WASHINGTON – Right in the middle of this deep crisis, President Barack Obama is presenting bold, new long term strategic initiatives on health, education and energy. He is pushing this agenda forward while his administration is still struggling with the immediate issues of bank lending and foreclosures. Obama has stated that there is a clear logic in launching major plans right now, as these strategies –he claims– will help create more solid foundations for the economy and the society. And it is important to get started on these plans right now, as they will take years to produce effects. So, we have an emergency plan for the short term, seamlessly integrated into a new Grand Transformative Strategy for the long term. This agenda is an extraordinarily tall order for a system of government singularly unsuited, in normal times, to digest big stuff in a couple of gulps. But these are not normal times and the idea of the Big Plan, whatever its eventual fate, is moving along.
The key areas designated by Obama: health, education and energy are clearly vital and focus on them is warranted. What is not inherently self-evident is whether a massive public sector-led effort in these areas is the best course of action to achieve the ambitious goals of affordable health care, available quality education to all and aggresive development of a non carbon energy supply.
Some opponents argue that Obama right now should limit his action on reviving the economy. We know the list: fix the banks, help them deal with the bad assets, stem foreclosures. Big, bold plans for expensive, transformative change should be part of a separate national debate that should take place after we are out of this slump. Other asserted that Obama is cleverly taking advantage of this crisis to ram through the Congress and the public in general gigantic increases in public spending, labeled by the same critics as old fashioned welfare, without adequate discussion.
Leaving aside attempts to divine whether there is an undisclosed agenda and what it may be, let’s look at the situation. It is a fact that the Obama administration is confronting more than just another economic recession, however severe. This crisis of unusual strength is taking place in an increasingly unequal society that has also lost at least some of the prerequisites to maintain its productive and innovative drive.
And these are not trivial details.
The first point is that this recession is hitting an America in which the poor have not managed to improve their conditions even when the economy was growing and times were relatively good. For this reason, while all of us are hurting, those at the bottom are hit much harder than the rest. The assessment is that, whatever individual responsibilities may be, this lack of upward mobility for millions of Americans is due to systemic lack of opportunity that make it objectively harder, if not totally impossible, for the lower strata of society to climb up the economic and social ladder, even with the best of intentions. And when those at the bottom who have minimal access to opportunity happen to be racial minorities, then we are confronted with the old story of discrimination, (this time around an implicit discrimination, as opposed to the openly sanctioned and openly practiced old one).
Indeed, when we notice that the poor stay poor largely because of lack of access to quality education and decent health care, then, present crisis aside, we can forget about upper mobility. For them it will not happen. And when we see that objectively for many “birth is destiny”, that is the social condition in which a child is born is the strongest predictor of his future station in life, then America is not the land of opportunity for tens of millions who happen to be mostly traditionally disadvantaged minorities. For this reason, the current severe recession invites reflection on how to improve a society increasingly split between those who have chances and opportunities and those who do not.
Point two is about the foundations of America’s economic might. While the devastation of traditional manufacturing, exemplified by the debacle of the US auto sector, causes concern, an even bigger concern is raised when it is not clear what a “Plan B” will look like and whether it will be broad enough to carry the entire nation into the future. The lesson of the last few years is that we have lost basic manufacturing, because our cost structure is too high compared to the cost of the emerging economies of Asia. Fine, many say. Not to worry. We leave apparel, toys, pots, alarm clocks, toasters and hair dryers to the Chinese, as we consolidate our leadership up market in biotechnology, health care, electronics, space, aviation, software and related services. This is an obvious shift for a high cost society with highly developed human capital and many centers dedicated to innovation.
However, success for this strategy is predicated on a few assumptions. A key one is that the overall level of education in America will be high enough to produce the sophisticated and highly skilled labor force capable of manning and running complex, knowledge intensive enterprises. And this means good if not excellent education not just for the elites but for the broader labor force. And here we are failing. Public education is substandard; and the urban minorities usually get the worst kind. So, we are not preparing the human capital for the future, while millions of uneducated young will be marginalized. Another one is that the overall burden of national health care costs should be bearable as a percentage of overall wealth, while at the same time creating access to health care for the more than forty million Americans who have no coverage. And yet another is that we shall be able to curb our consumption of imported hydrocarbons, as a matter of both cost and national security.
