Monday, February 15, 2016

What the American Economy needs now

Under the title: “The underlying economic trends driving the rise of Bernie Sanders and Donald Trump,” the New York Daily News has on February 14, 2016 published the viewpoint of Mortimer B. Zuckerman on the subject.

He discusses the latest statistics on the American economy, painting a bleak picture of its current state. He then puts forth three suggestions which he says will remedy the situation. They are to embark on a program to repair the nation's infrastructure, to spur the housing activity and to nudge those on public assistance toward work.

To be sure, that will help somewhat, but it is not the durable solution that's needed to fix the complex problems facing the economy at this time. To fashion a more permanent solution, we must understand more fundamentally what is happening not only to the American economy but to all the advanced industrial economies.

These are the economies that caught the Industrial Revolution when it first started more than two centuries ago. They experienced growth over a long period of time by inventing the products they made, by designing and constantly improving the machines that made them, and by modernizing the business models they were using. The entrepreneurs made those models suitable for the changing times while at the same time allowing the economies to develop organically in response to market forces.

As to the economies that did not start their industrial development until well after World War Two, they did not need to innovate because they did not have to reinvent the wheel every step of the way ... so to speak. All they had to do was methodically plan for and copy what was done before them. Called emerging economies, they are still using that same business model, though some of the nations have advanced enough to start doing leading edge research and development of their own.

Because it takes more time and money to invent a product and produce it than to copy what someone else has done, the emerging economies are saving time and money. They are therefore able to score high rates of growth, and able to hire large numbers of new workers. These would be highly disciplined individuals who are eager to learn new skills, and happy to work for a small paycheck.

In fact, the emerging economies don't even have to administer all that alone. It's because the entrepreneurs of the advanced economies find it highly profitable to close their operations at home and move the business to those nations. This is why America and the other advanced economies are experiencing the conditions that Mortimer Zuckerman is describing. It's that – for now at least – the growth and the jobs are hard to come by in the old economies, and easier to have in the emerging ones.

Because the emerging nations must plan the development of their economies at the same time as they partner with the capitalist entrepreneurs of the advanced economies, they follow a business model that is essentially a public-private partnership. But unlike the planned economies that never got off the ground during the Soviet era, the partnerships of today's emerging economies are succeeding nicely.

Now this question: Is there a lesson in all of this for America and the other advanced economies? Happily, the answer is yes. In fact, a suitable business model has already been tested inside an economy that is advanced, and was proven to work flawlessly for nearly half a century.

Recall that the auto companies in America and all the businesses that fed them almost died when the American economy came to near collapse in 2009. The problem was that the companies stood alone, having to provide pension and health coverage for their workers. The difficulties surfaced only in America and not in Canada where branches of the same auto companies did not have to provide health coverage for their workers.

That was the case because Canada has a system of universal health coverage that's administered by the Federal and Provincial Governments. It proved to be the public-private partnership that kept the Canadian branches of the American auto companies economically healthy during the worst crisis.

And this is convincing proof that in an age when the emerging economies have adopted the public-private partnership business model, the advanced economies can survive and do well by adopting the same model.