Economic eschatology
I recently read Richard J. Newman's "Can America Keep Up?", in last week's U.S. News & World Reports, and I just couldn't shake this feeling of deja vu.
Y'all know the arguments, right? America isn't graduating as many engineers, or spending as much on municipal and telecommunications infrastructure, or supporting the high tech industry as much as other countries. America's priorities, in short, are misdirected, and as a result America shall fall behind, lose its standard of living, and become a second-class country before too long.
The only problem with these arguments is that, with regard to many of their facts, there is no America. America doesn't create engineers, scientists, and mathemeticians: individuals choose to go into those fields. America doesn't build monorails or mag-lev trains in cities: the city governments, in cooperation with the relevant counties or states, make the decision and allocate the funds (and create new taxes) to create them. America doesn't connect homes to broadband internet access; private corporations do, on the expectation of economic rewards of doing so (oh, and I should note that the World Economic Forum recently concluded that the U.S. ranked highest in the "network readiness index", a set of criteria including science and math education and "diffusion of various technologies"). The implication in articles such as Mr. Newman's is that the federal government should, somehow, do these things.
My contemporaries may remember that, in the 1980s, the blabber was all about the Japanese, how they were spending more on this or that and we should be more like they are. Except that at the end of the 1980s, the problems inherent in Japan's central economic planning were fully revealed: subsidization of bank loans to unprofitable enterprizes led to a credit crisis that spun the Japanese economy into a pit whence it did not emerge until a couple of years ago.
When a government allocates funds extracted by force from the population to support this or that industry, the inevitable basis for such allocation is not the value of the industry or enterprise, but the political clout of representatives of that industry or enterprise. Government subsidies have the well-known effect of distorting the economy by sheltering inefficiencies from challenge by improvements within the country and elsewhere, until the industry or enterprise is incapable of surviving on its own. At that point, either the subsidies continue to increase to bolster the artificial competitiveness of the entity, or they are cancelled or prove insufficient. The company collapses, workers lose their jobs, and women and children run through the streets screaming "Why? WHY?" Or, of course, some unscrupulous individual diverts the subsidies into his or her own accounts, and the money just disappears.
Of course, even if the subsidies are allocated on the basis of value and efficiency, both estimates could prove wrong. The Soviet Union, the biggest centralized economy in the world not too long ago, was notorious not just for corruption, but for just making the wrong choices. China, especially under Mao, was even worse at picking the right course of action for its economy. There are cases in U.S. history where the U.S. government lost a chunk of money because it gave it to the wrong person or entity.
In short, centralized control of the economy, or of technological research et al., is exactly the worst idea. In fact, the problems cited by supporters of such a scheme are the product of the limited involvement the federal government already has. Tax (and tax subsidy) policy, visa policy, these have argued against exploitation of the world's talent in U.S.-based or U.S.-owned companies (because, you know, foreigners are terrorists) and against smaller companies being able to compete on an equal economic footing with larger ones (because subsidies are based on scale, and government regulations fall more heavily on small companies than large ones). The complexity of tax law, patent law, and other laws makes the practice of law not only profitable but necessary: more talented individuals opt for law than math or biology, both to exploit the situation and to help individuals victimized by it, and no company can afford to not have a lawyer on retainer. The lack of a front-end evaluation of patent applications, in favor of a back-end, litigious evaluation, means that innovation is constrained by the need to verify the lack of a patent on a given idea and by the cost of disputing an overly general claim. And, of course, laws based on ideological objections to certain biological advances force anyone into cloning and related technologies to leave U.S. jurisdiction.
Another cause of any lack of competitiveness in U.S. companies is the Myth of the Universal Manager; this notion that anyone with an business degree (or, since too many folks have them now, an MBA) can run any kind of business, and that nobody can manage a business without one. That's led to a preponderence of non-technical types making business decisions for technical companies -- and, of course, the perception among individuals that it is easier to advance in the less intellectually rigorous field of business and business administration than any of the sciences. Like lawyers in the legislature, this preponderence is self-escalating: business managers look for other business types to promote, and may even not trust (or not understand) technical types. Market research trumps R&D. But, well, this is really not an issue that government can address, except in removing artificial protection of companies that move too far away from R&D to be able to compete against small start-ups. So again, government can help in this area only by getting the hell out of it.
