All Commentary
Tuesday, July 6, 2010

To Understand Change, Learn History

Today's Economic Challenges Are Really Political

Judging by the headlines and recent political campaigns, America’s economy is undergoing one of those rapid and fundamental changes that augur well for the incomes of Americans — but not so well for the prospects of restraining politicians from counterproductive intervention to “save jobs.”

According to the data, my home state of North Carolina lies at or near the center of this change. Although this may surprise many outsiders, North Carolina has long been one of the most manufacturing-dependent state economies in the United States. It has one of the highest percentages of the workforce engaged in manufacturing and the highest share of women working outside the home, many in manufacturing. Traditionally, the saying went, North Carolina’s economy was built on a tripod of manufacturing industries: tobacco processing, furniture, and textiles. For various reasons, all three have had a rough few years, resulting in massive job losses, declining asset values, and more than a few bankruptcies. Of course, communities across the country and around the world are grappling with similar changes.

We’ve seen wrenching and exciting economic change before, so some might be tempted to regard this new wave of reorganization as no big deal. I don’t agree. This information-age economy is real, and it’s here to stay. You can’t wall yourself off from it with protectionist tariffs, government programs, or wishful thinking. You can’t put the genie back in the bottle.

And you shouldn’t want to. After all, genies are powerful things. The new technologies and trading relationships of the 21st century are powerful too. We all benefit when information that used to reside in shelves of books or the minds of middle managers is now available at the touch of a button. We all benefit when automation drastically reduces the cost of producing goods, even if in the short run some workers find themselves displaced and in need of retraining.

Those who complain about economic innovation have a failure of perspective. All they can see is an abandoned warehouse, and so they miss seeing the telephone line stretching above it that may well carry the just-in-time information that made warehousing unnecessary. All they can see is an abandoned factory that used to make the socks now mass-produced in Mexico, and so they miss what happens to the money previously spent on higher-priced footwear that consumers can now use for something else. Are they buying more software? Are they going to the movies more often, or eating out more? Are they purchasing more medicines to alleviate their pain or extend their lives? And who dominates these growing industries?

Napoleon Bonaparte once had something to say about putting a problem in perspective. The story goes that one of Napoleon’s marshals came to him one day and told him that the enemy was very close, and that the danger of his army’s defeat was imminent. Napoleon replied: “Bring me larger maps.”

I grew up in rural Mecklenburg County, just outside Charlotte, and much of my family still lives there. So I go back and forth to Charlotte frequently, and because I like the back roads, I take Highway 27, which goes through the little town of Carthage in Moore County. You may not have heard of Carthage, but it does have a claim to fame: a century ago the town boasted one of the most prominent and successful manufacturing firms in the south: the Tyson and Jones Buggy Company. At its peak in 1895, the factory there turned out about 3,000 buggies a year. A Tyson and Jones was considered a sort of “Cadillac of buggies.” But by 1925 the last buggy rolled off the assembly line, and the plant disappeared. Carthage never recovered as a center of manufacturing.

New Resort Town

So is this just a story about how economic change—in this case, the invention of the automobile — destroyed a community? Hardly. Go just a few miles south of Carthage and you get to another Moore County town, called Pinehurst. It was right around the time that tinkerers were inventing the automobile and the Carthage buggy plant reached its peak, in 1895, that millionaire businessman and philanthropist James Tufts was beginning to plan his new resort town. Tufts was from the northeast. He knew that workers in the big cities there would likely appreciate the opportunity to get away during the winter months to affordable vacation spots south of the Mason-Dixon Line. In 1897 a visitor brought a set of golf clubs to Tufts’s new resort at Pinehurst, and began a tradition that continues to this day. Without the automobile, it would not have been practical for average families from the northeast to take a trip down to North Carolina for a golfing vacation. The town wasn’t on a major rail line and wasn’t served by either a seaport or airport. It was accessible by car. Today, Pinehurst is the third-most popular golfing destination in the world.

