An old joke about business management consultants is that if a client company is centralized, they tell management to decentralize; and if it’s decentralized, they straight-facedly urge centralization. The truth is that such seemingly inconsistent advice is almost always right.
There is no correct form of business organization: each one solves certain problems and creates others. If a diversified manufacturing company is experiencing serious quality-control problems, consolidating factories under quality-conscious managers can make a major difference. But as time goes by, complaints will arise about rigidity and lack of customer responsiveness: pressures will build for decentralization.
Politics and theories of governance follow similar cycles. But in a democracy, there is no CEO who can simply mandate a change in the problem-solving paradigm. So it takes a big buildup of ideological fervor to turn the wheel, and it takes a lot longer. Cycles in governing styles usually last twenty-five or thirty years.
We made such a turn in 1980, which was well overdue. Regulation was pervasive—the government told banks what interest rates they could pay. Marginal tax rates were very high. Whole industries had become cozy, price-fixing cartels that were getting murdered by the Japanese and Germans. A newly aggressive Soviet Union was profiting from American confusion.
The new consensus slashed taxes, cut regulations, pushed back against the Soviets, and virtually eliminated the federal government’s role in the delivery of social services. The Earned Income Tax Credit is a successful small-government antipoverty program that looks as though it will endure through several political cycles.
The deregulatory zeal of the 1980s produced predictable pratfalls, like the savings-and-loan crisis. But business was re-energized, labor productivity rose dramatically, and by the 1990s, the country was on a roll. By the first decade of this century, however, the “hyperpower” pretensions of the George W. Bush administration were a sign that the cycle had run its course. It didn’t end gently. It will be years before we dig out from under the mortgage fiasco, or shed our fractious dependents in Iraq and Afghanistan. At least the global financial crash may have ended the illusion that markets are always right.
The United States may be at the brink of a new economic boom. A “reshoring” of industry is underway. Rising expectations among Chinese workers are gradually reducing the labor-cost advantage Chinese industry has enjoyed. Energy, for example, is now much cheaper in the United States than in China. An industrial revival will force major improvements in our infrastructure—roads, airports, pipelines, power-transmission systems, high-speed internet.
The key feature of the 1980s–’90s cycle was that the Baby Boomers were at their peak productive years, and the leading-edge industries revolved around microchips. Getting government out of the way and letting Silicon Valley do its thing made sense. The key feature of the new cycle will be the need for government involvement. The expanding gas and oil industries will have high impact in terms of space, water, and the environment. As the International Energy Agency has argued, these industries require a “social license” that is embedded in firm, fair, and consistent rules and regulation so they can realize their promise without unnecessary damage. The first industries moving to take advantage of America’s cheap energy are heavy industries—iron and steel, chemicals, cement. Old-fashioned liberals like me have long lamented the lack of blue-collar jobs, so we can’t complain if they’re, well, industrial—with lots of 24/7 truck traffic and the like. Look at what is going on in North Dakota.
And then there are the Boomers, now pretty long in the tooth, even as the spectacular gains in health-care technology steadily expand standards of treatment. (Remember, all that money for Boomer health care doesn’t go to the Boomers; it goes to those providing health care, which happens to be our largest, and one of our best-paying, industries.) And the responsibility for rebuilding our industrial infrastructure will fall to the government, as will mounting the necessary job-readiness programs in industrial machining, introductory geology and petroleum engineering, and so on.
Unfortunately, Republicans and too many Democrats are still focused on cutting programs, especially health care, because they add to deficits. The truth is, if we fixed all our health-care system’s inefficiencies, we would still need more money as the population ages. If the government is to expand its role as it must, it will need to raise more revenue.
The United States now imposes lower taxes at all levels, as a percentage of GDP, than almost any other advanced country. If we raise taxes across the board by a few more GDP percentage points, we’ll still have one of the lowest total national tax burdens, while giving the government the resources to discharge its role in the economic shift that is almost upon us.