As for education, there is the inherent problem of national educational standards. I recognize that the Department of Education arose because of a perceived (and actual?) gap between the math and science proficiences of U.S. and Soviet kids, and it was useful in shoving especially the biological sciences (evolution) down the throats of regressive school districts. But bad decisions can be made at any level. If a district (or state, say) has crappy standards for science and math, a company shan't find talented employees there, and will take its business and tax revenue elsewhere. Parents may do the same, either for better schools or to get the jobs that have left. But if, say, a religiously conservative President appoints a Secretary of Education who puts Intelligent Design into the national standards, where can we go? Economic competition, undistorted by federal subsidies or overly complex laws, weeds out poor business strategies, inefficient implementations -- and inadequate school curricula. And for those of you who say "what about the children?", well, they can work in low wage jobs, save up money, and take night course to supplement their crappy primary and secondary educations. Then they can get jobs at the companies that returned because the pool of talented workers reappeared after a revision of state or local curriculum standards.
So the next time you read something about the need of the federal government to support this or that industry (in my case, when I hear about subsidies of renewable energy sources), remember China, the USSR, and Japan: centralization makes bad decisions worse. China as the next economic powerhouse? Unlikely: the strains centralized planning are putting on the currency, and as a result on the living standards of those in the "old economy", shall lead to a wide-scale security problem (demonstrations and violence), forcing the government to back-pedal, essentially collapsing the structure. India? They may avoid China's fate, but economy is inexorable, and the cost of workers shall rise, reversing U.S. outsourcing trends, while the centrally controlled social support system and subsidy structure shall ultimately erode competitiveness. South Korea, Singapore, Iceland -- too small. All of these countries will chip away at U.S. hegemony, but that's not such a bad thing. If the federal government can resist the temptation to control the industry and instead yield more authority and liability to individuals, our students and professionals will find a way to compete and even reverse that erosion.
But it is not "America's" responsibility.
Y'all know the arguments, right? America isn't graduating as many engineers, or spending as much on municipal and telecommunications infrastructure, or supporting the high tech industry as much as other countries. America's priorities, in short, are misdirected, and as a result America shall fall behind, lose its standard of living, and become a second-class country before too long.
The only problem with these arguments is that, with regard to many of their facts, there is no America. America doesn't create engineers, scientists, and mathemeticians: individuals choose to go into those fields. America doesn't build monorails or mag-lev trains in cities: the city governments, in cooperation with the relevant counties or states, make the decision and allocate the funds (and create new taxes) to create them. America doesn't connect homes to broadband internet access; private corporations do, on the expectation of economic rewards of doing so (oh, and I should note that the World Economic Forum recently concluded that the U.S. ranked highest in the "network readiness index", a set of criteria including science and math education and "diffusion of various technologies"). The implication in articles such as Mr. Newman's is that the federal government should, somehow, do these things.
My contemporaries may remember that, in the 1980s, the blabber was all about the Japanese, how they were spending more on this or that and we should be more like they are. Except that at the end of the 1980s, the problems inherent in Japan's central economic planning were fully revealed: subsidization of bank loans to unprofitable enterprizes led to a credit crisis that spun the Japanese economy into a pit whence it did not emerge until a couple of years ago.
When a government allocates funds extracted by force from the population to support this or that industry, the inevitable basis for such allocation is not the value of the industry or enterprise, but the political clout of representatives of that industry or enterprise. Government subsidies have the well-known effect of distorting the economy by sheltering inefficiencies from challenge by improvements within the country and elsewhere, until the industry or enterprise is incapable of surviving on its own. At that point, either the subsidies continue to increase to bolster the artificial competitiveness of the entity, or they are cancelled or prove insufficient. The company collapses, workers lose their jobs, and women and children run through the streets screaming "Why? WHY?" Or, of course, some unscrupulous individual diverts the subsidies into his or her own accounts, and the money just disappears.
Of course, even if the subsidies are allocated on the basis of value and efficiency, both estimates could prove wrong. The Soviet Union, the biggest centralized economy in the world not too long ago, was notorious not just for corruption, but for just making the wrong choices. China, especially under Mao, was even worse at picking the right course of action for its economy. There are cases in U.S. history where the U.S. government lost a chunk of money because it gave it to the wrong person or entity.
