Slow Bogging This Month...

I'm going to catch up starting next week. In meanwhile, I've posted a few links on twitter:

@Opportnitystate

Thanks.

The Math in the Battle for Economic Superiority Between China, USA

"Joseph Nye, the professor and former dean of the Kennedy School of Government, made an interesting point. He noted that a rising China has 1.3 billion citizens. But America at its best has 7 billion in that it draws on the world's talents, as its corporations and colleges demonstrate. Nye in general is skeptical of the "declinists."

See the full article here.

I think Nye makes an excellent point. His mind is more on strategy than economics, but, frankly, the two are hard to separate. When I speak of an "Opportunity State" I'm speaking of a replacement for the welfare state. The welfare state, of course, was a political/economic construct the raison d'etre of which was basic welfare for its citizens so they wouldn't rebel against industrial capitalism.

The goal of an Opportunity State would be quite different. It doesn't exist to promote an industrial economy; rather it exists to promote a post-industrial economy. This "new economy" is softer, relies more on creative capital, innovation, and technology. Which brings me to the 7 billion people theory: in an industrial economy 7 billion workers making industrial goods creates incredible problems of competition. Factories could not be easily retooled as comparative advantages between nations shifted. On the other hand, in a new economy the means of production are much more easily shifted; after all, in most instances they are intellectual in nature. Further, whereas in an industrial economy it's easy to saturate a market with durable goods, it's easy to imagine 7 billion people using cell phones, new apps, cures for cancer, etc.

Given these new realities, Opportunity States (notice the plural usage) must prepare their citizens for work within the global economy. Of course not all states will have the same comparative advantages. In Mexico and China, your workforce will be more industrial (industry, after all, isn't going away) at the bottom, while at the top you will have creative managers looking to connect with western firms that desire a widget to be made at cheaper prices. In the west it's more complicated. Since western countries have a comparative disadvantage in manufacturing cheap goods, they have a comparative advantage in entrepreneurship, financial services, engineering, science, medical research, and more. Western citizens will increasingly need to be prepared to commute (potentially via virtual commutes) to foreign nations; to bring back-office operations from foreign firms; to perform the sort of transparent, and vetted due diligence necessary for investment capital, etc etc. After all, their soft skills are greatly needed in the global marketplace the same as cheap goods are needed in the global marketplace.

Entrepreneurship and the One Percent

In “The Genius of One Percenters is their Amazing Command of the Obvious”, Forbes columnist Jim Powell makes a makes a pretty strong case that what’s made the super rich, well, super rich, is their ability to discover the obvious. Says Powell (qoting a Hungarian Nobel laureate) ““Discovery consists of seeing what everybody has seen and thinking what nobody has thought.”

Of course he’s right, but the businessmen Powell cites- Sam Walton, Ray Kroc, Fred Smith (FedEx), among others- had more than a grasp on the obvious. They were also terrific entrepreneurs!

As we consider ways to create what Paul Romer called “the unique set of institutions”1 necessary to support innovation, fostering entrepreneurship must be foremost in our minds. Creating institutions, programs, mindsets, values, moral examples, and more to support this most critical skill should be a key component of the Opportunity State.

1. See: New Growth Theory and the Opportunity State

New Growth Theory and the Opportunity State

To fully appreciate the need for an “Opportunity State" you must first understand “New Growth Theory”, also known as “Endogenous Growth Theory” (i.e. growth from within an organism… in the case the economy.) Way back in 2001 Reason Magazine did an interview of Paul Romer, the key architect and cheerleader of NGT. At the time, the libertarian mag described Romber as “The Post-Scarcity Prophet.” Here’s a snip of their interview:

reason: In terms of real per capita income, Americans today are seven times richer than they were in 1900. How did that happen?

Paul Romer: Many things contributed, but the essential one is technological change. What I mean by that is the discovery of better ways to do things. In most coffee shops these days, you'll find that the small, medium, and large coffee cups all use the same size lid now, whereas even five years ago they used to have different size lids for the different cups. That small change in the geometry of the cups means that somebody can save a little time in setting up the coffee shop, preparing the cups, getting your coffee, and getting out. Millions of little discoveries like that, combined with some very big discoveries, like the electric motor and antibiotics, have made the quality of life for people today dramatically higher than it was 100 years ago.

Consider some of the technological changes in our lives since this interview: blogs, Ebay, Twitter, Facebook, Ipads, tablets, apps, texting, Groupon, Google, Amazon.com, etc, etc. These are just a few of the platforms that have changed our lives, created billions in new wealth, and in each instance created new commercial tools and opportunities for millions.

