Andy Stern's Chinese Lantern 1

Andy Stern, former president of the Service Employees International Union, wrote a Wall Street Journal article to share his impressions after a visit to China:

For me, the tension resulting from the chorus of American criticism paled in significance compared to reading emerging outline of China's 12th five-year plan. The aims: a 7% annual economic growth rate; a $640 billion investment in renewable energy; construction of six million homes; and expanding next-generation IT, clean-energy vehicles, biotechnology, high-end manufacturing and environmental protection—all while promoting social equity and rural development.

Mr. Stern spent many overnights in the White House as his reward for supporting Sen. Obama's campaign for the Presidency.  He spent so much of his union's money helping elect President Obama that he felt it prudent to resign from the union and take a job at Columbia University.

In attempting to retain his influence on American politics, he quoted Andy Grove's statement in the July 1, 2010 issue of Businessweek:

"...that a plan for job creation must be the number-one objective of state economic policy; and that the government must play a strategic role in setting the priorities and arraying the forces of organization necessary to achieve this goal."

Mr. Stern is correct in saying that China' economic performance is far superior to ours:

Meanwhile, the Chinese government can boast that it has established in Western China an economic zone for cloud computing and automotive and aerospace production resulting in 12.5% annual growth and 49% growth in annual tax revenue, with wages rising more than 10% a year.

His overall observations of our economic situation are accurate.  Our spending deficit wouldn't matter if we could achieve China's "49% growth in annual tax revenue" because we could fund the deficit instead of borrowing.  Mr. Stern was also right in quoting Mr. Grove's statement that job creation has to be the #1 objective of all economic policy, not only at the federal level, but down to each individual town and hamlet.  He misses his target, however, when he states that our market-driven system has failed:

The conservative-preferred, free-market fundamentalist, shareholder-only model—so successful in the 20th century—is being thrown onto the trash heap of history in the 21st century. In an era when countries need to become economic teams, Team USA's results—a jobless decade, 30 years of flat median wages, a trade deficit, a shrinking middle class and phenomenal gains in wealth but only for the top 1%—are pathetic.  [emphasis added]

Our economic performance is and has indeed been pathetic, but Mr. Stern couldn't be more wrong about the cause.  He states that our free-market economic model is "being thrown onto the trash heap of history in the 21st century."

He doesn't believe this in his heart, however, because he specifies the correct solution to our economic problems:

America needs to embrace a plan for growth and innovation, with a streamlined government as a partner with the private sector.  [emphasis added]

The Stern Prescription

Mr. Stern calls for a "streamlined government" which would partner with the private sector.  This isn't a new idea; we've carried out successful government-business partnerships in the past.

When President Kennedy set the goal of "landing a man on the moon and returning him safely to the earth by the end of the decade," the resulting technical innovations powered the next 30 years of prosperity.  Low-cost semiconductors, powerful computers, medical instrumentation, and a host of other inventions flowed out of the Apollo program.

Although he talks of "streamlined government," Mr. Stern didn't point out that the government didn't micro-manage the Apollo-era private sector.  The government set the goal, supplied the money, and got out of the way.

Was the cost worthwhile?  Insofar as it triggered the information revolution, it certainly was, the resulting economic activity generated more tax revenue.  The government got all its money back and then some.

The same thing happened two centuries ago when New York's Governor DeWitt Clinton funded the construction of the Erie Canal, otherwise known as "Clinton's Folly."  Canal tolls paid back the government's investment many times over and the increase in economic activity increased employment and tax revenue for generations, even though the canal itself was made obsolete by the railroads inside of a decade.

Building the Interstate Highway system led to a similar job boom with a corresponding increase in tax revenue.  Going a bit further back, the US Government provoked a civil war in Columbia so that Panama could become an independent nation.  The implicit deal was that the new government would grant the US a lease on enough land to build a canal in return for having their independence recognized.  As Sen. Hayakawa said, "Of course it's ours.  We stole it, fair and square."  The Panama Canal repaid the investment many times over.

Having a "streamlined government" work with the private sector is a model with which we have more experience than the Chinese - we've been doing that far longer than they have.  Our fundamental problem is that our government has become so bloated that it's no longer streamlined enough to cooperate with anyone or anything.  As President Reagan said, "government is the problem."

Andy Says We're Messed Up

Mr. Stern described Chinese economic achievements as evidence that our economic model is hopelessly messed up:

While we debate, Team China rolls on. Our delegation witnessed China's people-oriented development in Chongqing, a city of 32 million in Western China, which is led by an aggressive and popular Communist Party leader—Bo Xilai. A skyline of cranes are building roughly 1.5 million square feet of usable floor space daily—including, our delegation was told, 700,000 units of public housing annually.  [emphasis added]

What has changed in America?  There was a time when we could build anything we desired.  Mr. Stern says that our market-driven system "is being thrown onto the trash heap of history."

Is that the problem?  Does greed no longer motivate businesses to perform?  Has the profit motive died?

If our market-driven system is really suited for the garbage, why mess around with the private sector at all?  If, as Mr. Stern prescribes, the government should be in charge of everything, why not just go straight to full-on Communism and make everybody rich?

The next article in this series explains why that idea is not merely unworkable, it's so thoroughly known not to work that even Mr. Stern knows it won't work.