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The Economist magazine, echoing a theme of mine that has permeated several posts (the evolutionary ecology of human social institutions and technologies ) discussed two unconventional examples of managerial efficiency: Somali pirates (http://www.economist.com/whichmba/somali-pirates) and the North Korean government (http://www.economist.com/blogs/schumpeter/2010/10/succession_planning). Somali pirates provide a purely predatory and parasitic example of how smaller start-ups can break into markets dominated by established behemoths, and North Korea provides an example of successful succession planning (as important in corporations as in governments). While the details of the comparisons are interesting (read the articles), what is most interesting to me is the issue of the balance between productivity and predation that these and other successful strategies are used in service to.
We tend to see the world in absolutes, dividing it into production and predation according to our location and ideological predisposition. Anti-corporatists (mostly on the left) view corporations, and anti-imperialists view powerful nations, as entirely predatory, while those who benefit either directly or indirectly from their activities, and are aware of it, see them as primarily productive. But there are objective measures by which we can untangle the two, such as contribution to global GDP, or to other forms of utility production, versus contributions to global utility reduction. Some enterprises are clearly purely redistributive (such as piracy), producing no new wealth at all, and in fact reducing its production by throwing gravel in the gears of the productive engines of the economy (i.e., increasing transaction costs). This is true even though they are siphoning some of that wealth produced elsewhere to grateful populations, complete with forward and backward linkages from which other enterprising souls might benefit (e.g., outfitting the pirates with equipment, benefiting from their increased spending of their loot, even generating business for security services to defend against them).
The strict Libertarian philosophy places minimal constraints on these processes, differentiating little between production and predation, as long as it occurs within a context of legally defined and protected private property rights. But even within that legal context, there are opportunities for predation constantly arising, such as those that led to the Enron-engineered California energy crisis of 2000-2001 or the 2008 financial sector meltdown. There are many more innocuous activities in the market economy which do not produce wealth, but rather only siphon it off, such as high-volume, high-velocity, extremely short-term stock trading using computer algorithms, or shady personal injury legal services (not to imply that all personal injury legal services are shady) that rely on massive advertising, high volume business with rapid turnover, and quick settlements that may not reflect the clients’ best interests or even outcomes superior than could have been achieved without the lawyers’ assistance. These are perfectly legal forms of what are largely predatory practices.
Economist Mancur Olsen wrote a book titled “The Rise and Decline of Nations” in the 1970’s or 80’s about how nations become wealthy by developing production-oriented economies, and then are weakened by an increasing over-emphasis on distributional struggles, which divert an increasing proportion of people’s time and effort from productive activities. Of course, a nation doesn’t have to be wealthy for too many people to be investing too much in distributional struggles (a common trap of many underdeveloped nations). The point is that what proportion of human effort-hours is invested in productive activity v. redistributive activity is relevant to how much wealth and utility is being produced.
There is nothing wrong with attention paid to distributive implications of policies, as long as that attention is paid in conjunction with attention paid to the balance of productive and redistributive efforts. Given a choice between two equally productive economic models, the one that produces greater distributional equity is preferable. Nor is it wrong for a large market economy to invest some of its resources in consideration of how to divert wealth in economically and socially productive ways. Distributional struggles exist with or without the intentional intervention of government, and government subsidies are often captured by those least in need of distributional assistance. Both government and the public which overseas it has an inescapable challenge in monitoring distributional choices to ensure that they are both efficient and fair.
Indeed, many public investments that are perceived to be primarily redistributive, or predatory against tax-payers on behalf of “special interests,” are in fact primarily productive, addressing social problems, infrastructural maintenance demands, and human capital development demands in ways which increase aggregate utility (both directly, and indirectly through decreased transaction costs) as well as lead to a more equitable distribution of it. But increasing diversion of resources to battles over how to divide the pie ends up shrinking the pie that is divided, and those enterprises (like Somali pirates) that not only divert resources to distributional struggles, but do so through violent predation, decrease the size of the pie even more.
One of our collective challenges as we continue to refine our social institutional landscape is to create regulatory regimes that increase the amount of productive praxis, and decrease the amount of non-productive predation, in both our market and non-market activities. Just as ecosystems can be ravaged by locusts, or overly extractive human beings, so to human economic systems can be ravaged by those actors that swoop in and ravenously extract wealth without producing any. The fact that it can be accomplished in the context of well-defined and well-enforced private property rights is just one more argument why a regime of well-defined and well-enforced private property rights, and no more, is not the ultimate culmination of political economic development. Private property rights are just one thread in a more complex tapestry, a tapestry which we are continuing to learn to weave.
