Theodore Vail’s America

by Dave Schuler on January 21, 2011

Somewhere Theodore Vail must be smiling.

This morning GE CEO Jeffrey Immelt, recently tapped by President Obama to chair his Council on Jobs and Competitiveness, has an op-ed in the Washington Post sketching his thoughts for the new council. The preliminaries rest on three principles: re-emphasize manufacturing and exports, free trade, and innovation.

I wholeheartedly endorse this:

The assumption made by many that the United States could transition from a technology-based, export-oriented economic powerhouse to a services-led, consumption-based economy without any serious loss of jobs, prosperity or prestige was fundamentally wrong.

which I’ve been saying for years. However, I think that there’s reasonable concern that the increased manufacturing output of the last couple of years hasn’t resulted in substantially increased manufacturing employment. I also note than in his paean for General Electric Mr. Immelt fails to mention that GE closed its last U. S. incandescent lightbulb factory back in September (most compact fluorescents are made in China). I also note that GE is preparing China to compete with Boeing. I would be interested in his views on how he reconciles these things.

IMO part of the problem is that manufacturing is to some degree a misnomer. Increasingly “Made in the U. S. A.” means “Packaged and Sold in the U. S. A.”.

Securing the approval of the Senate for the free trade agreements already negotiated by the Bush Administration might be a start, something the Obama Administration has been unable to do so far. Getting these agreements past the free trade skeptics in the Senate might prove challenging. The campaign season for President Obama’s 2012 re-election campaign will soon be hard upon us. Should we expect him to expend political capital to get them passed and further alienate portions of his base?

As to innovation, I’m reminded of something my old business partner used to say in parody of Voltaire from time to time, “I agree with what you say but I deny your right to say it.” Among the greatest barriers to innovation are the industrial giants like GE which have shed jobs at an alarming rate over the last 30 years while wielding intellectual property laws and political clout to crush upstart competitors which are hiring. One way of spurring innovation would be to get dinosaurs like GE, grown huge through rent-seeking, the hell out of the way. I doubt we’ll see suggestions in that vein from Jeffrey Immelt.

Theodore Vail was the legendary CEO of American Telephone & Telegraph (later AT&T Corp.) during its heroic period in the late 19th and early 20th centuries. He believed that competition in business was inefficient and immoral. His vision for America was one in which each industry was dominated by a single massive company and these titans would meet together to set the course for the future. Welcome to Theodore Vail’s America.

{ 41 comments… read them below or add one }

john personna January 21, 2011 at 8:13 am

I think most people misunderstand innovation at this point. I read the blogs of innovators in hardware and software. There is tremendous human capital here. People build all sorts of amazing things.

The thing is, they almost have a preference for useless things, like a pencil balancing robot: link Yes, that demonstrates skill, and was no doubt a learning experience … but does it translate to US jobs or Chinese?

That US “maker” network is a huge consumer of Chinese-made componentry, and there is a “next level” business model for distributors, but it also seems that it is a lot of people with no target for their skills.

… and if they did create something useful, wouldn’t it be made back in China?

john personna January 21, 2011 at 8:16 am

Shorter: if there is a US innovation deficit, it isn’t really a skills deficit

steve January 21, 2011 at 9:24 am

Mandel writes best about this IMO. One of our problems has been the over emphasis of US spending in basic research in the biosciences and less in other areas.

Steve

john personna January 21, 2011 at 9:48 am

steve, I know that is one of your themes, but how does it really jibe with the human capital I’m describing?

We know, and can do, a helluvalot.

As I say, I think we lack targets. Or, our innovation cycle becomes “prototype here, production in China.”

Steve Verdon January 21, 2011 at 11:27 am

Theodore Vail was the legendary CEO of American Telephone & Telegraph (later AT&T Corp.) during its heroic period in the late 19th and early 20th centuries. He believed that competition in business was inefficient and immoral. His vision for America was one in which each industry was dominated by a single massive company and these titans would meet together to set the course for the future. Welcome to Theodore Vail’s America.

Ahhh, the mindset of the modern day progressive at the corporate level. It is a beautiful thing.

