best environmental practices.
He cut waste; he cut emissions; he cut energy use.
He got so good at it, he started a side business, consulting to other companies that wanted to learn how to do what he was doing.
He was a hero.
He was a great man.
He was a remarkable, modest, giant of a man.
Very simply, we need more Ray Andersons.
Because the one we had, the original one, is gone.

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