Policy, Politics & Culture
The quest for a new social model has to start with economics. America could survive without growing prosperity and rising standards of living, but it would not flourish — and it would not be living up to its potential to create a better life not only for Americans but for people all over the world. Green dreamers and communitarians disagree, often eloquently but always futilely; the drive for economic prosperity is deeply planted in American politics and society. When the economy isn’t performing well, politicians lose their jobs while the public looks for alternative ideas.
The quest for economic prosperity helped make the blue social model, and the failure of that model to deliver continuing prosperity in contemporary conditions is both a symptom of and a leading reason for its decline. The mass prosperity of “Fordism” depended on economic conditions that no longer hold. High paid manufacturing jobs and many clerical and middle management positions are disappearing. Some jobs are outsourced to cheaper foreign countries; others disappear as automation increases productivity and decreases the number of people needed to accomplish various tasks. The stable oligopolies and monopolies that once dominated the American economy have disappeared in the face of heightened international competition and accelerated technological change. As formerly large and stably profitable corporations had to scramble to survive, they no longer could afford lifetime employment, friendly relations with strong unions, and generous health care and retirement benefits.
Economically, the decline of the blue social model presents Americans with some urgent questions: how can we generate a rising standard of living for our citizens in a post-Fordist world? If manufacturing and stable oligopolies won’t underpin lifetime employment and rising wages for new generations of Americans, what are we going to do instead?
To start answering these questions we have to think about whether the United States enjoys any comparative advantages or can we develop some that, wisely deployed, could provide us with the kind of rising living standards that we have enjoyed in the past?
It’s clear that many such advantages exist and some are even becoming more prominent and useful. In the energy sector, homegrown shale gas and shale oil plus large new discoveries in the western hemisphere suggest that 21st century America will enjoy secure access to an abundant and varied mix of fuel from nearby and friendly neighbors. Blessed by a favorable climate and rich soil, our agricultural productivity will continue to astound. Our geographical location, which gives us access to both of the world’s greatest ocean trading basins while protecting us against invasion by other great powers, remains a tremendous advantage. The language we speak continues to develop as the global lingua franca, giving every American citizen and American business a significant boost.
These are advantages we have enjoyed for centuries and they are likely to loom larger in the 21st century even than in the recent past. We have grown proficient at using and enhancing these advantages and we need to continue to do so moving forward. Just based on these factors, fears that we are sinking back to some kind of dystopian, third world future are, I think, overblown. But our greatest advantages are cultural and political and it is to these that we must ultimately look for the prosperity we want in the decades to come.
I’ve written about these advantages at some length in God and Gold: Britain, America and the Making of the Modern World, and I won’t repeat those arguments here. The upshot is that among all the countries in the world, the United States and a handful of English speaking societies have some unique strengths. We do better at combining rapid innovation with social and political stability than others do. Since 1688, the English speaking world has seen only two successful violent revolutions, and even the American Revolution was largely non-violent with royalist governors peacefully replaced until the British army arrived to reconquer the colonies. (The other successful violent revolution was the secession of Ireland from the United Kingdom in 1919.) The UK, the US, Canada, Australia, New Zealand and, since independence, Ireland have had remarkably stable political histories and show great continuities in culture even as they have remained at the forefront of economic and technological change.
Despite a history of booms and busts from the South Sea Bubble to the 2008 meltdown, their financial histories have also been more stable than those of other countries; since the establishment of the Bank of England in the late seventeenth century, the political stability of the English speaking world has contributed to economic stability. Investors have been able to buy long term bonds in the English-speaking world with confidence since the 18th century. No other significant global economic or political centers have this kind of track record, though the Dutch come close. (Ugly budget pictures today in Ireland, the US and the UK tell us that we should not take these economic advantages for granted. Fortunately, in all three countries there seems to be some real political will to turn things around.)
The English-speaking world has been at the heart of the process of modernization with all the upheaval and uncertainty this process brings in train, but through it all these countries have somehow remained more stable and reliable than others. We change faster than others do in response to new opportunities and new technological possibilities — but we don’t lose our balance in the process.