Drew January 21, 2011 at 12:22 pm

Two thoughts:

1. This is why I have disdain for Obama and Big Government in general. Obama was ill prepared for his position from a philosophical or experience point of view; he knows nothing about business. So, right on que, why not hire a think tank guy to solve the problem? No, wait! A large corporate CEO who engages in the very practices being decried? That’s the ticket. A Big Govt or Corporatist worldview if I’ve ever seen one. This “Council” will provide plenty of belly laughs………but groans when th bill comes in.

2. Second (with all due consideration to the “correct” definition of “small” business etc) small business is the engine of approximately 65-75% of new job creation. So if you want to talk about the subject, you best start there. (We can deal with the headline grabbing large corporate plant shutdowns later.)

I can’t imagine that this isn’t primarily the nexus of an ever more burdensome environment and demographics.

First, the environment. I know people, including those on this and OTB boards, scoff at the notion of an anti-business environment. But the fact of the matter is that the tax/regulatory environment has grown ever more burdensome for decades. (Look at the number of pages in the registry.) This favors Big Business, who can better lobby exemptions, and finance it. Small business gets slogged down. Not bright policy. I recently pointed out provisions of Dodd-Frank that will do exactly what I just posited.

Second, and another point I repeatedly make but which falls on deaf ears. Demographics. After WWII millions of (mostly men) in the age range of 25-30 years old came home and started businesses from 1945 – 1950. Tremendous small business growth in the period 1950 – 1995. To be sure, some passed it on the the next generation. These people, are, in effect, my clientele. But this is now a wasting asset. Why? As a group, they are already rich. So in an increasingly difficult environment they feel no need to invest aggressively, to take risks. What the hell, the govt isn’t making it worthwhile, and they’ve got it made. So they hunker down, or get tired and sell to people like me who try to re-energize the growth engine.

You can believe this or not. But this is a huge problem in the US. A wise policymaker in, say, the 60′s, would have said “we have a unique and tremendous period in our history: a golden age of economic dynamism. We need to recognize that it has a natural lifecycle, and act accordingly to set policy so that when it wains, we will facilitate an up and coming replacement.” Instead, we had: “let’s rape the golden goose for all its worth and give away other people’s money for votes.” And segments of the population bought into the thievery………….all thinley cloaked in weakly constructed concepts of “compassion” and “investment” of course.

But as I noted earlier, it was a fleeting asset. Are we going to double down on raping the goose, or get a backbone again in America? I don’t know. The election of Obama indicates to me its the former; November’s election gives me a glimmer of hope.

I do know one thing: this Council on jobs Obama has put together will undoubtedly create jobs. I put it at, what, 100-200 jobs to staff it? But that’s about it.

michael reynolds January 21, 2011 at 12:25 pm

The thing is, they almost have a preference for useless things, like a pencil balancing robot.

I don’t think you can assume that innovation will move in a clean upward line. I think it comes in fits and starts. Sometimes nothing much new comes along for a long while. And I don’t think throwing money at the problem is the solution. It’s not that mechanical.

Look at it this way: homo sapiens has learned to travel the oceans and the sky and near space. We can communicate freely between essentially all members of the race. We are pretty much all clothed, housed and fed — most of us too well fed.

We can cure quite a number of diseases, but not all, so research continues to be done there.

But for decades now we’ve spent much of our effort on acquiring superfluous wealth and finding new forms of entertainment. Because we basically have everything we want and everything we need and aside from eternal life our only real demands are for things we have to be actively taught to want. We’re making tchotchkes and entertainment. Because that’s all we need. And that’s not a problem of capital or research or government regulation, it’s a problem of history.

michael reynolds January 21, 2011 at 12:49 pm

One other thing: we’re right where we were headed, so it shouldn’t be a surprise.

We built a system that valued productivity and efficiency. So now we can make everything we need or want using fewer people to do it.

We didn’t set out to create a large number of jobs, we set out to make a large number of products with the fewest possible jobs. Isn’t the ideal to be able to manufacture enough tchotchkes for everyone using only one employee?

So shouldn’t we be feeling kind of proud of the accomplishment?

Dave Schuler January 21, 2011 at 12:51 pm

small business is the engine of approximately 65-75% of new job creation

Not exactly. New businesses do most of the job creation and generally speaking start-ups start small. I’ve posted on this subject before and have statistics sitting around somewhere.