Libertarians rely on the assumption that government is predatory, and that private corporations aren’t, but, in reality, either or both can be, and our challenge is to prevent either and both from being so. Crippling the one that is organized to serve the public interest (and is designed, with limited success, to be answerable to the populace as a whole), in order to leave the field clear for the one that is organized to serve only private interests (and is organized comparatively efficiently to do so) is not a recipe for reducing predation. Rather, it is a recipe for increasing it, and reducing only our means for reining it in.
Colorado has several comparative advantages that position us to combine a commitment to the preservation of our natural endowment; a commitment to the preservation, refinement, and expansion of the pleasant lifestyle that many enjoy in our beautiful state; a commitment to contributing to the development of the New Energy Economy (an inevitable component of future global economic development); and a commitment to fostering the most robust, sustainable, and equitable state economy, and most proactive, efficient, and effective state government possible.
Our natural endowment, particularly our spectacular mountains, are an economic asset both directly, in the tourism industry, and indirectly, as an attractor for investment capital by those who want to locate small start-ups, particularly in high-value-added information-intensive economic sectors, in the most attractive locations possible (since such sectors have no geographic constraints). And, of course, many Coloradans treasure our natural beauty for its inherent, aesthetic and recreational value, considering it to be one of our greatest assets, even independently of economic considerations.
For these reasons, we need to place a very high emphasis on the preservation of this endowment, carefully regulating other industries and practices (such as mineral extraction) that pose a threat both to the environment, and to public health and safety. Fortunately, despite erroneous ideological assertions to the contrary, mineral extraction, as an economic enterprise, is not highly sensitive to regulations or severance taxes, since there is very little flexibility in where minerals can be extracted (they must be extracted where they are found). Furthermore, since extracted minerals are sold in national and international markets, the increased costs of state regulations and taxes have only a marginal effect on market prices. In other words, the benefits occur within the state while the costs are distributed all over the world. For these reasons, sound policy requires that mineral extraction be a well-regulated and taxed enterprise.
Not only is Colorado rich in minerals, but it is also rich in sun and wind and the researchers and institutions doing the most to tap the energy contained in them. The future can rarely be predicted with confidense, but one thing that is virtually certain is that clean, renewable energy technologies are a growth industry, and will be enormous economic engines in the not too distant future. Foresight pays off in the long run. Investing in the New Energy Economy today, despite the modest size of that economc sector at present, and regardless of short term ups and downs in the market for “green energy”, is sound economic policy, and a smart move for the state of Colorado.
Our natural endowment is part of our pleasant lifestyle, with hiking trails, ski runs, rocks to climb and mountain rivers to float down, and spectacular vistas to appeal to all who enjoy nature’s wonders. But the Colorado lifestyle extends into our cities and suburbs as well, with excellent cycling opportunities, beautiful pedestrian malls, open spaces, and an increasing investment in the combination of excellent public transportation and sustainable, localized, aesthetically pleasing urban development. Continuing in this direction not only provides Coloradans with the benefits of all of these public goods, but also attracts the entrepreneurial capital of precisely those kinds of small start-ups that can create the most robust state economy possible. We live in a world in which the most information-intensive industries (e.g., computer software, and cutting edge technologies) create the greatest number of high-paying jobs, and contribute the most to the local and global economy. And such start-ups in such industries locate in places that provide the combination of natural beauty, pleasant life-style, and infrastructural investment that Colorado can provide, if we pursue wise policies.
But to attract such investment capital, and the young professionals and their families that bring it, we need to provide, competitively, what they are looking for: A well-developed human and material infrastructure on which they can depend, and the assurance of the availability of excellent and affordable public and higher education institutions for their children. We are currently, disgracefully, near the bottom of the country in investment in both public and higher education, and that is a very powerful disincentive to small information-intensive start-ups to locate here. More importantly, it is a moral failure on the part of the people of Colorado. As much of a cliche as it may be, our children are indeed our future, and failing to invest in them, to provide them with the best education possible, simply because an alliance of popular economic platitudes and well-funded corporate interests have displaced economic analyses, is a choice that can end up crippling and impoverishing this state, when nature has endowed us with such soaring opportunity.
There is a clear path forward for Colorado, a coherent strategy that preserves our natural endowment, fuels our economy, and secures a high quality of life for our residents. We need now to make sure that we elect the people, and cultivate the public commitment, to realize this vision, and create a more prosperous, sustainable, and opportunity-rich future for all Coloradans.
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