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| When America Lost Its Special Advantage | | |
Bharat Jhunjhunwala
A hundred years of continued economic growth had convinced us that this is the ‘normal’ state of affairs. Perhaps it is not so. It may well be that recession is the normal state of affairs and rapid growth was a blip that has disappeared.
There are three major sources of economic growth - natural resources, hard labour and new technologies. South Africa has gold, Dubai has oil and Switzerland has ice-clad mountains suitable for tourism. These countries have become rich by exploiting these natural resources. As for hard labour, the people of Singapore have been enterprising enough to make that country the trade centre of East Asia. The country banned the luxury of dissent so that people slogged as directed by the government.
Adam Smith wrote in Wealth of Nations that the market allows each person to become rich by undertaking a job that is most suitable to him. This encouragement to hard work was the bedrock of the commercial success of the British in the nineteenth century. In contrast, there was no incentive to hard work in Soviet Russia. Officers sitting in Moscow determined the nature of work as well as the salary of the workers. The people failed to undertake hard work and the economy collapsed.
New technologies
The third source of economic growth is the invention of new technologies. Britain invented the steam engine. Its industrious people built huge ships, traded with countries from across the globe and became rich. In recent times, McDonalds has developed the technology of quality control. One can buy a burger of exactly the same taste in any outlet of the chain. Such technologies provide a special advantage and can become a source of economic growth.
America became rich in the last century because it was able to combine all three sources of wealth. It had huge natural resources as in the oilfields of Texas. It had combined the culture of the free market with hard work. And, most crucially, it developed many of the advanced technologies of the day. Henry Ford invented the assembly line in the twenties. That led to a steep reduction in the cost of production of automobiles and brought about a revolution in transport systems. That was also the time when the telephone and wireless became popular. The Radio Corporation of America was one of the leading companies at that time. Nuclear power was invented in the forties and fifties. This was followed by the invention of the jet airplane, the personal computer and the internet. America sold these products to the rest of the world.
The cost of producing the Windows software is about $10. Microsoft sells that product for $100 and earns huge profits. Thus Bill Gates has become the richest person on earth. This technological leadership of the United States now appears to have eroded.
For example, Microsoft had developed new Windows versions named 1995, 1998, 2000 and XP. All these were lapped up by the consumers. But there are few takers for the recently introduced Vista.
Consumers find the XP is adequate enough Naturally, the profits of Microsoft will show a downward trend. America’s economic growth rate will decline. Prosperity secured on the strength of new technologies is shortlived because technology has an inherent tendency to spread like water in the sea. Say, one taxi owner fixes radial tyres in his vehicle and makes a profit. Others will adopt that technology and the leader will lose his special advantage. Or, say, a pioneering farmer brings seeds of a special variety of tomatoes. He makes huge profits that season. But soon other farmers bring that same seed and the pioneer loses his edge.
This is the reason why England and America have not been able to sustain their prosperity, built on technological advances.
Portugal, France and other European countries soon started building steam engines like England. The special advantage of the British was lost. Similarly, Indian software engineers have started writing software and designing integrated circuits. America has lost her special advantage. This is the root cause of the American and, therefore, global recession of the day.
The Great Depression of the twenties occurred because of similar reasons. The boom of the twenties was built on the technological advantage enjoyed by the United States from the assembly line and wireless technologies. American companies were making huge profits.
Investors across the globe were buying shares of American companies to partake of these profits. But soon the technologies spread to other countries and the super profits enjoyed by leading companies like Radio Corporation of America were wiped out. The net result was the Great Depression.
America was the centre of global production of oil in the twenties. Oil was discovered in West Asia thereafter. This resulted in America losing its special advantage. America created a culture of hard work.
An employee can be terminated without assigning any reason. This fear makes people put in hard work. In due course of time, America lost this advantage too. Other countries like China and Singapore adopted similar labour practices. In this way America has lost her initial advantages in all three sources of economic growth.
Technology has spread to other countries. Oil has been discovered in West Asia. Hard labour has been adopted in countries like China. No wonder the rapid economic growth of the last hundred years has come to an end. This is the cause of the recession in that country.
We should not get much perturbed by the recession. The slow pace of growth is the ‘normal’ scenario. New natural resources are always discovered. New countries adopt the practice of hard labour. And technology spontaneously spreads far and wide. Therefore, slow growth is the norm and rapid growth is the special circumstance.
Hard labour
The surprise lies not in the onset of recession but in the high pace of economic growth displayed by the United States in the last hundred years. We all had uncritically assumed this rapid growth to be the norm. America was running on adrenaline but we mistook it for a normal run. The sustainable basis of economic growth is hard labour alone.
Other countries may adopt this practice but that does not wholly eliminate the prosperity of the hard workers. Hard work by the Chinese does not eliminate the income earned by Americans from hard work. The challenge is to make a culture that promotes hard work for centuries. Americans, for example, have fallen on easy lifestyles. They are cushioned by unemployment benefits.
The survival and unparalleled prosperity of the Indian civilisation for more than 5,000 years rested ultimately on this culture of hard work. The challenge before us, therefore, is to dismantle the bribe culture of government servants and the easy work culture being established by the Rojgar Guarantee Yojana and to build a culture of hard work.
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