There’s a fundamental conflict here. New businesses create jobs but old businesses have the squeeze. That was my gripe about the GM bailout and the bank bailouts. Sure, we saved GM and the banks. What did we lose by keeping so much capital tied up in inefficient, non-productive, counter-productive dinosaurs? We’ll never know.

But IMO if you want to know where all of the promised jobs went that’s where they went.

Dave Schuler January 21, 2011 at 1:09 pm

We didn’t set out to create a large number of jobs

Actually, we did, Michael. It’s a pet peeve of mine. We’ve been subsidizing the hell out of minimum wage and sub-minimum wage jobs for decades.

The problem with minimum wage jobs is that they can be done for a lot less in India or China. And that’s what’s happened. You can’t just look at the last 15 years, you’ve got to look at the last 30 years.

We’re operating with a faulty management paradigm and have been for a long while. We’ve been using a machine model (interchangeable parts) where we should have been using a network model. Stuck in 1950s or 1960s thinking.

michael reynolds January 21, 2011 at 1:32 pm

But Dave, the inherent logic of capitalism favors efficiency. Efficiency is using the least amount of manpower, energy, and other costly things to create the largest amount of valuable stuff, with profit being the difference.

So we create more and more with fewer and less. Reductio ad absurdum we’d have a system where one worker fed, clothed and housed the other 300 million people in the country. No one ever starts a company thinking I’d like to hire a million people to do the work of a thousand and damn the lack of efficiency.

So maybe we’re there. At the place where we have striven to get. The place where we just don’t need everyone to work. This isn’t an entirely new problem: used to be that a major percentage of the population worked to feed everyone. Now a handful of people do the same job.

The former farmers went on to different jobs producing something else. Which works only so long as there is something else to produce. Maybe there just isn’t.

Dave Schuler January 21, 2011 at 2:11 pm

Efficiency is using the least amount of manpower, energy, and other costly things to create the largest amount of valuable stuff, with profit being the difference

No. It’s spending the least. Or maybe just spending the least in the short term.

Take agriculture for example. Rather than using machines to pick the crops we use stoop labor. Does that minimize the total man-hours expended? Not necessarily. It might be possible to harvest that crop using just one guy and a machine.

Instead, 100 unskilled workers are employed. The question is what costs the least or what costs the least now.

Drew January 21, 2011 at 2:13 pm

“Not exactly. New businesses do most of the job creation and generally speaking start-ups start small. I’ve posted on this subject before and have statistics sitting around somewhere.”

I know, I remember the post. But that’s where the definition of “small business” comes in. I’ve seen many where its 10 employees or so. And we have to be careful about counting the vast majority of small businesses, which really are sole proprietorships, with no intention of addings jobs perhaps with the exception of 1, maybe 2. But the main point still stands, you hamstring those enterprises – especially at the expense of Big Business – and over 10 -20 years you have a problem.

This Obama-Immelt thing is just laughable, and a primary reason to throw the bum out. I got past such frieghteningly dumb “committee” things at about age 25.

Steve Verdon January 21, 2011 at 3:55 pm

Michael,

Economic efficiency is best described, in relative terms, as:

An economic system is said to be more efficient than another (in relative terms) if it can provide more goods and services for society without using more resources.

That does not mean we have to have rising levels of unemployment of various resources over time with technological advancement for example. That is, if a resource currently employed producing good X is no longer need it does result in an increase in unemployment of that resource…for the time being. What it also means is that resource is now free to be used in production of some other good.

In other words, yes something like technological advancement might mean we can produce the exact same amount of cars as last year with less labor (for example). But there is nothing in economic efficiency that says that those resources no longer making cars can’t be used somewhere else in the economy….possibly even producing something not produced before.

The former farmers went on to different jobs producing something else. Which works only so long as there is something else to produce. Maybe there just isn’t.

Really? There is nothing else left to produce? Our current level of production is sufficient? We’ve reached some sort of global satiation point? I don’t think so. Call me crazy, but I think that the economy will produce more of some of current items being produced and that new items will go into production. Looking back over history this has been the case. Maybe you are right that now is different, but on what do you base such an assertion?

steve January 21, 2011 at 5:07 pm

“. We’ve been subsidizing the hell out of minimum wage and sub-minimum wage jobs for decades.”

