The Right Shouldn't Associate Itself With 'National' Strategies
While they're heroic historical figures today, there was a time when Orville and Wilbur Wright were viewed as crackpots. When the 20th century dawned it was accepted wisdom among serious thinkers that man would never fly.
Interesting about Orville is that while he envisioned what few did in terms of flight, the very notion of broadly owned automobiles struck him as cockeyed. Supposedly they were too unreliable. What about those GPS systems that eventually made the driving of now ubiquitous cars quite a bit simpler? The initial proponent of them in the private sector had scores of proverbial venture capital doors slammed in his face on the assumption that regular people would never want (or pay for) navigation.
Notable about the airplane, car and GPS is that those are but three of countless examples of productivity-boosting advances that we now can’t live without, but that were once laughed at by the wise. Rest assured that simple digging by any reader will unearth similar skepticism from top business and governmental types about the computer, mobile phone, internet, Wi-Fi, and nearly everything else that we hold dear.
All of this rates mention in light of recent commentary by Robert Atkinson, president of the Information Technology and Innovation Foundation. A card-carrying member of the right, Atkinson is promoting a “national productivity strategy." His peers should strive to avoid association with thinking so counter to traditional right-wing thought.
For one, such a belief in a national strategy for anything economic defies deeply held beliefs among members of the right about constitutional governance. Lest we forget, there’s nothing about growth in the Constitution. The founders wisely understood that free people for being free would enjoy immense prosperity. Notable here is that the innovations previously mentioned speak to individuals within a free country pursuing the very advances that conservative (in the restrained sense, not ideological) governments would never countenance in the first place.
Indeed, Atkinson misses the essential point about productivity gains; that they're frequently achieved by outsiders pursuing advances that established thinkers inside and outside government have dismissed. In short, government can’t (nor should it) promote what it doesn’t understand, and that it certainly cannot foresee. Yet rather than accept this, Atkinson embraces the narrative of “market failure” as the source of low productivity. Supposedly government intervention is the necessary fix. He misses by a mile.
Atkinson writes that government must step in to ensure that companies are rewarded for their intrepid ways. As he oddly sees it, companies “make fewer productivity-enhancing investments than is optimal” because they don’t “capture all the benefits” of their investment, not to mention that competitors supposedly free ride on their daring investments. There’s so much wrong with all of this, but to give Atkinson his due, companies and entrepreneurs certainly should be free to operate as freely as possible from taxation. The problem is that he doesn’t exactly see it that way.
Atkinson desires R&D tax credits, and other targeted tax code handouts to supposedly stimulate investment. But we once again don’t need government engineering of the tax code to convince entrepreneurs and businesses to outsmart the competition; instead we need lower barriers for everyone, including foreign companies that might be attracted to a country governed by politicians eager to simply get out of the way. To be clear, taxes are a price on work and investment. Politicians should lower them. After that, investment is measured in dollars, but in the 21st century, the dollar has been very weak. Is it any wonder then that productivity has shrunk during a period in which any investment returns have come back in severely wilted dollars? The answer isn’t industrial policy through the tax code as much as it should be government once again getting out of the way. This would include tax cuts on income and capital gains, along with a removal of the certain barrier that has been an uncertain and very weak dollar.
Another problem with targeted tax breaks is that they delay the failure that is paradoxically necessary for productivity to increase. Thinking back once again to the innovations that this piece began with, each revealed itself after extensive failure that gifted the productive with the information necessary to advance. The easy answer here is less government, and as such, failure and success that is less expensive.
As for investment in the future being less than optimal thanks to a commercial inability to “capture all the benefits,” let’s be serious. Apple, Amazon and Walmart are but three of countless U.S. firms regularly engaging in all manner of experimentation that government couldn’t possibly divine. Rest assured that consumers weren’t “demanding” internet shopping, Kindles, Echos, iPhones and self-checkout lines before these three U.S. innovators presented them to us. As shareholders of each know well, the businesses that innovate first will be handsomely rewarded. If Atkinson doubts this, he need only ask former executives of Borders, Barnes & Noble, Blackberry and A&P how much they “benefited” from the advances achieved by competitors who crushed them and their business models.