Joseph Addison described the behavior of Winston Churchill’s famous ancestor the Duke of Marlborough at the battle of Blenheim in a way that captures this ideal of calm in the midst of frenzied activity:
The dreadful burst of cannon rend the skies, And all the thunder of the battle rise. `Twas then great Marlborough`s mighty soul was prov`d, That, in the shock of charging hosts unmov`d,
Amidst confusion, horror, and despair, Examin`d all the dreadful scenes of war: In peaceful thought the field of death survey`d, To fainting squadrons sent the timely aid, Inspir`d repuls`d battalions to engage, And taught the doubtful battle where to rage. So when an angel by divine command With rising tempests shaks a guilty land, Such as of late o`er pale Britannia past,
Calm and serene he drives the furious blast; And, pleas`d th` Almighty`s orders to perform, Rides in the whirlwind, and directs the storm.
This angel in the whirlwind quality means more now than ever before. The 21st century is shaping up to be an age of upheaval; change is coming at us from so many directions and at such a pace that cultures and countries around the world are being shaken to their foundations. Those who can keep their calm and balance in the midst of the whirlwind have a serious advantage — and they should use it for all it is worth.
America is good at change. We absorb immigrants better than most. We like new things and like to try them out. We have an optimistic streak in our nature; we believe that change is basically good and that being open to new things will make us happier and better off. Our religious sensibility is future-oriented and believes that God is working through the chaos and uncertainties of life. Our national religious tradition is profoundly influenced by the dynamic vision of a God who calls humanity into an unknown future. While the religious cultures of some parts of the world look back to a real or imagined utopia in the far distant past, or instruct the faithful to resist change and cling to the ancient ways, American religion tends to see the hand of God behind the winds of change. We pursue God into the future, rather than hunting for him in the far-distant past.
America’s critical comparative advantage in the 21st century will be its ability to respond quickly to change: to recognize and exploit new opportunities faster than others, to retool its core institutions and practices to fit the emerging shape of the new world, and to do all that while retaining its political and social equipoise: to ride the whirlwind and direct the storm. We were the first to build the blue social model and we can be the first to get to the next stage and reap the enormous rewards that come from reaching a more productive and efficient form of social organization before the competition.
No doubt many new opportunities will emerge during the 21st century; nanotechnology and biology look to provide revolutions at least as profound as anything to be found in the IT revolution now transforming the world. But until these new developments come more fully on line, the biggest opportunity and the greatest challenge that faces all the leading economies will be to harness the full power of IT to social needs.
In particular, this means competing with other countries not by the cheapness of our wages or the laxity of our environmental regulations, but by building on our ability to increase the productivity of both capital and labor through the power of IT to reduce the cost of friction in society. The first challenge of the 21st century will be the race to build infostructure — a mix of hardware, bandwidth, software, and government and corporate practices that deliver the greatest possible benefits of IT in ways that dramatically reduce costs and delays throughout the economy. A lot of this will be about friction.
Readers of Clausewitz know that friction was his word for the inexorable entropic pressure that disrupts any plan of campaign. Bad weather, diseases in the camp, miscommunication of orders, the absence of good information, the hazards of a night march: all these could be examples of the kind of friction with which every commander must struggle.
In civilian life as well as military affairs, friction has often been caused by distance: moving people, goods and information through space costs money and time. We will continue to build and repair physical infrastructure in the future, but the cutting edge of society’s effort to reduce frictional costs in time and money will lie in the development of “infostructure” rather than infrastructure: the mix of institutions, practices, hardware, software and bandwidth that allow the inherent productivity of information technology the fullest possible scope to transform the way we do things.
Take the legal system. The legal system arose in order to solve disputes; it consumes a great deal of time and money and is itself one of the great sources of friction in our society, but it is much better than anarchy would be. Yet as society becomes more complex, we need more legal service and not less, and the question of how to make the legal system fast, efficient and cheap grows more important all the time.
Let us imagine how the legal system might work some years down the road with the right kind of infostructure. Some changes are already under way. Routine matters like basic, simple wills, taxes and incorporations can be handled using cheap commercial software. Clearly, this software is going to get better and smarter, and more and more matters can be handled by people working on their own. Governments should be working to facilitate this shift, changing laws where necessary and advisable. Perhaps one day most routine marriage and divorce, residential real estate transactions, and many other activities that historically required lawyers can be done by individuals using software or at most with paralegals. More and more of this will into the “cloud”; less and less time and money will be chewed up by routine legal affairs.