You do realize how few jobs are at or below minimum wage?

“ill prepared for his position from a philosophical or experience point of view; he knows nothing about business”

The GOP fills its administrations with business types. The economy performs no better when they run things. Are you suggesting we just need better business types, that we are not putting in place the right business technocrats?

“But the fact of the matter is that the tax/regulatory environment has grown ever more burdensome for decades.”

There is the registry (I assume you mean the Federal Register), and then there are actions taken by Congress. A partial list of items that Congress has deregulated in the last 35 years would include the airlines, trucking, railroads, the media, finance, telecommunications, energy and (most importantly) beer. We used to control how much oil was pumped and its price. We set the prices for airline tickets. We were down to about 30, IIRC, total brewers in U.S. Stockbrokers fees were fixed. Banks could not have branches across state lines. We had Ma Bell (remember Lily Tomlin?). We had the Fairness Doctrine. I think that when you look at our relatively recent history, we have had massive deregulation.

Steve

Dave Schuler January 21, 2011 at 5:30 pm

You do realize how few jobs are at or below minimum wage?

Perhaps I should have said “unskilled workers or semi-skilled workers”. According to the BLS about 3% of the American workforce earns at or below minimum wage. Say a couple of million workers. According to various federal government sources the number of illegal workers probably numbers something around 10 million. Who knows how many of them are unskilled or semi-skilled earning at or near minimum wage?

And then there are the, what, couple of hundred million overseas jobs, mostly unskilled or semi-skilled, that have been created by U. S. companies or, at least, by the U. S. economy.

michael reynolds January 21, 2011 at 5:38 pm

Maybe you are right that now is different, but on what do you base such an assertion?

It’s in the stubborn nature of the space-time continuum that we have a hard time getting statistics from the future. So it’s an instinct based on personal observation, trends in media, watching people, listening to them. And it only applies to the developed world, obviously much of the world is still hoping for its first full belly.

There is not a single new piece of technology I currently want or that I’m anxious to see improved. (Aside from the Verizon iPhone.) I have all the phones, TV’s, DVR’s, laptops and things beginning with “i” that I need or even want. Both my cars run well. (I don’t know if you’ve noticed but all cars are pretty good nowadays.) Fridge, washing machine, so on and on and on, they’re all fine.

This isn’t about having a nice income. Regardless of income there’s just not much stuff I want. It’s that there’s nothing really very new or very compelling. And I actually want a smaller house. In fact, in a lot of categories, I want less not more.

As for consumption I have the feeling that people are getting kind of sick of it. I think people come out of this recession realizing they just can’t care that much about stuff. That it’s just not that important or satisfying. I am usually incredibly self-indulgent and generally have the ability to indulge myself, but I am just kind of sick of it.

Some of this is probably simple demographics. An aging population, a leveling or declining population, the rabid desire for more stuff just isn’t there.

But I don’t think it’s just demographics. I think there’s a philosophical or even aesthetic shift taking place away from self-medicating with stuff. Enough, already. Enough stuff.

So if we’re going to be in the stuff business we’re going to probably want to think export, not domestic. A bunch of sated, disillusioned, slightly embarrassed old boomers are not going to suddenly go on a shopping spree.

john personna January 21, 2011 at 6:11 pm

I want a 4g tablet with good location aware servaces.

(This is, in fact, the next big thing.)

steve January 21, 2011 at 6:28 pm

Dave- How would subsidizing 3% of the work force alter our economy so significantly? Fair point that we have a lot of illegals who may be making less than minimum wage, but I doubt they they are subsidized. Cowen wrote a neat little piece on this a while back. The illegals could, in theory, act like our own Chinese workers. Given the cost of living in the US, can we really decrease wages here to China levels?

Steve

Dave Schuler January 21, 2011 at 6:45 pm

For goodness sake, Steve, our immigration policy is a subsidy, our trade is a subsidy, our healthcare policy is a subsidy, our education policy is a subsidy, and our citizenship policy is a subsidy. Just to name a few. Transport policy. The list is almost endless.

And, no, I’m not suggesting that we should decrease wages here to Chinese levels. I’m suggesting that we go back to what we’ve been doing for more than a century.

We do things differently here than they do in China. Where they are using plain old manual labor we’re using machines plus less labor. And there are people designing, building, and selling the machines. Which are made by other machines. And there are people designing, building, and selling those machines.