In brief, this seems to be the underlying rationale for the bold Obama approach. We are facing this ugly crisis. But, as we are dealing with it, we also want to lay the foundation of a New Economy and of a New, more equitable, Society, based on increased access to knowledge and thus opportunity.
Having said that, and even assuming agreement on the analysis, the question is: can a Washington-led effort re-engineer America? Can we create new programs aimed at building those steps that can be used by the poor to get out of poverty? And, most importantly, noble intentions aside, can government do all this and do it efficiently and effectively?
The temptation is to say: “Yes”. We tried the government-is-the-problem, so let’s go ahead with private sector-led stuff –and it did not work so well. We let the private sector free and it did not invest. It invented ultra sophisticated financial tools that brought enormous riches to those in charge of the system and almost nothing to everybody else. And then the whole thing collapsed. And so, can we safely conclude that free market capitalism “failed” and that the government, by default, if for no other reason, has to take the lead?
This is an enormously complicated question. And there is no absolute right answer. The best answer that I can give is that it is fine, in the present circumstances, for government to take the lead. But much of the success hinges on our shared understanding of government’s role in the long term. If we agree that these are special measures due to special circumstances and that later on we shall revert to a healthier private sector taking the lead, this would be fine. But if the notion instead is that now we discovered that the public sector is qualitatively better at guiding economic development, we may be in serious trouble. Plenty of evidence shows that, by and large, the State does not do a good job, except for limited areas, (funding of basic research comes to mind, for instance, as this is an area in which the private sector is not well suited at taking the lead).
Ideally, it would be nice to hope that the Government can help create a more level playing field in which there will be meaningful equality of opportunity for most if not all people; thereafter allowing them to express themselves as best they can. It is good for the Government to actively remove obstacles to opportunity. But if this noble effort should morph into the creation of protected groups or classes and the distribution of extra this and extra that to the disadvantaged, deserving categories, this would be a perversion of the initial intent and it would result into bureaucratization and the end of individual initiative and successful enterprise. There is plenty of evidence showing that large public policy programs aimed at solving problems end up institutionalizing them, creating permanently dependent constituencies that do not go away.
Long ago, Frederick Jackson Turner provided an interesting interpretation of the old American ethos. “American Individualism” was grounded on the peculiar experience of the colonization of the American West. By default, if nothing else, individuals or small groups struggling to get someplace in the wilderness had to be self-reliant and had to base their chances of success on personal will power, determination, hard work and ingenuity. When the Era of the Frontier came to an end, Turner wondered as to what this change would mean for the American ethos. When the big job at hand is no longer to lead the covered wagons caravan further West in search for good land, so that the first settlement could be established, what will become of an America shaped by experiences grounded on individual resilience? If indeed the defining feature of the American psyche and approach to life is rugged individualism, how would this “patrimony”, born out of the frontier experience, adapt to an urban society in which complex dialogue and mediation among diverse interests will be needed, rather than the trade mark “do-it-yourself-as-no-one-else-is-here-to-help” approach?
This important question was posed by Turner at the end of the Epic of the Frontier, more than a hundred years ago. He wondered what would become of America. What would happen to the self-starting spirit, to the can-do approach to anything? As Turner put it later, in March of 1920, “The future [….] alone can reveal how much of the courageous, creative American spirit, and how large a part of the historic American ideals are to be carried over into that new age which is replacing the era of free lands and of measurable isolation by consolidated and complex industrial development and by increasing resemblances and connections between the New World and the Old. (Emphasis added).[….] What has been distinctive and valuable in America’s contribution to the history of the human spirit has been due to this nation’s peculiar experience in extending its type of frontier into new regions; and in creating peaceful societies with new ideals in the successive vast and differing geographic provinces which together make up the United States[….]
Turner described a society and a culture shaped by the accepted –indeed revered– national myth, (even though this was not the actual experience for many) of the all conquering individuals who settled wild lands, relying on their wits. The American pioneer was not “the explorer” of the European experience. The American pioneer was not Magellan or Amerigo Vespucci. He was the common man, driven by a desire to go and settle in a new place. He had no financial backers. He was neither rich nor particularly well educated. What he had was will power and ingenuity.
