My colleague Ryan Radia and I recently sent this letter to The New York Times:
Editor, New York Times:
Catherine Rampell’s September 7 article, “Once a Dynamo, the Tech Sector Is Slow to Hire,” mourns the recent decline in U.S. data processing jobs. She blames much of the decline on the automation of previously tedious tasks.
May we suggest one way to get those jobs back: No more automation. Ban the use of computers for data processing. Imagine how much information flows through today’s global economy in an average day. Computers handle most of the load. That costs millions of jobs.
The effects would reverberate far beyond the tech sector. The paper, pen, and pencil industries would also boom.
Companies are dead-set on doing more with less. True, that creates more jobs in the long run by freeing up resources — and employees — for new ventures. But if only they would consider doing less with more, they could create more data processing jobs.
Ryan Young and Ryan Radia
Competitive Enterprise Institute
Washington, D.C.
Less than fifteen years ago, Dell computers were the hot desktop brand. In a rapidly growing market, Dell developed a unique business model which helped to price out competitors. By 2004, Dell had become the market leader in desktop computer sales. Business school case studies focused on Dell’s extraordinary success.
With this prominence, Dell found itself implicated in antitrust lawsuits brought by the FTC against Dell directly (1996), against Microsoft (1998), and most recently against Intel (2009).
Yet these antitrust lawsuits had little effect on the dynamic personal computer market. The FTC ‘s suits had the pretense of promoting competition – a measure that was unnecessary in an industry where competition is already fierce. Consider the graph above tracking the market share of various desktop brands since 1997. Note that even the industry leaders only comprise about 50% of the total market.
Dell’s decline started when it failed to perpetuate its initial successes and respond to the changing market. As the New York Times wrote yesterday, Dell is currently embroiled in a lawsuit against Advanced Internet Technologies, which alleges that Dell knowingly sold defective computers in the mid-2000s.
This should serve as a reminder to the FTC. Before jumping to accuse businesses of anti-competitive conduct, they should remember to look at the state of the actual, thriving, competition. Corporations that seem abundantly successful today often self-destruct or fall prey to unanticipated market forces tomorrow. Competitors lie in wait to take advantage of any weakness. From the New York Times:
“Dell, as a company, was the model everyone focused on 10 years ago,” said David B. Yoffie, a professor of international business administration at Harvard. “But when you combine missing a variety of shifts in the industry with management turmoil, it’s hard not to have the shine come off your reputation.”
Before diving into antitrust investigations against Google, Apple, or any other tech company, it would behoove the FTC to remember that important lesson — markets change.
Duff McKagan of Guns n’ Roses fame is going to be writing on financial matters at Playboy.com. What makes this more interesting than the simple fact it allowed me to type that last sentence is that Duff has outed himself as a free-marketer. He says:
I do find how money works rather fascinating. Adam Smith, the main person looked at to be the founder of capitalism, was a simple but brilliant economist who had particular ideas on how a free market would take care of itself. The theory of every little niche being filled in the marketplace seems too ‘free’ to actually work…but it has for the most part over the last 240 years. This is a statement made free of politics by the way.
Duff gets my vote for Mayor of Paradise City.
Our simplest and best answer to the whole bailout issue, it seems to me, is that creative destruction has to be allowed to take place. But creative destruction is destruction, and hurts a lot of people. When Mrs Thatcher closed down the horrendously inefficient mining and shipbuilding industries in my native North-East of England, huge numbers lost their jobs. In my home town there was 50% adult male unemployment. “Thatcher,” not the names of people who propped up the failing industries for far too long, is the dirty word there. The Conservatives, who had a presence in northern municipalities dating back to the merger with the Liberal Unionists, were wiped out north of the Trent. There was a considerable political price to pay for allowing a much-delayed creative destruction to go ahead.
So my question is, how do we have creative destruction in things like manufacturing centers without hurting people? It’s no good saying they’ll actually get better-paid jobs in the long-run, because sometimes that is a very long run (it took the North-East about a decade to recover) and the present value of suffering is not alleviated that much. Obviously, we would avoid welfare plans, make-work programs and subsidies to get new businesses in. There is probably a deregulatory approach that would soften the blow. If so, we need to outline some of the elements of such an approach. Mrs T created enterprise zones that had reduced regulation (exemptions from planning laws, for example) and Heritage’s Stuart Butler introduced the idea here, but I am not sure how successful they have been or how they can be improved.
When we talk about creative destruction, we are often dismissed as uncaring. A “bankruptcy plus real enterprise zone” package, on the other hand, might be salable as an alternative to the auto bailout.
Thoughts in the comments section welcome.
…is the title of a useful contribution to the discussion from the International Policy Network in London and the Lion Rock Institute in Hong Kong. Their recommendations for finding a way out of the financial mess are worth attending to:
– Better mechanisms are needed to manage the failure of large financial institutions, some of which may now be both too big to fail and also too big to rescue.
– Open ended guarantees to depositors and other counterparties are expensive and unsustainable in the longer term.
– The rights and hierarchy of investors across the capital structure should be clear and honoured — not subject to arbitrary alteration by government.
– Closer attention to the rights of collateral providers and custodians in the case of failures can limit systemic risks.
– Hedge fund failures have not created systemic risks in this crisis and they should not be a target of policy action.
– Ad-hoc bailouts should be avoided, since they create ever expanding demands for further intervention.
– Much more thought needs to be given to the unintended consequences of over strict capital rules, rating agency privileges and rating based limits on pension investments.
As the authors say, “free markets thrive on creative destruction” and these recommendations would help in that respect. In fact, when it comes to free markets, creative destruction isn’t a bug. It’s a feature!
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