Dave Schuler January 21, 2011 at 6:50 pm

Michael:

To some degree I agree with you. I think we’re going through an economic downshift connected to the aging of the Baby Boomers. However, there’s one question I have for you.

You’re a guy who’s made a very good living, largely by selling stuff. I assume you’re paid a royalty on the sales of what you write. That means that your living is dependent on your customers wanting more stuff. Can you reconcile your own experience with the story you’re telling?

My own experience, contrariwise, over the period of the last forty years has largely been in selling services. I sell my time. I’ll never get rich but, then, I’ve never wanted to so it works out okay.

I strongly suspect that if you stopped twenty people picked at random on the streets and asked them if there was anything in the world that they wanted all twenty people would be able to name a thing that they wanted. I don’t think that the problem is that all desires have been satiated. I think it’s willingness to pay, a somewhat different subject.

michael reynolds January 21, 2011 at 7:40 pm

Dave:

Actually I survive in a market that’s been declining for some time. Fewer kids in my reader’s age cohort, fewer books, more competition from other entertainment sources and so on. I’m busily trying to outwit my competitors, not in a growing market, but a shrinking one. Sort of Mad Max writes books, or rats gnawing the bones if you will.

Of course I’m also busily turning the stuff (books) into nothing more substantial than pixels. I hate to say it but I’m actively trying to eliminate jobs in the publishing industry and take their money.

Sounds kind of Drew-ish when I put it that way.

I’m also trying to create some different jobs. So maybe it will even out.

I’m not saying no one wants stuff. But fewer people want as much. The aesthetic has changed. Conspicuous consumption doesn’t seem cute anymore, it makes people wince. I felt it when I made the move from the S500 to the A6. And it actually reaches me when John Personna goes on his Prius tear.

I think consumption for its own sake is becoming a relic of an earlier generation and the boomers don’t want to be identified with that aged-out aesthetic anymore. (The fact that the boomers created that aesthetic to begin with, well, no one ever said we were the consistent generation.) The boomers are older, cheaper, and worried about looking like greedy jerks. The younger generations are just less materialistic. McMansions, big cars and shoe fetishes are on the way out.

michael reynolds January 21, 2011 at 7:44 pm

One addendum: for a kid nowadays status is not the price of their sneakers, it’s the number of their Facebook friends.

RW Rogers January 21, 2011 at 11:53 pm

Take agriculture for example. Rather than using machines to pick the crops we use stoop labor. Does that minimize the total man-hours expended? Not necessarily. It might be possible to harvest that crop using just one guy and a machine.

Instead, 100 unskilled workers are employed. The question is what costs the least or what costs the least now.

Dave, not that it matters, but a significant amount of agricultural production is highly mechanized, has been for some time now, and more is mechanized almost every year. The number of farm laborers needed has been drastically reduced in recent decades. As I recall from various pieces read over the years, only some of the easily-bruised items are still largely exempt from this massive change in production.

john personna January 22, 2011 at 7:36 am

I couldn’t do the Prius without the mountain bike. Our local mountains (Black Star Canyon to Beek’s place) were glorious, green, and warm, yesterday.

Reading back over, I don’t think we’ve really captured, or integrated, the innovation and jobs thing.

For one thing, I don’t think Clay Shirky is wrong about a Cognitive Surplus. My balancing pencils fit in that, as a demonstration of surplus.

At the same time, I don’t think Drew is right that all those bright and educated people are watching Dancing With The Stars because that is the only path government gives them.

It could have something to do with the way we see ourselves, with respect to Asia, rather than strictly the facts relative to Asia.

john personna January 22, 2011 at 7:38 am

Shorter: Humans aren’t that smart, but 300,000,000 brains in this country alone, is a lot.

Andy January 22, 2011 at 8:05 am

The boomers are older, cheaper, and worried about looking like greedy jerks. The younger generations are just less materialistic. McMansions, big cars and shoe fetishes are on the way out.