In short, centralized control of the economy, or of technological research et al., is exactly the worst idea. In fact, the problems cited by supporters of such a scheme are the product of the limited involvement the federal government already has. Tax (and tax subsidy) policy, visa policy, these have argued against exploitation of the world's talent in U.S.-based or U.S.-owned companies (because, you know, foreigners are terrorists) and against smaller companies being able to compete on an equal economic footing with larger ones (because subsidies are based on scale, and government regulations fall more heavily on small companies than large ones). The complexity of tax law, patent law, and other laws makes the practice of law not only profitable but necessary: more talented individuals opt for law than math or biology, both to exploit the situation and to help individuals victimized by it, and no company can afford to not have a lawyer on retainer. The lack of a front-end evaluation of patent applications, in favor of a back-end, litigious evaluation, means that innovation is constrained by the need to verify the lack of a patent on a given idea and by the cost of disputing an overly general claim. And, of course, laws based on ideological objections to certain biological advances force anyone into cloning and related technologies to leave U.S. jurisdiction.
Another cause of any lack of competitiveness in U.S. companies is the Myth of the Universal Manager; this notion that anyone with an business degree (or, since too many folks have them now, an MBA) can run any kind of business, and that nobody can manage a business without one. That's led to a preponderence of non-technical types making business decisions for technical companies -- and, of course, the perception among individuals that it is easier to advance in the less intellectually rigorous field of business and business administration than any of the sciences. Like lawyers in the legislature, this preponderence is self-escalating: business managers look for other business types to promote, and may even not trust (or not understand) technical types. Market research trumps R&D. But, well, this is really not an issue that government can address, except in removing artificial protection of companies that move too far away from R&D to be able to compete against small start-ups. So again, government can help in this area only by getting the hell out of it.
As for education, there is the inherent problem of national educational standards. I recognize that the Department of Education arose because of a perceived (and actual?) gap between the math and science proficiences of U.S. and Soviet kids, and it was useful in shoving especially the biological sciences (evolution) down the throats of regressive school districts. But bad decisions can be made at any level. If a district (or state, say) has crappy standards for science and math, a company shan't find talented employees there, and will take its business and tax revenue elsewhere. Parents may do the same, either for better schools or to get the jobs that have left. But if, say, a religiously conservative President appoints a Secretary of Education who puts Intelligent Design into the national standards, where can we go? Economic competition, undistorted by federal subsidies or overly complex laws, weeds out poor business strategies, inefficient implementations -- and inadequate school curricula. And for those of you who say "what about the children?", well, they can work in low wage jobs, save up money, and take night course to supplement their crappy primary and secondary educations. Then they can get jobs at the companies that returned because the pool of talented workers reappeared after a revision of state or local curriculum standards.
So the next time you read something about the need of the federal government to support this or that industry (in my case, when I hear about subsidies of renewable energy sources), remember China, the USSR, and Japan: centralization makes bad decisions worse. China as the next economic powerhouse? Unlikely: the strains centralized planning are putting on the currency, and as a result on the living standards of those in the "old economy", shall lead to a wide-scale security problem (demonstrations and violence), forcing the government to back-pedal, essentially collapsing the structure. India? They may avoid China's fate, but economy is inexorable, and the cost of workers shall rise, reversing U.S. outsourcing trends, while the centrally controlled social support system and subsidy structure shall ultimately erode competitiveness. South Korea, Singapore, Iceland -- too small. All of these countries will chip away at U.S. hegemony, but that's not such a bad thing. If the federal government can resist the temptation to control the industry and instead yield more authority and liability to individuals, our students and professionals will find a way to compete and even reverse that erosion.
But it is not "America's" responsibility.
posted by heavynettle at 10:18
7 Comments:
Too much to respond to hear, but lots of good reading. We love a menace, don't we? "Red Menace," "Yellow Menace," "Mullah Menace," "Red-Yellow Menace" (Maoist), and so on. Thank God for those barbarians so we don't have to create them, etc., etc.
Yup.
But you really hit a nerve with the universal manager myth thing. God, if that isn't the clincher. The universal manager ultimatley fails like other trends that have no long-term plan for stability or sustainable growth. What a pity our best and brightest have figured out that society puts the highest premium on investment bankers and MBAs (they make a lot more than the scientists they employ.) I think the tipping point towards everyone being a millionaire generalist who doesn't need to understand details became the societal norm when Ronald Reagan was elected. Maybe it was there all along.
As far as collective "us"es are concerned, I defer to Adam Smith's believe that the main function of governments is to ensure competition, and to break up any corporation who acts against the long-term interest of the nation state. If only they'd identify themselves...
But they do identify themselves: by their actions. Perhaps holding investors liable for corporate malfeasance, as we do with those who donate to charities that fund Islamic terrorists, would make all of us more attentive to the recipients of our investments.