That is all first stage reform. Deeper change and greater savings will come as more sophisticated software and new institutions and practices that take full advantage of these capabilities transform the inner workings of the legal system. It’s impossible to foresee how this would work out in practice — any more than someone in 1895 could predict how the modern chemical industry would develop over time. But develop it will. One possible way things could go: Every court decision ever given, every brief ever filed and every journal article ever written will some day be available in a single database; intelligent software could sift the facts of any given case and the arguments of both sides against this material to make some predictions about how a given case might come out. Given access to the records and decisions of the judge appointed to hear a particular case, it would be possible to see how this particular judge would be likely to view this particular case with a fair degree of probability. That information would be available to both parties in the case, making a fast settlement a much more likely outcome. Many fewer cases might go to trial; decisions would in any case come much more quickly.
Smart policy would speed this transition. Investing in the infostructure that moves the state’s legal system as far into the future as quickly as possible would attract new investment and jobs and enhance the profitability of business already in the state.
Research into ways to use IT to accelerate the speed of legal proceedings while reducing their cost is the kind of thing government should support. Land grant colleges supported agricultural research in the age of the family farm; we developed a host of ways to support research into improved industrial and factory productivity in the age of Fordism. Now it is time to shift to the next stage, for universities and government to move into the kind of research that will transform our social infostructure.
While infrastructure will remain important to the smooth functioning of society, infostructure will likely surpass it. Governor Jerry Brown’s successors may think less about building $100 billion high speed rail programs than about radical restructuring of the way California’s government works so that a much smaller and cheaper government is able to do more and do it much quicker. A superfast and supercheap legal system would dramatically enhance the productivity of capital invested in the state. Government would work better and faster and cost less; taxes would fall even as services improved. (There is no real reason why many government services can’t improve the way personal computers and software have done: each year they get cheaper and each year they do more.)
The war on friction is one of humanity’s oldest challenges, and it inevitably becomes more important as society becomes more complicated and more interdependent. A small village can handle everything quickly; a modern megalopolis must have a much better developed government. Good infostructure can dramatically reduce the costs and complexities of modern governance.
In all societies vested interests will resist efforts to reduce friction. The mule drivers didn’t like the canals and the canals hated the railroads. Pettifogging lawyers will hate the transformation of their profession, and every vested interest in the country will be touched one way or another by the kinds of transformations of our core social institutions that will take place as we build out the infostructure of the 21st century.
This is where America’s advantages count. That process can and should happen faster here than in other places. We have fifty states who compete with one another and the federal government to do things faster, quicker, better. Best practices and new ideas spread. Bureaucrats are less powerful here, and state employees are less well-placed to block changes they don’t like. The public is readier to try new things and take risks for the sake of progress. Our government, our legal system, our health system, our educational system: all of these can be radically and greatly improved by the right infostructure, and Americans are more willing and able to push this process ahead than people in other parts of the world.
The critical advances of the next generation involve the development and construction of a radically new infostructure that will change the way government, the law, education, medicine and many other institutions and industries work. The new infostructures will so dramatically enhance the efficiency of the societies able to build and install them that they will enjoy huge advantages over those who cannot.
America needs to rebuild its infostructure. The alternative to a race to the bottom, to trying to compete on the basis of lower wages or laxer regulations, is a race to the front: to the cutting edge of human progress. This is a race to build the new kinds of infostructure that advances in communications and information technology have made possible. This is a race that we can win and that is worth winning. America can get to a faster, more efficient future faster than other people, and it is on that basis that we can prosper and raise our living standards in the coming years.
Infostructure (IT)….
At bottom WRM, you are implying economic growth; however, said growth now must include actors exogenous to America. Yes, the United States enjoys many comparative advantages (climate, resources, geography, social organization, etc.) but friction is inevitable given our historical (now defined as red, blue, purple) polity views. Further, assembling infostructure that enhances IT advances will require “recasting” our views vis-a-vis educational delivery considering America’s dearth of aspiring scientists and engineers (“The critical advances of the next generation involve the development and construction of a radically new infostructure….”).
WRM, you are correct a “race to bottom” economically cannot benefit majority of American citizens. But, a “race to the front” leaves me where Francis Fukuyama recently inquired: do institutions really matter? And can we prosper and raise our living standards without examining honestly that question in an American context?
