Monday, March 19, 2012

Why Nations Fail (or, Do We Really Have to Share the Wealth?))

Two articles passed before my eyes in rapid succession yesterday, a sunny, warm, dry, March Sunday in New England.

The HBS Alumni Bulletin reported in its latest issue the results of a fall 2011 survey of 10,000 HBS grads who were asked why the United States was losing its competitive edge.  Entitled “Prosperity at Risk,” the results indicated that senior executives were most concerned about the dysfunction of America’s political system, the complexities of the tax code, the failing K-12 educational system, an inefficient legal system, oppressive regulations, poor infrastructure and insufficient workforce skills.

A few minutes later, I plucked the March 18, 2012 New York Times magazine from my pile of reading material and spotted an article by Adam Davidson called “Why Some Countries Go Bust.”  For years, economists have argued this issue, pointing to culture, geography, soil and navigable rivers, colonization, freedom of markets (Adam Smith) military might, and overpopulation (Malthus).  Now, however, rock-star M.I.T. professor Daron Acemoglu claims that countries get rich (or maintain their prosperity, if you like the HBS survey language better) based on something much simpler:  the degree to which the average person shares in the overall growth of the economy.  Both Rome and medieval Venice were examples of “fairly open and prosperous societies” that reverted to closed and impoverished aristocracies.  “It’s hard to read these sections,” Adamson writes, “without thinking about the present-day United States, where economic inequality has grown substantially over the past few decades.  Is the 1 percent emerging as a wealth-stripping, poverty-inducing elite?”

It’s the difference, one might conclude, between what we heard last week about Goldman (our clients are “muppets”) Sachs, and what Howard (let’s treat customers & employees & growers fairly) Schultz at Starbucks has been working on lately.  (See here and here.)  

I looked back at the HBS survey, presumably answered by many in the blessed “top one percent,” to see if I could find “we aren’t sharing opportunities adequately” or "we aren't sharing wealth fairly" as primary reasons for our lack of competitiveness.  To be fair, they weren't even offered as a choices to the respondents.  The most closely related possibilities, those about worker fairness, value-chain balance, economic opportunity and the general expansion of wealth, came down to “flexibility in hiring and firing” and “availability of skilled labor.”  

Funny, this lack of competitiveness all seems to come down to what’s being done to us.  Fix the schools, fix the government, fix the tax code, fix the legal system--then we can be more competitive and prosperous.  Fix the muppets, for that matter.  

Maybe the next HBS survey will offer more choices.

Maybe, too, Howard Schultz is just a rare bird.  

But then--so too is a sunny, warm, dry, March Sunday in New England.

Which means there’s hope.