Another alleged “market failure” that Atkinson points to is the supposed unwillingness on the part of U.S. companies to adopt “technologies that are emerging but not yet fully proven.” See above and see U.S. commercial history to understand why Atkinson completely misses the boat.
Atkinson’s additional lament is that U.S. capital markets have come to “reward short-term investing, leading firms to skimp on longer-term productivity-enhancing investments.” One wonders in reading the K Street based thinker if he really believes what is absurd, or if there's an ulterior motive behind his decision to appear willfully blind to actual commercial realities. Considering Amazon yet again, it didn’t attain the jokey nickname of “Amazon.org” out of the blue. In truth, Amazon is one of many technology-focused companies that has regularly lost money on a quarterly basis, only for those same allegedly “short term” investors in the capital markets to reward it with consistently higher valuations. What about investors in pharmaceutical companies that pursue all manner of expensive drugs that history shows rather clearly will most likely fail? Contrary to Atkinson’s flawed story, U.S. investors in the capital markets are wildly patient. And that’s just in the public markets.
Let’s not forget how eagerly modern investors have seeded aggressive investment in the oil patch despite the certainty that exploration frequently leads to dry holes. Silicon Valley? Nearly every company in the Valley, Austin and Boston’s Route 128 that’s funded in 2017 will be bankrupt by 2018. Despite the previous truth, one that speaks to the incredible patience of investors in what is a highly dynamic capitalist system, investment continues to flow with great gusto to the very start-ups that are the picture definition of ephemeral.
Atkinson cites a “principal-agent” problem that will supposedly cause existing businesses to avoid productivity advances that might render the work of company executives redundant, but even if so, so what. Indeed, while it’s possible that Blockbuster Video avoided the automation (it had an early opportunity to buy a fledgling Netflix, but passed) that would put much of its workforce out of work, Netflix did what Blockbuster, Movie Gallery, and Hollywood Video wouldn’t, or didn’t do soon enough. Considering cars, though GM and Ford may try to placate Atkinson’s mercantilist soulmate in Donald Trump with promises to build factories stateside that employ live bodies, the ongoing automation of automobile production ensures that other entrepreneurs won’t be so slow-footed. Rest assured that in the next ten years countless new automakers will enter the market; selling cars made by machines at increasingly low prices. The beauty of capitalism is that if the established producers shun that which increases productivity, new entrants will do what they won’t. Simply put, investors are attracted to productivity advances that existing executives and government officials could never dream of. There lies the beauty of potential returns wrought by profits.
All this speaks to a bigger, broader flaw in Atkinson’s argument concerning his belief that the Trump administration should “revive a cultural attitude” in favor of “technological innovation and productivity.” No, it shouldn’t, nor is such a revival needed. Profits and bounteous investment returns are their own reward.
Atkinson is correct, however, in his dismissal of the worship within both political parties of “small business.” The frequent argument made by those who should know better is that small business “creates all the jobs,” hence the need for government to design laws meant to encourage more of what is small. Both sides miss the point. Small businesses create lots of jobs precisely because they cluster around established, and very productive big businesses. Looking at Apple alone, its 60,000+ employees in Cupertino, CA don’t begin to tell the Apple employment story. As Berkeley economist Enrico Moretti has pointed out, Apple’s “jobs multiplier” whereby countless non-technology workers and businesses cluster around the technology giant is massive, and many times Apple’s own headcount. That Apple is productive and intensely profitable means that many more baristas, yoga instructors, personal trainers, lawyers, doctors, stockbrokers and investment bankers can set up shop near the company’s headquarters.
Atkinson sadly concludes that “government needs to better understand why productivity has fallen,” and then having allegedly reached an understanding, it must somehow communicate to the citizenry that there’s a tradeoff between “untrammeled freedom or long-term prosperity.” Atkinson’s mistaken argument is that if greater productivity is to be achieved, that it “will require more government involvement in the economy.” How embarrassing.
To state what is obvious, the productivity he desires decidedly cannot be planned. Planning would by definition wreck productivity simply because the advances that will render it much greater will spring from innovations that no bureaucrat could ever fathom or foresee. Far from too much freedom and too little government depriving the American people of productivity and prosperity, both will be the certain drivers of it. Robert Atkinson’s central-planning heart is in the right place, but his solutions will lay a wet blanket on the very advances he desires, but that he has little clue of how to achieve.