Prof Mead tiptoes around it, but central to the success of the English-speaking world is widespread economic liberty. We’ve more successfully constrained government to limited roles in the economy than other cultures, at least until very recently: education, infrastructure, and since the New Deal, old age retirement income and then the Great Society Medicare, Medicaid and heavier involvement with welfare (charity).
This is not to say Progressives haven’t tried to control much larger swathes of the Western economies! Witness the Obama administration and its stabs at sponsoring “green” energy projects, highspeed rail, spending $814B on a multi-year fiscal stimulus with strong backing from Keynesian macroeconomists.
But these efforts are strongly resisted by more “lassez faire” economists. Their legacy goes back to Adam Smith, David Ricardo, Alfred Marshall, Ludwig von Muses, Schumpeter, Friedrich Hayek, Milton Friedman, & Robert Mundell (father of the euro & Nobel Prize winner, 1998, and “supply side” guru).
Arnold Kling has written a column for the WSJ Europe, Feb. 3rd, explaining why he thinks the $814B fiscal stimulus was almost guaranteed to disappoint (my words, not his) that is based on an analysis using what he calls PSST (“Patterns of Sustainable Specialization and Trade”), admittedly, a clunky name, but in the tradition of Smith, Ricardo, von Muses, Hayek, et al. See:
http://online.wsj.com/article/SB10001424052970204740904577197044156250870.html
A QUOTE OR TWO (OR THREE!):
#1 “Modern Keynesians claim the problem is that businesses and consumers are not doing their part. Borrowing and spending is a tough job, the Keynesians say, but somebody has to do it, and that somebody should be the government.
“Unfortunately, this view may not be correct. Instead, I believe that the process of creating employment is explained not by the theories of Keynes, but rather by the theories of Adam Smith and David Ricardo. Smith famously described the advantages of specialization and division of labor. Ricardo pointed out the gains from trade that come from consuming goods that others produce more efficiently. From the perspective of Smith and Ricardo, real jobs emerge in the context of patterns of sustainable specialization and trade.
“Unfortunately, the patterns of specialization and trade that had emerged five years ago were not sustainable. Many jobs in home construction, durable-goods manufacturing and distribution, and mortgage finance were dependent on housing markets with ever-rising prices. In the U.S. and the U.K. in particular, the finance industry expanded well beyond its true economic value. Once the property bubbles burst, these jobs were exposed as not viable. Meanwhile, ongoing creative destruction brought about by the Internet and globalization have continued to allow substitution of capital and emerging-market labor for industrialized countries’ labor in many sectors. Together, these phenomena have caused widespread dislocation.
“More government spending will not bring back the days when supposedly triple-A-rated mortgage securities could be fashioned out of dodgy loans to unqualified borrowers. Doing so would not halt the ongoing improvements in productivity in manufacturing and retail trade. It would not facilitate the adjustments that are needed in the mix of skills in the labor force. The necessary adjustments can only be made by the decentralized efforts of entrepreneurs.”
#2 “n contrast, in our Smith-Ricardo story, the knowledge of how and what to produce has to be discovered. Entrepreneurs have to figure out ways to utilize resources that satisfy wants in an efficient way. The market mechanism first must undertake trial and error to create production processes that exploit comparative advantage. Until these new patterns of sustainable specialization and trade are discovered, there are no job slots.
“Experimenting with new patterns of specialization and trade is relatively easy. Discovering patterns of sustainable specialization and trade is much harder. Our economic well-being depends on the ability of entrepreneurs to make these discoveries”
#3 “All this dynamism and ferment is absent in the Keynesian story of aggregate demand. But it is central to the PSST story. In the PSST story, major recessions take place when too many patterns of specialization and trade become unsustainable at once. The entrepreneurial adjustment mechanism is overwhelmed, and it takes several years for the economy to adapt.
If the Keynesian demand story is not valid today, then perhaps it was not valid during the Great Depression either. The 1920s and 1930s were, like the present, a period in which major technological changes were working their way through the economy. Economic historian Alexander Field has argued that the decade of the 1930s saw more technological progress than any other decade in American history.”
Has anyone ever done any work on the balancing act between gaining efficiency in one industry (thus shedding jobs there) and the degree to which those efficiencies help every other industry that depends on those industries?
Say the efficiency of the Financial industry goes up. That industry sheds jobs. Every other industry sees its overhead drop because financial services suck up a smaller portion of their budget. How many more people can they hire because of this? How much more competitive are they?
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