Quote of the Day: Let Economic Energy Bubble Up
In many ways Milton Friedman was a devil figure in my youth, in a Keynesian household of economists. I grew to see the issue as more nuanced as I was in school and ultimately have come to have enormous respect for Friedman's views on a range of questions. That's a respect that is born of the power of his arguments as one considers them more and more deeply. But it's a respect that's also born of the lessons of the experience of the success of decentralization in a place like Silicon Valley and of the failures of centralization in places like Central Europe and Russia.
In many ways some of the ideas of Hayek and Friedman about how markets best provide incentives, and best provide information, and best collect information may in a sense be even more true today, because of the changes that information technology is bringing, than they were at the time when they were propounded.
If you think about it, it cannot be an accident that it is the same 15-year period when communism fell, when command-and-control corporations like General Motors and IBM had to be drastically restructured, when planning ministries throughout the developing world were closed down, and when the Japanese model of industrial policy proved to be a complete failure.
There is something about this epoch in history that really puts a premium on incentives, on decentralization, on allowing small economic energy to bubble up rather than a more topdown, more directed approach, that may have been a more fruitful approach in earlier years.
~Lawrence J. Summers, 71st Secretary of the Treasury and Adviser to President-Elect Barack Obama
11 Comments:
If top-down approach is really work, why is Japan suffuring from the recession in past 2 decades? Even in the states, Hoover government spent lots of government spending. But it was not work. It just increased the government spending, but not able to boost the economy. What do you think aboout the posted article??
Milton Friedman, the supposed free market capitalist!
There is the talk and there is the action. One speech doesn't make it a summer (no pun intended).
Let's see if Summers will guide socialist B. Milhouse Obama's administration (who promised to provide that vision thing or whatever) away from already existing state's powerful and destructive tentacles towards a free(er) markets.
I suspect the grand socialist FDR also may have had a treasury secretary babble free-market economics here and there...
Check, and Mate! There is no more battle of ideas on this, just a battle of politics, if you will.
I am slightly troubled about the bit at the end about how command and control policies worked in the past (when exactly was that??), but this is very encouraging.
On the other hand, this interview is from 2001, and I am betting the story is now that things have "changed" in recent years and it turns out the free market is not so good. Oh well, I have the audacity to Hope.
> I am slightly troubled about the bit at the end about how command and control policies worked in the past (when exactly was that??), but this is very encouraging.
They functioned more effectively at times in the past than now, is I believe the actual statement.
The classic model for industry is heirarchical. That's "top down".
The proper model for IP & Services economies is a distributed network. That's a more radial form of development.
I won't be amazed if we also wind up distributing government, too, but have no idea how to get from here to there. It may be that a lose collection of strongly interlocked states is a better scheme than the current federal one.
Articles of Confederation, anyone?
I happen to work for IBM and let me assure you that IBM is still a rigid command and control structure, with strong central planning and mandates.
The minimum layers of management I've had was 6 back in 1994 - now I have eleven layers of management, 9 of which can be described as oppressive.
Employees are less empowered now than at any time in my 25+ year career. Everything is dictated by corporate.
I would not use IBM as a example of a successfully restructured corporation "that really puts a premium on incentives, on decentralization, on allowing small economic energy to bubble up rather than a more topdown, more directed approach".
BTW, we're in deep trouble if the federal government implements a Keynesian approach a la Summers expouses.
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anon/IBM...so what was the secret to IBM's turnaround during the era of the Nabisco/Amex guy? Was he just lucky? Or was it a few good decisions implemented from the top down? Was there a brief interval of decentralization which was then reversed?
See, even leftists, indoctrinated since childhood, can learn, if only by experience.
Imagine if our children were actually taught to embrace economic freedom and function in a free market society, instead of having worthless marxist crap drilled into them by academia and hollywood.
The crime of the left lies not just in the hundreds of millions of bodies they have piled up in places like the USSR, China, North Korea and Cuba, it lies in the squandered potential of those who never had a chance to realize their dreams.
Look, this is from someone who really knows about this. Yes, I am an "expert" on this subject. I just spent a 40 year career as an instructional leader in the public schools. In fact, and rest assured, the curricula and instructional materials in schools laud and extol the merits of free enterprise and credit it for America's greatness. It also does not cheat or deceive students by stonewalling information about other components of our great civilization, in an attempt to give our young a true and balanced education.
I'm sick and tired of endless pundits who don't know a rats ass about what really goes in public schools pontificating about its alleged institutionalized liberal bias and other myths.
Our highly-respected and learned host professes in a prestigious and large state university. How much liberal propaganda do we hear from him? Get real people.
Reply to David -
Lou Gerstner did indeed reduce the number of levels of management, but more importantly, refocused the company on its customers and pushed us into the services business. Over time, the bureaucracy and levels of management crept back up. The best decision Lou made was to not split the company up into pieces. I also think that Lou's timing was fortunate - the second half of the 90s were very good for the computer industry in general - in particular, the Year 2K run up was a real boost.
One thing that Lou and Sam Palmisano both did was to move the company away from low profit commodity businesses, e.g. the printer business to what became Laxmark, the disk business sold to Hitachi and the PC business to Lenovo, to businesses with higher margins and where the company could bring more significant value - sort of like what Jack Welch did with GE.
In my opinion as an insider, Sam needs to flatten the organization and severely prune back the numbers of vice presidents and their staffs - the corporation is too top heavy with rule makers and bureaucrats which add little/no value to the products and services we sell.
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