To the extent that this national myth of individual resourcefulness and risk taking spirit had value as the intangible yet strong motivating force that would drive Americans onward, could this myth survive after the quest for open space in the West was over? And if frontier individualism would not survive in its original form, could it be transformed into something else, equally vital, yet more suitable to changed circumstances? Or was it the fate of America to rejoin the spiritual heritage of Europe?
Turner himself expressed the wish that Americans would be able to transform the physical reality of the Frontier and the challenges that it had presented to the would be colonizers into a new notion of frontiers of knowledge and new discoveries in science and technology and more. A good idea it would seem. And, to some extent it would appear that America followed this adaptation. From the physical frontier, we moved to the frontier of innovation, technology and new science. From the covered wagons we got to the Bell Labs, Silicon Valley, the internet and the human genome.
In all this, as compared to the European experience, the State and public resources, according to the accepted national narrative, played a relatively minor role. It was all about individual creativity and resourcefulness. Hence the somewhat simplistic notion that all that is good in America is done by the private sector, while the government is incapable, inefficient and wasteful; so it better stay out of the game. (Remember Ronald Reagan’s favorite joke?: “We are from the Government…..We are here to help”. And this supposedly preposterous assertion linking “Government” and “help” sounded extremely funny to his supporters).
In light of this heritage and the accompanying national myth of the individual as the engine of creativity and growth, the Obama approach, while motivated by this national emergency, appears wrong, misguided or even blasphemous to many. “Obama wants to make all of America just like France, or at least just like California, whose stupendous state budget deficit is the outcome of a failed statist philosophy”. “Obama is a socialist”. And the more colorful characterizations assert that “we are going the way of Argentina”, or (less plausibly) “of Zimbabwe”.
Indeed, citing Turner’s thesis, Daniel Henninger of The Wall Street Journal, wrote an insightful editorial on December 4, 2008, (“America Needs Its Frontier Spirit”) that opened with this admonition:
“The greatest danger in the current economic crisis is that the United States will lose its historic appetite for risk. The mood now is that risk taking got us into this mess. Risk, though, is the quintessential American trait that built the nation –from the battle of Bunker Hill to the rise of the microchip. If we let risk give way to a new ethos of commercial reserve and regulatory restriction, the upward arc of the US ascendancy will flatten. Maybe it already has.”
Henninger wrote that Turner had recognized that the “frontier spirit”, while uniquely American, was not all good. The fierce individualism that was its trade mark and dominant feature was “working for good and evil“. And we have seen plenty of both with positive and negative consequences. The rise of the great steel entrepreneur, later on turned philanthropist (Andrew Carnegie); but also of the Robber Barons, the speculators and the criminals (Bernard Madoff, by acclamation, gets the latest sleaze prize).
But is this reflection on what was or is the American ethos relevant to today’s circumstances? It is very relevant to the extent that we agree that people are motivated and driven by certain values that are transmitted by the prevailing culture. Turner wondered what would happen to the spirit of the frontier after the end of that epic age. He hoped that it would move to other fields of endeavor. And, to a large extent, this really happened. But the outcome is of a society that is both, highly innovative and fractured, flexible and adaptable and thus hospitable to the daring; but mercilessly cruel to those trapped in a world of poverty and ignorance. For them the verdict is as severe as it is unfair: “As they could not summon their individual resilience, well, they were doomed to failure. They did not make it; and it is too bad”.
The open question for the leadership of a modern industrial democracy in which a high level of sophisticated knowledge is the ticket to participate, is whether we can accept the old fashioned frontier time philosophy whereby “those who want can and will do”; and the others, well the others did not have what it takes to go through the wilderness and Indian lands. They did not make it.
The Obama administration appears to appreciate the good aspects of the old heritage that created a society in which individual ingenuity is at the root of growth. But it also sees the negative consequences of excessive individualism: a fractured society in which those who can go ahead, while many others sink or are condemned to perpetual marginalization, largely because of the circumstances in which they are born. The trick here is to “fix” the flaws of individualism without destroying it in the process.
