The Insurgent Spirit and Messy Capitalism

By Dane Stangler

The once-tenuous course of the United States’ experience in Iraq was reversed by two things: the surge of thousands of additional troops, and the military’s rediscovery of counterinsurgency principles. The latter can be attributed largely to General David Petraeus, who helped rewrite the Army’s counterinsurgency manual and put it into practice alongside the surge.

In an odd way, Iraq may hold some lessons for economic policy. The now-tenuous economic course of our country can be reversed by doing the opposite of what General Petraeus did: a counter-counterinsurgency approach. This is most apparent in the current debate over whether to save the American auto companies.

As a matter of politics, the choice seems a no-brainer: help Detroit. The short-run costs of lost jobs and production are, politically, too painful to incur. The only debate is over the cost and scope of a bailout. Fortunately, politics is not the only arena in which these types of decisions get made. In considering the long-run economics involved and how our actions today will shape the future of American capitalism, what are the lessons of insurgency?

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One of the most overused phrases today is “inflection point”—we’re said to be at a political, an economic, a grand global inflection point. Notwithstanding that true inflection points simply cannot occur at the same frequency at which they are declared, the Detroit dilemma does seem to present a fundamental question about the shape of our economy.

Set aside the conventional categories of regulation v. deregulation, or fettered v. unfettered free markets. Let’s ask a basic question: how does our economy progress? We must first define what we mean by “progress.” Certainly, new types of goods and services are part of this, but that cannot be all—above a certain level of income and material prosperity, a person’s (reported) happiness doesn’t increase that much. Part of this is our relative frame of reference: we compare our current situation to that of our contemporaries, not to our parents and grandparents. Few Americans today would likely be willing to give up their current standard of living for one that prevailed in 1950 or 1900.

So what else counts as economic progress? Most people would probably include some description of their individual capacity—the extent to which the economy permits them to explore and enrich their talents and dreams. That sounds hokey, and is wholly unquantifiable, but I would bet that it resonates with everyone. People prize their uniqueness, and the economic system that gives widest scope to that value will also enjoy the greatest progress.

This is what capitalism does. In particular, it permits individuals to challenge the established order of things—capitalism is about insurgency. The word “insurgency” conveys, in a military context, disorder and mess; the United States military ran into trouble in Iraq because our conventionally-designed forces were not prepared for the disorganized structure of the opposition.

In the economic sphere, too, insurgency means disorder and mess, yet these are the true sources of prosperity and progress. Take some examples. In the early twentieth century, the city of Los Angeles was a sleepy settlement at the commercial margins of the country; in particular, New York reigned supreme in entertainment and the new area of film. But as we all know, today Los Angeles is synonymous with film production. Part of this was climate: it was easier and cheaper to make films year-round in southern California.

The decisive factor, however, was that the established entertainment organizations in New York—typified by “the Trust,” the Motion Picture Patents Company—sought to control and constrain the emerging film industry. As a result of these strictures, a number of individuals and their new studios (including William Fox and Carl Laemmle, creator of Universal Studios) decamped for Los Angeles. They could only succeed through an insurgency against the existing entertainment order.

Likewise, the technological basis of the Information Revolution—the transistor—was developed by the behemoth Bell Labs. Its revolutionary promise, however, only came through the work of insurgents, namely, Fairchild Semiconductor (which broke away from Shockley Labs) and the long line of companies it helped spawn in Silicon Valley (including Intel and Advanced Micro Devices.

This is the hallmark of capitalism: it opens the door to challenge, and it is frequently the outsiders, the insurgents, gambling on a new and unproven technology or way of business, who succeed. These insurgents, of course, then become the next generation of established authorities—Intel today faces constant challenges to its dominance. This messy pattern of rise and fall, giving full scope to the expression of individual authenticity, is the wellspring of progress.

Nearly a century ago, the famous Belgian historian Henri Pirenne described the capitalist system in just these terms: “At every change in economic organization we find a breach of continuity. It is as if the capitalists who have up to that time been active, recognize that they are incapable of adapting themselves to conditions which are evoked by needs hitherto unknown and which call for methods hitherto unemployed. … In their place arise new men, courageous and enterprising, who boldly permit themselves to be driven by the wind actually blowing and who know how to trim their sails to take advantage of it.”

For this to work, however, the people and organizations in the established order must give way; they must be willing to give a wide berth to challenges to their authority. And it is here that economic and regulatory policy can play a vital role.

Too often, we think of regulation as a hindrance to business, as something fundamentally anti-market. Yet anti-business and anti-market are very different. Companies often seek regulation as a way to protect their business from competition. Who, after all, likes challenges to their products and services that they worked hard to secure? And what better way to protect them than through regulation? Innovation takes effort; regulatory protection is easier.

The challenge is to orient regulation such that it protects access to entry—our economic policy must, in other words, become pro-insurgent. It must seek to maintain competition and help structure the economic playing field so as to give the widest scope to individuals and companies working at the margins to challenge existing ways of doing things. The icon of this approach is the inventor in the garage, but it could just as easily be the middle manager who sees an opportunity to improve some line of business, or the retiree who decides to apply her skill and experience to an off-the-wall idea.

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Ruminating on different types of soft despotism in Democracy in America, Alexis de Tocqueville saw that people would, quite naturally, seek economic security from the state. In some ways, this might appear benign: government “foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry,” etc. This doesn’t necessarily “break men’s will, but softens, bends, and guides it.” The greatest drawback, Tocqueville saw, would be in the unseen and unimagined possibilities that would not be realized—protection and security would “not destroy anything, but prevent[] much being born.” The cost lies in preventing the realization of the new.

So we might end up bailing out Detroit in one form or another. That would be counter-insurgency, defending the established, and it characterizes Europe, a region not recently known for dynamic growth. But as a tradeoff, we must again reorient our economic policy and regulation toward the messiness of economic insurgency that is the true key to lasting prosperity.

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Dane Stangler
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