As a member of one of those younger generations, that’s all true to a point. I doubt, though, that this sudden frugality can save the boomers from being despised by the rest of us. They (collectively) are checking out after trashing the place, stealing the towels, shitting on the floor – all while leaving a huge unpaid bill that us young-uns are getting stuck with. I seriously doubt, however, the boomers new-found frugality will touch their own interests. I don’t think there is any generation in the history of this country that were given so many advantages and squandered them so badly.

john personna January 22, 2011 at 8:25 am

Related:

Robert Skidelsky, the British biographer of Keynes, put up a post yesterday wondering about life after capitalism. His concern is that capitalism, having done the job of bringing wealth to large numbers of people in the developed countries, was running out of productive goal

link

john personna January 22, 2011 at 8:28 am

I doubt, though, that this sudden frugality can save the boomers from being despised by the rest of us.

lol. Sometimes I feel link Clint in Gran Torino. This is the kind of thing that brings it out.

Pull up your damn pants.

Andy January 22, 2011 at 8:35 am

john,

Haven’t seen it. Not much time for movies anymore unfortunately.

john personna January 22, 2011 at 8:52 am

He was the ultimate curmudgeon.

michael reynolds January 22, 2011 at 9:45 am

Andy:

If you were hoping I’d give you a fight in defense of boomers I’m afraid I have to disappoint you. I can’t understand why the younger generations aren’t hunting us for sport.

michael reynolds January 22, 2011 at 9:47 am

Not much time for movies anymore unfortunately.

Hark! I hear the wistful cry of a parent with young children!

Andy January 22, 2011 at 1:06 pm

Michael,

No, I didn’t know you were a boomer, but now that I do, I’ll add you to the list ;)

As to movies, you’re quite right, though to be honest I’ve seen “Despicable Me” several times in the last few weeks. For some reason my kids love that movie.

amba (Annie Gottlieb) January 23, 2011 at 12:34 am

If fewer and fewer people are working, where do they get the money to buy the stuff that makes the profit that motivates the creation and production?

For a while, the answer was “Credit cards and second mortgages.” But we can’t do that any more. Now what?

john personna January 23, 2011 at 2:02 am

Annie, many are in a prolonged While E. Coyote moment. I hear it around town.

amba (Annie Gottlieb) January 23, 2011 at 11:15 am

As for consumption I have the feeling that people are getting kind of sick of it. I think people come out of this recession realizing they just can’t care that much about stuff. That it’s just not that important or satisfying. I am usually incredibly self-indulgent and generally have the ability to indulge myself, but I am just kind of sick of it.

Stuff is like a drug. It gives you a rush at first and then you keep buying more and more stuff looking for that rush, but it’s smaller and briefer every time. A lot of consuming has now got that joyless craving quality that other addictions get in their later phases. You need to go shopping just to feel OK. It has struck me that people who don’t know there’s deep nonmaterial satisfaction to be had can never get enough stuff, precisely because it’s not what they’re really longing for.

amba (Annie Gottlieb) January 23, 2011 at 11:23 am

Dave says to Michael: You’re a guy who’s made a very good living, largely by selling stuff.

But books aren’t exactly stuff. Their packaging is; but books are experiences. Videogames are experiences? Movies are experiences? Music? We’re shifting from material stuff to mind-stuff. There will always be a market for experiences. Especially for people who spend their lives commuting from safe, comfy houses to safe, comfy offices until misfortune puts them in unsafe, uncomfy hospitals. Our neurological need for challenge and adventure will not be satisfied by the gym.

The wildlife of the world, if anything can save it (from the ravenous Chinese appetite for imaginary aphrodisiacs), will be saved by ecotourism, the selling of experience, which can bring livelihoods to impoverished communities and compete with poaching.

amba (Annie Gottlieb) January 23, 2011 at 11:24 am

I should have inserted “. . . in safe, comfy cars.”

amba (Annie Gottlieb) January 23, 2011 at 11:28 am

John: LOL. Off the cliff and just about looking down and realizing…

michael reynolds January 23, 2011 at 12:08 pm

That’s right. Thank you for putting it that way, Annie. Because I don’t want more stuff, I do want more experiences. I’d love to see the great migration or step foot on Antarctica. I just don’t need another toaster or TV or car. The diminishing returns problem of stuff rapidly becomes apparent.

Look at Bill Gates. He could have kept buying houses and yachts (and countries, what the hell.) It seems as if he had enough stuff and enough money and wanted the experience of curing malaria.

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