Indeed, individualism stirs the free human creativity that produces Apple and Federal Express. Regimented, bureaucratic industry and endless bargaining with the unions produced Rick Wagoner and a slumbering General Motors, a corporation that does not even have the minimum level of self awareness to know when the business is dead. While Obama and his advisers correctly talk about systemic flaws that require real reform, it should be our hope that they will keep in mind that, in the end, the future competitiveness of America will still rest on the ability to keep and nurture a spirit of creative enterprise that has few competitors in the history of the world.
Right now, in the midst of this severe recession, the frontier spirit is not shining. There is an understandable backlash against unregulated capitalism managed by manipulators who concocted incomprehensible financial instruments and peddled them to many like the all curing snake oil of old, while the regulators were looking the other way, because they were supposed to allow the free market to do its own thing.
Looking at the destruction of wealth and at the dislocation for millions that occurred mostly under the stewardship of an incompetent Republican Party distracted by its excessive preoccupation with the war on terror and by the all absorbing Iraq adventure, one could easily agree with President Barak Obama’s conclusion that the old way of doing things (unregulated markets) has been tried and it did not work. Hence the need to try something else. Very true.
What happened under George W Bush was a disaster that has shown what level of damage blind faith in individualism, this time around “working for evil”, (whether we knew it or not), can bring about. But, agreeing that the damages of the past were caused by reckless deregulation and lack of any kind of oversight, does not provide a clear indication of what may be a better way. Right now, with the engine of capitalism broken or at least stalled, it is appropriate to use the levers of public policy to inject some life into the system. But is this a temporary remedy or a brand new course? If it is temporary and expedient, so be it. Someone has got to do something. But if this is the prelude to the return to old 1960s and 1970s ideas of Big Plans that will fix Big Issues, then a cautionary note should be introduced.
The Frontier Spirit may not provide good guidance at this time, at least not until it can be refurbished as a genuine force for good. But there is no evidence that state run, social democratic policies work any better in the long haul.
In the 1960s and 1970s the European industrial democracies thought that they had improved and refined capitalism. The Great Society programs here in the US had similar aims. You could have both, a private sector and a public sector, free enterprise mitigated by good regulations and welfare programs that would embrace and sustain everybody. Progressive taxation would finance the whole machinery. In the European experience, thoughtful technocrats, the High Priests of the Mixed Economy and the Welfare State, would watch over and fine tune the system, making sure that all would thrive, enjoying the fruits of carefully orchestrated economic activities.
In Europe in particular, the central element of this whole idea was a sincere belief in the concept of “The Plan”. A good and wise allocation of national resources needed a careful plan, so that there would be no waste and no disruption; thus optimizing the allocation of scarce capital. In theory all this sounds quite good. In practice, it is odd that the concept of “The Plan”, sincerely embraced by the Social Democrats, was in fact the absolutely worst component of Soviet style communism. Simply stated, even assuming the best intentions and the best people working on it, “The Plan” does not work. And this is mostly for two reasons.
First, a Plan is normally based on assumptions that prove to be inaccurate or wrong, while the Plan is too rigid, not allowing for course corrections. The second reason is that any attempt at forced allocation of resources according to The Plan, is not optimal and in fact quite wasteful. But worst of all, the notion that we all have to work according to a script denies in practice the expression of individual creativity and smothers that risk taking feature that Turner and others indicated as the distinctive feature of American style enterprise. In fact, America has been and still is the destination of many disgruntled would be entrepreneurs from Europe or Asia who moved here because they believed that here they would find more fertile ground for the flourishing of their ideas and enterprises.
In the end, this crisis will pass. looking at the aftermath, the Obama administration is right in asserting its desire to address systemic weaknesses in education, health care and energy that, if left unattended, in the long run will weaken America and diminish its chances to be truly competitive in the global economy. While, in principle, this is a good idea, wanting to do the right things is not necessarily an indicator of future success. Then, what do we do?
It would be wise for a reformed and sobered up private sector to stay away from the attempts at demonizing Obama as a northern version of Hugo Chavez bent on ruining the country, and engage with this administration in devising the best way to use public policy and/or mixed models of public private partnerships in an innovative and productive way. The stakes are high. If we are successful in providing the necessary tools to those that have been excluded, we have now the chance to transform America into a modern, vibrant “Opportunity Society”. And this is something that both left and right should be able to agree upon. As Turner said, there can be different frontiers. Why not make “Expanded Opportunity” the new one?