Day: March 23, 2010

Infinite Progress

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At the start of 2010, I put a positive spin on the nascent economic and psychological recovery with blogs on “The Sky Has Stopped Falling”, “Good Riddance to Utopian Views of 2000” and “Self-Improving Systems”.  Today, I want to promote the broader subject of “Infinite Progress”.

Economics has earned its label as “the dismal science”.  It has been serious, analytical, realistic, short-term and marginal.  Imitating calculus and physics, it has sought to optimize production functions and maximize results subject to multiple linear constraints.  Like other academic disciplines, economics has been shaped by the dominant culture.  Economics has progressed through the Physiocrats, Marxists and Marginalists who in turn proclaimed that land, labor and capital each held the key to economic value.  Even Paul Samuelson’s neoclassical synthesis focused on these three “factors of production”, while mentioning that there was some remaining role for “technology” and “entrepreneurship”.

The “law” of diminishing marginal returns emphasizes that in the short-run, with given technology, additional inputs eventually yield lower incremental results.  This is certainly true, but development and growth economists focusing on the international and business sectors have demonstrated that this fourth factor (technology/entrepreneurship) is the primary driver of progress.  In fact, rather than being subject to diminishing returns, knowledge is the one factor that is subject to increasing returns through time!

In spite of the slow recovery in the current economic cycle, I believe that we are only 50 years into the greatest productivity expansion in history.  Annual labor or multi-factor productivity growth of 2-4% has become commonplace.  Even in the recession, we experienced 6-8% productivity growth.  Productivity growth will accelerate in the coming years to a minimum of 5% annually, in spite of our various challenges (aging population, protectionism, extremism, political polarization, religious stagnation, terrorism, global warming, limited natural resources, multi-polar international powers).

In no particular order, knowledge and practice has expanded and will continue to expand in all of these fields:

  1. Trade.  Lessons were learned in the Great Depression.  Tariffs have continued to fall.  Multilateral treaties have stalled, but bilateral trade agreements are accelerating.  English is becoming the global language, followed by Mandarin Chinese and Spanish.  A majority of the global population produces at a near-subsistence level.  They will all generate modern western levels of output within 40 years, providing added value globally.
  2. Physics/Engineering.  Basic physics, mechanical and civil engineering continue to advance.  Modern materials, energy, devices and structures will advance and be refined in light of breakthrough understandings (supercollider).
  3. Chemistry.  “The Graduate” whispered “plastics” as the key to the 20th century.  Plastics has delivered, but has not exhausted its secrets.
  4. Biology.  Biotechnology and modern medicine is on the verge of major breakthroughs in individualized medicine, medical information, preventive medicine, devices, new drugs and nano-technology based solutions.  Mental health care is leveraging improved understanding of the mind, behavior and chemistry.
  5. Energy.  Delayed by politics and prices, energy exploration and solutions are emerging.  Wind, solar, nuclear, clean-coal, tidal and other answers are now real.  Break-through shale, gas and deep-sea extraction technologies are imminent.  Major investment in alternative transportation options is producing results.
  6. Natural Resources.  The food, fiber and natural resources sector continues its 200 year track record of innovation, with genetically modified organisms, drip irrigation, weather forecasting, satellite guided farming and fish markets adding value.
  7. Transportation. New highways, hiking, biking, high-speed trains, point to point aircraft, larger container ships and usage tolls suggesting continued progress.
  8. Electronics.  Songs, movies, video, instruments, observation, robots, entertainment, games, virtual reality, and the list goes on and on.
  9. Computer Power.  Moore’s Law. ‘Nuff said.
  10. Telecommunications.  Cell phones, internet, computer integration, GPS, much faster speeds.
  11. Integration.  Electronics, telecommunications, media, entertainment in one place, on demand.
  12. Community.  Tribes, cities, nations, world.  Clubs, games, blogs, social media, Face book, LinkedIn, Twitter, no limit.
  13. Specialization.  Professions, suppliers, outsourcing, matrix organizations, consultants, global suppliers, increasing economies of scale, niche markets
  14. Process Improvement.  Process, quality, cost of quality, value added, variability, bottleneck, ISO, TQM, benchmarking, process re-engineering, quantum leap, lean manufacturing, lean, six sigma, kaizen, self-improving systems.
  15. Computer Systems.  Automation, systematization, mainframes, minicomputers, personal computers, applications, man-machine, GUI, windows, mouse, ERP, cloud computing as a utility.
  16. Library Science.  Dewey decimal, multimedia, informatics, knowledge management, Wikipedia, Amazon.com, tripadvisor.com, Angieslist.
  17. Economics.  Markets, global trade, auctions, information, behavioral economics, EDI, e-commerce, capitalism embraced everywhere in one form or another.
  18. Finance.  Stocks, bonds, pork-bellies, futures, puts, calls, mutual funds, checkable deposits, insurance, hedges, securitized debt.
  19. Management/leadership.  Strategic planning.  Product innovation. Growth/margin. Core competencies.  Discipline of Market Leaders.  First or second. Operational excellence.  Situational leadership.  Theory X, Y, Z.  Motivators and de-motivators.  Covey’s 7 habits, urgent and important.  Meyers-Briggs, personality styles and Gallup talents.  Change management.  Engaged/disengaged.  Creativity and thinking hats.  Accountability/Oz Principle.  Good to Great, Both/And. 