My point is that it is all too easy to see the negative consequences of economic transformation and not to see the much-greater benefits.

Speaking of my family, my father moved to Charlotte from Lenoir, a little town in the North Carolina mountains. His father worked in the then-emerging field of vending machines, jukeboxes, and pinball machines. In the 1920s and 1930s, when coin-operated machines first became viable, there was a lot of fear about these “robot salesmen” and “robot entertainers,” as the vending and jukebox/pinball items respectively were called. The term “robot” had just entered the popular lexicon from a Czech-language play called R.U.R. (for “Rossum’s Universal Robots”) that was built around the thesis of manmade workers that would take the jobs of human beings. (“Robota” is Czech for forced labor.) In 1927 Aldous Huxley warned against the rising mechanization of entertainment, which he said would put live artists out of business. In fact, University of Nevada-Las Vegas scholar Chris Rasmussen reports, labor unions attempted to block the installation of vending machines that they thought would eliminate jobs for retail clerks and salesmen. The American Federation of Musicians resisted the introduction of jukeboxes to bars, taverns, restaurants, and other venues. “Canned music” by “the robot entertainer” would infantilize the listening public and eliminate the jobs of musical performers and record companies, they said.

Of course, these dire predictions didn’t come true. Far from displacing sales staff, vending machines simply introduced packaged goods of various sorts into areas where people had not previously had the opportunity to buy them. The pinball machines brought entertainment to millions of people who didn’t live in big cities, near fairs or carnivals, or in places with professional sports or other regular entertainment options. Both of these industries needed to hire people, like my grandfather, to install the machines, service them, and collect the coins.

The jukebox was the most successful of all the technologies, if you’re counting the jobs created, since it almost single-handedly rescued the record industry just after the advent of radio. In 1927, Rasmussen estimates, about 100 million records and 1 million phonographs were manufactured in the United States. By 1932, with radio and the Depression intervening, record production had plunged to 6 million and phonograph production to 40,000. But by the end of the 1930s, those horrible, job-stealing jukeboxes had rejuvenated the demand for recordings, with 75 million records pressed annually— about half of which were destined for jukeboxes rather than personal phonographs.

Political Challenges

Today’s economic challenges aren’t really economic. They are political. Our political leaders continue to add program after program. They continue to raise our tax rates, at least at the state and local levels, even as they complain that these taxes are outdated. They continue to fund and protect monopolies in education and other fields rather than embracing ways of opening up competition and empowering consumers to make choices that satisfy their individual needs.

Of course, many active in politics view this differently. They believe that failure lies in not passing new laws, in not creating new programs. Adam Smith offered the appropriate rejoinder in The Wealth of Nations: “It is the highest impertinence and presumption .. . in kings and ministers to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”

Economic leadership means taking risks, and it actually involves a certain amount of self-confidence—even to the point of vanity. That’s all right, by the way, because a capitalist economy doesn’t thrive on charitable intentions. It thrives by creating an environment in which self-interest advances the good of everyone. The most useful trait in political leadership, on the other hand, is humility. Those who lead best attempt to lead the least. Lao Tzu, the legendary Chinese philosopher who founded the school of thought called Daoism, expressed this essential wisdom centuries before the birth of Christ:

A country may be governed with justice,
And a war may be won with cunning,
But people can only be mastered by following them.
How can this be known? By looking!
The more people are controlled, the
poorer they become;
The poorer they become, the more restless they get; The more restless they get, the more forcefully they are restrained.
When people are forcefully restrained, their defiance becomes ingenious.
And the more ingenious their defiance, the stranger are the things that happen.
Now when strange things begin to happen, laws and regulations become stricter;
Then stricter laws and regulations mean more criminals and fugitives.
Soon everyone is either a criminal or a
And no one can untangle the mess.
The more people are controlled, the less contented they become.
But when will leaders understand the significance of this?

  • John Hood is a former president of the John Locke Foundation, a state policy think tank in North Carolina, and author of The Heroic Enterprise: Business and the Common Good (Free Press).