Private Economy Can’t Build Infrastructure of the Future

One senses a growing apprehension about America’s economic future. The individual’s natural response to that fear is to provide for himself and for the present, heedless of future generations of the larger American community. Although the impulse is natural, it is self-defeating, for where each looks only to himself and his needs, the common cause in which all are implicated decays.

We are not confronted with a psychic condition. Fear of future decline is justified. The symptoms are all around us--cloaked, unfortunately, in the arcane language of economics that serves as a barrier to popular understanding.

“Deficit” tells us that during the Reagan years we spent over a trillion dollars more than we received in revenues. Naturally the result has been economic growth, although even with this huge sum we have lagged behind other Western economies. But far more significant, the deficit has masked the slowness of real economic growth, allowing us to pretend that we are getting richer.

The so-called trade deficit performs the same function. By importing much more than we sell abroad, we are, in fact, borrowing from other countries and to a large extent repaying some of this debt by selling our assets--land, buildings, whole companies--to others. Of course we get dollars back from these sales. Yet the future profits from these alienated assets go to enrich not the country and its people but the citizens of Tokyo or Bonn or Amsterdam.

It is an exercise in demagogic futility to blame other nations for trying to sell us their products. That is how the market works. If other countries are able to produce better goods, provide a greater value, it means that we have failed in the competitive market known as capitalism.

That failure is reflected in the term productivity. The concept of productivity is impossible to define with any precision (although there are many arbitrary definitions, mostly designed to place the burden of productivity failures on workers). But productivity is a far broader, if vague and ambiguous, measurement. It can roughly be viewed as the difference between what it costs to make a product and its value on the market. If you spend $100,000 on the materials, labor and land to build a house, and the completed work sells for $150,000, then the enterprise is productive. You have created more wealth than you expended.

Thus productivity measures the skills and cost of labor, the wisdom of management and the ability to foresee and/or manipulate the market. It is a gauge of the energy, skill and foresight of the private economy.

And by this crucial measure--a sort of summation of our economic deficiencies--we have been doing quite badly. Around the turn of the century the British sent a special delegation of businessmen and specialists in search of the “secret of American productivity.” Today our rate of productivity growth is behind that of every Western nation, Japan and the swiftly modernizing economies of Southeast Asia. Unless we are able to narrow, even overcome, this gap we will ultimately have to accept a drop in the American standard of living.

The reality is that large segments of the American economy are obsolete and incompetently managed, while vast amounts of capital--badly needed for investment--are used not to create new wealth, but to profit from buying and selling existing products.

Obviously these ponderous, relatively inefficient sectors of our economy must be dismantled. Managers and owners must be stimulated (i.e. placed in a corporate culture in which the desire for success is greater than the fear of failure).

There is obviously no space here to describe what a revitalized business structure would look like--except to point out that it would require a genuinely free and competitive market.

But no change in the market will suffice unless we as a nation--acting in some measure through the government--invest on a large scale in the most essential constituents of a modern economy. Almost since the beginning of the Republic, government has invested in the “infrastructure.” From the Erie Canal to the great railroad explosion of the 19th Century to Eisenhower’s interstate highway system, government has helped provide the material foundation that business alone could not construct. Of equal importance, government has assumed the job of educating men and women to take a productive role in economic life.

These are historical truisms, and account for the growing prosperity of our past. But the “infrastructure” of today’s economy is not merely roads or bridges, but information and technology and advanced human skills. We have been the leaders in technology, but our pre-eminence is fading. Unless we are willing to follow the path of our forefathers, our future decline is assured.

Business alone cannot make the effort in education and technology that is demanded. It is a national responsibility. It is an investment in the future of the American community, and for the continuation of the dream that brought the horded millions to this continent of such abundant promise.