Oh, about your response to the MUM -- "maybe it was there all along": of course it was. Remember the British imperial public school system? Blacksmiths and other artisans aren't all that different from coding monkeys; and MBAs aren't all that different from the classically-educated British public school grads, communicating their meager and obsolete ideas in Greek or Latin and using their social connections to ensure their employability and/or income. As far back as you can go, the brilliant minds furthering the advancement of humanity have been in the employ (with varying degrees of interference) of wealthy, powerful individuals who didn't understand the first thing about science. Religion and dogmatic business philosophy are equal impediments to innovation.
I think there really is a balance. A business led by engineers would run out of money before it sold a single product; a business led by MBAs would produce nothing but investment, and only for a limited time. MBAs don't really employ anyone: they work for the same company. The key is to make sure that upper management, and the folks with real authority, understand both spheres to a sufficient degree to keep the flaws of either from overwhelming the business.
So techies need to quit their jobs, put accountants and lawyers on retainer, and start their own companies, rather than (as I do) bitching about their incompetent managers.
Reminds me of the Confusian exam system for entering the civil services in China. The training was of little to no value in learning how to do things like dam and dike the Yellow River, but training for the exam itself seems to have imbued sufficient mental rigor and discipline that it ended up promoting just enough competent managers to keep the country functioning. Unless the leftist histories we read are totally wrong and the native genius of the Chinese people managed to flourish IN SPITE of the exam system.
I saw a NOVA special last night on the great robot race the Dept of Defense sponsored: Who could be the first person or team to get a robot to navigate by itself over a complex 100+ mile desert terrain? There were over 20 entrants who qualified to enter the race. It included teams from universities like Carnegie Mellon and Stanford (whose team was led by one of those fearful immigrant types), companies used to defense contracting, but also a fair number of guys, like "Team Dad," who hang out in the garage on the weekend tinkering with laser guidance systems and artificial intelligence. In all seriousness, despite my complete lack of contribution to any of their efforts (you weren't allowed to use government money to build your entry prototype), seeing the breadth of genius at work made me proud to be an American. It also made me feel a little more secure in the world knowing that I share a economic future in which I will necessarily benefit from contact with people like this. All this, of course, IN SPITE of whoever holds the mandate of heaven for any current 4-year term.
I saw that race! It was cool. Ausgezeichnetes Arbeit, Herr Thrun!
The Ansary X-prize is another example, getting a bunch of really bright guys with no real chance at winning to develop or improve technologies related to spaceflight. I don't think there was ever any doubt that Rutan would win, which is okay, too. It shows up the ability of intellect and good ideas to get capital in our economy -- a point I forgot to mention in the main post: there's enough investors out there, who have been shown to, in aggregate, beat the average return over and over again, to fund every bright idea an individual might have, so long as he can articulate the idea in such a way as to elucidate the likely returns. That was, of course, the point of the X-prize, and it is a useful consideration for folks advocating state allocation of technology investment.
Well, one more reason to malign MBAs: a general agreement among management experts that Bush is employing a style he learned from his 1975 Harvard MBA. I remember a discussion about the Bay of Pigs invasion: the public administration professor who led it asserted that the decision-making process surrounding the action was increasingly divorced from reality and absorbed in mutually self-indulgent approval of the plan. As we know, it failed, and although you can blame Kennedy for not providing air support, the root cause of the disaster was the Kennedy administration's decision to go forward with what support they did give rather than reevaluating the plan they inherited from Eisenhower.
This just points up a point I made earlier: a manager or leader cannot just assume his experts know what they're talking about (especially when, as in Bush's case, the experts are primarily expert at ideological orthodoxy rather than any real expertise), but rather must know enough about everything to ask challenging questions of the experts and explore holes in their analysis. Even if officers don't work they're way up the ranks as NCOs do, they at least study the principal business of the military: war, strategy, and tactics.
So MBAs suck. There is no such thing as a "universal manager": management skill is a byproduct of work in each industry, or even enterprise, and is not the primary skill necessary to manage a commercial entity. Business majors suck, and they always have.
Well, to be fair, there are different specialties you get in an MBA course, much like in law. A friend of mine specializing in learning the intricasies of finance right now seems to really be getting a lot out of his MBA investment. But on your larger point I think you're right; MBA programs tend to promote a one-size-fits-all approach to industry, at least from what I've seen. That approach seems to typically be to sell off assets and lower short-term expenses to jack up share-holder value whatever the long-term consequences. In the case of Harvard, yeah, they do seem to promote a system of identifying gurus in various specialties and then taking all your advice from them, whatever the quality of the advice. Even a sharp CEO who's picked the wrong guru may not find out for years if he cuts himself off from other sources of info, like, in Bush's case, reading the damn newspaper.
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