Correcting the Myth About Cronyism As the Path to Wealth
It’s a well-known historical truth at this point, but Seattle, WA used to be a poor, run-down city. Now it’s a gleaming, really rich city.
To drive through it, or better yet to see it by boat is to be stunned by all the opulence. While downcast talk in the early 1970s was sarcastically about the last person turning off the proverbial lights in a city that the talented had departed, so full of talent is Seattle today that its downtown can’t house it all. Sure enough, the greater Seattle area has not one, but two skylines. Redmond’s seemingly grows by the day.
What brought all this on? Tax cuts, rising birthrates, or perhaps government spending? No. What happened was that Seattle natives Paul Allen and Bill Gates returned home from Albuquerque, NM in the 1970s. They brought with them what was then Micro-Soft. The latter became a monstrous business success, and as expected, talent flowed into the Emerald City in pursuit of the prosperity that was initially an effect of Gates and Allen.
While conservatives and liberals get all giddy and/or misty-eyed about small business and the jobs they “create,” the reality is that small businesses are an effect of the big. They cluster around them. By the 1980s Microsoft was surging, and its boom once again took Seattle up with it. Since then, all manner of companies have formed and/or prospered in the greater Seattle area, including, most notably, Amazon.
All of this rates mention in response to a recent column by Atlantic contributing editor Annie Lowrey. Up front, this isn’t a critique of Lowrey. One can imagine she was simply assigned a review of a book that contends the U.S. economy is “broken.” Nothing new there. Landfills are littered with books trash-talking the U.S. economy, and life within the U.S. The title of Lowrey's column, one no doubt written by her editors, was “Who Broke the Economy?”
But wait, who broke what? An economy is just a collection of individuals. Are Americans as individuals “broken”? If so, 99.999% of the rest of the world would presumably love to have our alleged injuries. Figure that companies and jobs are an effect of investment, and the U.S. attracts more foreign investment than any other country in the world.
We produce for dollars, but our desire for dollars is merely our desire for the goods and services dollars can be exchanged for. In that case, intensely productive Americans are the recipients of more in the way of foreign exports than any other country in the world. Needless to say, it would be hard to contend that a country populated by people whom the rest of the world’s producers compete to serve has a “broken” economy. In fairness to Lowrey, it’s once again a guess that she didn’t write her column’s title.
To all this, Lowrey might point out that the book she reviewed indicated the U.S. economy was broken, not her. She was merely reviewing the latest of countless books presuming to chronicle the economic decline of the United States. In this one the authors assert (among other things) that “high-income individuals and big-profit businesses” have "rewritten the rules of the economy, [thus]‘capturing’ the regulatory system and using it to squeeze out their competition.” The book contends that this has been a forty-year process.
Ok, but a look at the Forbes 400 from 1987 compared to the one from 2017 would reveal an almost totally transformed team picture. Most every 400 member from ’87 is not there today. As opposed to a “broken” economy, this churn at the top speaks to enormous dynamism; dynamism that would explain why the U.S. remains a magnet for foreign investment, immigrants, along with the world’s plenty. To be clear, if “high-income individuals and big-profit businesses” had really “rewritten the rules of the economy,” then those at the top of the 400 would mostly be the same, as would the companies at the top be. Except that they’re not. Readers are already aware of the churn among the superrich, and they can rest assured that the team picture of top companies has similarly changed profoundly over the last 40 years.
Is this nitpicking? Maybe the point is that in the 21st century, under fairly inept presidents Bush and Obama, the big and powerful have “rewritten the rules of the economy”? But even there, there’s no story. If there were, then it stands to reason that the rich and big in 2000 would still be at the top in 2017. Except they’re not. Indeed, when the 21st century began, Apple was just emerging from near bankruptcy, Google was a mostly unknown private company reliant on word-of-mouth about its search engine, Amazon sold books, DVDs and VHS cassettes (its stock was about to fall into the single digits), and Facebook didn't even exist. Goodness, Mark Zuckerberg was still in high school.
The businesses mentioned above are four of the five most valuable companies in the world today. What’s the fifth? Microsoft. When the new century began it was the only one that was truly relevant. But far from rewriting “the rules of the economy,” Microsoft was on the verge of a 15-year stretch in which its stock stood still at $25 after years fighting off the U.S. Department of Justice; the DOJ no doubt pressured to harass Microsoft by lots of companies aiming to rewrite “the economy’s rules.” Some are defunct today, others sagging, and some simply forgotten.
To be fair to the reviewed, there’s doubtless cronyism in the U.S. That’s a blinding glimpse of the obvious. At the same time, what’s apparent is that the businesses closest to government are generally not the most prosperous. All it takes to understand this truth is to glance at the lists of the richest American people and/or lists of the most valuable U.S. businesses.
Some will say Wall Street is the exception to the above rule, but then readers who feel that way would be wise to consider the top investment banks of 2000 versus the present. Many are gone, and the ones left are experiencing a talent drain that is an effect of those businesses’ attempts to rewrite “the economy’s rules.” In short, what’s close to government isn’t terribly dynamic, even among investment banks. That’s why the truly big money in finance is more and more being made far from the old symbol of finance that we call Wall Street.
Bringing it back to Lowrey, and a column title that she likely didn’t choose, countries that are magnets for investment, exports and precious immigrants are decidedly not broken. And so long as the talented choose to pursue their commercial bliss stateside, the American economy surely won’t be broken. As for the thesis of those reviewed, it’s no doubt true that some individuals and some businesses are trying to rewrite “the economy’s rules.” The happy truth, however, is that they’re generally not “high-income individuals and big-profit businesses.”