 

Knowledge will continue to increase in every discipline.  Market pressures will ensure rapid adoption, expansion and innovation.  The work world in 2010 could not be seen in 1980.  The work world in 2040 will exhibit the same degree of discontinuous change from a much higher base.

2010 Elections

tomkapostasy1 Comment

The 2010 election campaign is about to begin in earnest.  The events of the last three months have certainly swung the Republicans’ way.  Even the “health reform” victory is likely to have a mostly negative impact on short-run Democratic prospects.  Opposing parties always make progress in midterm elections.  The real question is “how much?”  Eight months from the elections, I give a strong edge to the Republicans, but believe that the “Tea Party” movement may backfire on the right.

Politicians are experts at getting elected and re-elected.  They know that winners occupy enough of the middle to attract swing voters and enough of their edge to motivate the party faithful.  In the 1968 election, George Wallace highlighted the role that socially conservative and economically moderate voters could play.  Richard Nixon and Spiro Agnew capitalized on the interests of the silent and moral majority, realigning politics for two generations.  Ronald Reagan clarified the pitch and a more coherent philosophy, solidifying the right-wing strategy.  Subsequent moderate Republicans like the Bushes proclaimed the new message, adopted the tax cut strategy, courted the religious right and increased expectations of their new supporters. 

During this time the Republican Party has successfully shifted the definition of left and right on the critical economic scale, forcing Clinton and Obama to adopt economically conservative means, programs and terminology, while continuing to pursue their leftward goals.  The Republicans have also undercut the Democrats’ classic appeal to the economic interests of the working and middle classes by touting growth, entrepreneurship and economic freedom as higher ideals.  They have increased the weight of social issues and courted a populist libertarian strain in America through fringe candidates such as Ron Paul and Sara Palin.  The Republicans have mastered the tactical dimensions of politics, beating the Dem’s at fundraising, participation, communications and media influence.  Although taunted as “the party of ‘no’”, the Republicans have effectively avoided major responsibility for the weak economy, ongoing terrorist threats, the banking meltdown, immigration gridlock, increasing healthcare costs, wider income distribution and the coming retirement cliff.  Now that Obama has a year under his belt, they are effectively painting him with responsibility for these and other situations.

The Democrats have responded to this shift in the playing field by sending three southerners to the White House (Johnson, Carter and Clinton) positioned as moderates.  The Democrats have maintained their hold on a growing minority and shrinking union base.  They have improved their posturing skills and election tactics, especially in social media.  They have adopted some centrist programs and begun to fight for key terms such as “accountability” and “economic progress”.  The Democrats have taken care of their base through laws and funding.  President Obama has provided a message of bipartisanship, hope and change which deflects attention from controversial specific programs.  He and his colleagues have not hesitated to blame George Bush and the Republicans for a variety of “messes” and dodged their responsibility. 

It is no surprise that a weak economy (it’s the economy stupid) would catch up with Obama, especially given his pursuit of so many distracting goals.  However, the impact of “Tea Party” is something of a surprise.  Sara Palin was clearly chosen as a VP candidate by John McCain to appeal to part of the party faithful.  Her candidacy, the stirrings of Ron Paul, the unfulfilled promises to social conservatives by the Bushes and the demonization of national Democratic leaders and programs for two decades have crystallized into a true populist backlash against the evils of “big government” and its mostly Democratic supporters.

Will the “Tea Party” help or harm the Republicans?  In the short-run, it has clearly scared moderate Democrats, especially those in conservative districts.  On the other hand, it has also scared moderate Republicans, including John McCain.  In some cases, the more conservative primary winners will be defeated due to their extreme positions.

I think that there is an even greater risk that the Republican Party has unintentionally moved so far right in its rhetoric, positions, legislation and new affiliation with the “Tea Party” that it will lose touch with classic moderates and swing voters.  In 1968, Hubert Humphrey wanted nothing more than growth of New Deal and Great Society programs.  He was not seeking a social revolution or a counterculture.  However, the activists painted a picture of revolution that frightened most of the country to embrace the solid posture of twice-defeated Richard Nixon as the safest choice in an emotional time.

If the “Tea Party” continues to gain publicity and become affiliated with the Republican Party, the same kind of social distancing may take place in 2010 or 2012.  By belief or by framing, the ”Tea Party” appears to hold extremist views on the economy (radical self-sufficiency), the role of government (none, including popular entitlement programs), banking (gold standard), religion (one fundamentalist, end of times, withdrawal from society) and security (gun rights and military adventurism).  The “true believer” statements are passionate, direct and uncompromising.  They may provide the Democrats with an “extremist” straw man to replace the current “banker” straw man.

We certainly live in interesting times.