A couple of months ago, I was struck by a notice in the Wall Street Journal that fourteen leaders of industrialized countries signed The Berlin Conference communiqué titled “Progressive Governance in the 21st Century”. Among other center-left aphorisms, it states that globalization “should not just be allowed to happen” and that there should be a “return to politics” ahead of economics. They’re dreaming. In 1991, former Citibank Chairman Walter Wriston wrote in his Twilight of Sovereignty that the days when nation-states can control economic events are numbered and that technology has produced a new “gold” standard in the form of 200,000 computers run by money managers who never sleep and who “vote” on public policy and discount its implications often before the policy pronouncements by political leaders. And this was before the explosion of the Internet! It is axiomatic that capital goes where it is wanted and stays where it is well treated. Because of this fact, I’ll go one step further: wholesale privatization of the delivery of government services will be inevitable. Former Indianapolis Mayor Stephen Goldsmith, a key domestic policy advisor to George W. Bush, prefers the term marketization to privatization, but the principle is the same. The global competition for capital will force governments at all levels to subject themselves to the disciplines of delivering competitive goods, because capital is hyper-sensitive to public policies – taxes, mandates, expenditures, or regulations – that are onerous to capital formation. It will further force governments to seek out best practices on a global, not just local or national basis. They will have no choice in this move to market driven reforms. Sure, there is and will be continuing protectionist reaction, but it will ultimately fall to the requirements of the information revolution. Jobs follow investment. The old politics of the industrial age can be obstructive if it attempts to control the variables, but cannot win in the long term. The question is, which political leaders will be able to properly articulate the risks and costs vs. benefits involved in this newer form of Joseph Schumpeter’s “creative destruction”?
We must be accommodative to this phenomenon and allow the experimentation of new initiatives at the local and state level and practice the principal of subsidiarity that our Founders envisioned. And we need much less “us” vs. “them” advocacy. Business opinion leadership is key, but it must be the kind of leadership that avoids public policy considerations that are based entirely on the outdated mercantilist calculus of who wins and who loses. Marketization is not an unalloyed positive, and, as Lori Taylor of the Federal Reserve Bank of Dallas points out in a recent study, outside of public education, the jury is still out on the social benefits of public sector competition. But the competitive pressure of global capital mobility makes the outcome a matter of time. I’ll have more to say on some of the cultural ramifications in future issues.