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.

Revolutionary Chaos?

Great read from Sergei Karaganov. Some snips:

Here is where we come to grips with an especially remarkable phenomenon. Social protests and revolts have burst in the grassroots of affluent Western societies, and although the demonstrators calling for the occupation of Wall Street and other places refer to the example of the Arab Spring, the causes of protests in the West are certainly not rooted in tyranny combined with corruption, or in informational semi-openness and semi-famine evidenced in the Arab world.

The root-causes are many but there are two major ones.

First, social inequality has grown unabated across the Western world over the past two to three decades. It was fuelled in many ways by the disappearance of the Communist threat. Overwhelmed by own problems, we, Russians, would whine about inequality in this country and yet it was growing everywhere – and was tolerable until a certain moment, as the downfall of Communism and the consequent vast expansion of the capitalist market made the slices of the pie bigger for everyone.

Second, the situation started changing fast in the last decade, when dozens of millions of jobs shifted to Asia, which was inexpensive, increasingly better educated and ready to work hard. The traditionally consistent increase of wellbeing in Europe stalled and then recoiled.

The West, awash with the euphoria of victory over Communism and the seemingly endless economic growth, which was largely fed by external factors, failed to embark on the necessary structural reforms (Germany and Sweden are rare exceptions). Instead of reforms, the outward prosperity became more and more heavily reliant on borrowings.

So what do we do now? Karaganov offers this boilerplate:

The reforms that are essential for raising competitiveness are painful and difficult to implement, as the authorities have to seek electoral consent from the majority whom these reforms unavoidably hit the hardest.

And he offers this this note of promise:

...the newly emerging world brings not only problems but also huge opportunities. Billions of people in Asia have extricated themselves from half-famine. New markets and spheres for applying one’s intellect, education and labor are appearing every minute… Victory in it will be won by those people and countries that are capable of readjusting themselves in advance.

The Opportunity State: Take 1

For several years I’ve had a theory on globalization. Namely, while it brings unprecedented prosperity to those who are prepared for it, it simultaneously wreaks havoc in the lives of those whose lives are geared for the industrial economy, and that we need a better governmental response to integrate those who are being left behind. To me, that response should be a transition from the state led, macroeconomic model known as the welfare state and towards a model that fosters education, training and preparedness among the masses. I call it the Opportunity State. That is, a state led economic paradigm that will replace the Welfare State.

The hallmarks of this state will be continued education, training and workforce development. With an Opportunity State, governments will transition their efforts away from ensuring a de minimis standard of living and will instead focus on developing the creative and entrepreneurial capacities of its citizens. Focus will shift from redistribution of wealth to greater distribution of the means to create wealth. When nations adopt an Opportunity State they will understand that globalization is irresistible; instead of trying to create barriers to it, they will attempt to create new means for their citizens to tap its incredible potential.

Although I have the basic workings of the Opportunity State in my head, the goal of this site is to help me sharpen my ideas, hopefully with the help of commenters. Eventually, this will allow me to better express my views, hopefully in some sort of publication form. In some ways, this project is a continuation of a theme I spent quite a bit of time on in my first blogging foray: cyberhillbilly.blogspot.com. That site was where I first articulated the term “the opportunity state.”

Although the term Opportunity State has been used in some publications since, such as here and here, so far as I can tell, I am one of the first to have used this terminology. Further, whereas others on the right and left have used this term to describe their vision of a society that promotes opportunity via the state, neither has attempted to make an all-encompassing argument about the outright replacement of the welfare state as I will here.

This is just an early snap shot of where I see this project going as of Dec. 30, 2011. I appreciate readers’ feedback and comments.