The premise behind New Growth Theory is that technological innovations are virtually limitless with the proper support. Another snip:

reason: What do you see as the necessary preconditions for technological progress and economic growth?

Romer: One extremely important insight is that the process of technological discovery is supported by a unique set of institutions. Those are most productive when they're tightly coupled with the institutions of the market. The Soviet Union had very strong science in some fields, but it wasn't coupled with strong institutions in the market. The upshot was that the benefits of discovery were very limited for people living there. The wonder of the United States is that we've created institutions of science and institutions of the market. They're very different, but together they've generated fantastic benefits.

I’ll doubtless return to this great article many times in the coming months, but let me stop here. In summary, the economic theory that undergirds my notion of the Opportunity State, that is, a state that relentlessly prepares its citizenry with the tools that give them economic opportunity, is New Growth Theory. We can grow our economy exponentially from withn (primarily… outside factors will stay play a role; think energy for example) given the right set of institutions. For me, the notion of an Opportunity State (as opposed to the Welfare State) allows policy makers and theorists to create a framework for policies that will ultimately create the “unique set of institutions” that Romer believes are necessary.

Joseph Nye on American Decline

From way back in Feb (recycled by Real Clear World), this snip from Nye's piece:

"On the question of absolute rather than relative American decline, the U.S. faces serious problems in areas like debt, secondary education and political gridlock. But solutions exist. Among the possible negative futures are ones in which the U.S. overreacts to terrorist attacks by closing inwards and thus cuts itself off from the strength that it obtains from openness.

But there are answers to major American problems that preoccupy us today, such as long-term debt (see the recommendations of recent deficit commissions) and political gridlock (for example, changes in redistricting procedures to reduce gerrymandering). Such solutions may remain forever out of reach, but it is important to distinguish situations where there are no solutions from those that could in principle be solved."1.

He's right, but what are solutions? It seems that statesmen and pundits alike are struggling to find the right metaphor... The most effective construct. I submit that the Opportunity State is part of that answer.

1. Article:
http://tinyurl.com/85m2leg

Washington Post on Western Decline

A snip: "And so on. Victory in war (ww2) was achieved at the cost of six years of horrible suffering, especially by the people of Russia. But the peace that followed was a remarkable example of renewal and foresight. Americans sent their veterans to college, expanded their universities and research facilities, invested in education, roads, and public works, sent billions of dollars to help stricken Europe, reopened the country to immigration, renounced racial and religious bigotry, and set about fostering important new world institutions. All of this was achieved while not only maintaining our traditional liberties but expanding them.

Doing these things required rational, open-minded leadership, exercised for the most part by people genuinely committed to the public good and operating in an atmosphere of mutual trust in which a degree of self-sacrifice was expected from many. Will it take another world crisis to revive this spirit? We may find out in the year to come."

Note focus on higher ed!

Misdiagnosing the Ills of the Welfare State: How both the Right and Left Get it Wrong

As America's industrial economy continues its decline, at least as it relates to middle class American jobs, both the right and left in American politics search for solutions. The right swears that the issue is too much governmental spending, too much red tape, and that if we'd only unchain the economy things would improve for American workers. They're right to a degree, but not right enough. Though it's true we would see some growth from a smaller regulatory state, and should do all we can to shrink the regulatory burden, deregulation alone won't solve the problem for millions of Americans who've lost their jobs and any prospects of gainful employment in the future. What's more, there are only so many regulations that can be feasibly targeted: like or not, there's just not the political support to overturn many of the regulations in place.

The left, meanwhile, wants to double down on the welfare state: more government rationed health care, more regulations on businesses, stronger worker protection, less free trade, rules that stack the deck for organized labor, etc, etc. While such a policy arguably offers the promise of wealth redistribution from the upper classes to the middle class, it's not a prescription for growth. Worse, it runs the risk of killing the goose that lays the golden eggs!

A sensible middle course would work to increase the creative, entrepreneurial capacities of those left behind. A CNN story today highlights the challenge: 45% of Americans between 16 and 29 yrs old can't find work! And for the first time in history, credit card debt has been surpassed by student loan debt nationwide!

Consider that: the most educated group of young Americans in history, leveraged to the hilt in the process, and nearly half can't find work! Clearly, somewhere in the mix our education system is failing us!

If America is to tap the maximum potential of its citizens, it must find new ways to prepare its workforce to fill the jobs and create the businesses vital to prosperity in the 21st century. That can't be accomplished without a robust state (i.e. central government) taking the lead in new-economy policy, but simply feeding the current beast won't work either. Eventually, America's right and left wings will have to come with these realities.