Commerce and the Wealth of Nations

I was struck the other day by an article in the New York Times that describes the different approaches of the US and China to Afghanistan, in which the US shoulders the burden of war, while China reaps the benefits of commerce. Quoting from the article, I tweeted: “American troops help make Afghanistan safe for Chinese commerce.”

In response, @kamalram wrote: “During WW1 and the early days of WW2, the United States focused on commerce when much of Europe was at war. History gets repeatd”

Pundits have long proclaimed the 21st century “the Chinese century”, and @kamalram may well be right that America’s wars against terrorism are a turning point. But the lesson is broader than that China is securing rights to rare-earth minerals in Afghanistan while the US gets mired in a messy war. The question is who creates the industries of the 21st century, which system of government is best at encouraging innovation, and which citizens have the drive to tackle hard problems and turn them into great opportunities.

This line of thought in turn put me in mind of Thomas Friedman’s recent column, Off to the races, in which he argued:

I’ve long believed there are two basic strategies for dealing with climate change — the “Earth Day” strategy and the “Earth Race” strategy. This Copenhagen climate summit was based on the Earth Day strategy. It was not very impressive. This conference produced a series of limited, conditional, messy compromises, which it is not at all clear will get us any closer to mitigating climate change at the speed and scale we need….

I am an Earth Race guy. I believe that averting catastrophic climate change is a huge scale issue. The only engine big enough to impact Mother Nature is Father Greed: the Market. Only a market, shaped by regulations and incentives to stimulate massive innovation in clean, emission-free power sources can make a dent in global warming. And no market can do that better than America’s….

In the cold war, we had the space race: who could be the first to put a man on the moon. Only two countries competed, and there could be only one winner. Today, we need the Earth Race….

Whether you’re a “warmist” or a “denier,” you should have no doubt that green technology is going to be one of the biggest business opportunities of the 21st century. As Friedman continues:

Even if the world never warms another degree, population is projected to rise from 6.7 billion to 9 billion between now and 2050, and more and more of those people will want to live like Americans. In this world, demand for clean power and energy efficient cars and buildings will go through the roof.

Harnessing the market is also key to my thinking about “government as a platform” (aka “Government 2.0). As I wrote in an as-yet-unpublished chapter for the upcoming O’Reilly book, Open Government: Collaboration, Transparency, and Participation in Practice:

If you look at the history of the computer industry, the innovations that define each era are frameworks that enabled a whole ecosystem of participation from companies large and small. The personal computer was such a platform. So was the World Wide Web. This same platform dynamic is playing out right now in the recent success of the Apple iPhone. Where other phones had a limited menu of applications developed by the phone vendor and a few carefully chosen partners, Apple built a framework that allowed virtually anyone to build applications for the phone, leading to an explosion of creativity, with more than 100,000 applications appearing for the phone in little more than eighteen months, and more than 3000 new ones now appearing every week.

This is the right way to frame the question of “Government 2.0.” How does government become an open platform that allows people inside and outside government to innovate? How do you design a system in which all of the outcomes aren’t specified beforehand, but instead evolve through interactions between government and its citizens, as a service provider enabling its user community?

It’s worth noting that the idea of government as a platform applies to every aspect of the government’s role in society. For example, the Federal-Aid Highway Act of 1956, which committed the United States to building an interstate highway system, was a triumph of platform thinking, a key investment in facilities that had a huge economic and social multiplier effect. Though government builds the network of roads that tie our cities together, it does not operate the factories and farms and businesses that use that network: that opportunity is afforded to “we the people.” Government does set policies for the use of those roads, however, regulating interstate commerce, levying gasoline taxes as well as fees on heavy vehicles that damage the roads, setting and policing speed limits, specifying criteria for the safety of bridges and tunnels, and even for vehicles that travel on the roads, and performing many other responsibilities appropriate to a “platform provider.”

While it has become common to ridicule the 1990s description of the Internet as the “information superhighway,” the analogy is actually quite apt. Like the internet, the road system is a “network of networks,” in which national, state, local, and private roads all interconnect, for the most part without restrictive fees. We have the same rules of the road everywhere in the country, yet anyone, down to a local landowner adding a driveway to an unimproved lot, can connect to the nation’s system of roads.

The launch of weather, communications, and positioning satellites is a similar exercise of platform strategy. When you use a car navigation system to guide you to your destination, you are using an application built on the government platform, extended and enriched by massive private sector investment. When you check the weather – in the newspaper, on TV, or on the internet, you are using applications built using the National Weather Service (or equivalent services in other countries) as a platform. Until recently, the private sector had neither the resources nor the incentives to create space-based infrastructure. Government as a platform provider created capabilities that enrich the possibilities for subsequent private sector investment.

There are other areas where the appropriate role of the platform provider and the marketplace of application providers is less clear. Health care is a contentious example. Should the government be providing health care, or leaving it to the private sector? The answer is in the outcomes. If the private sector is doing a good job of providing necessary services that lead to the overall increase in the vitality of the country, government should stay out. But just as the interstate highway system increased the vitality of our transportation infrastructure, it is certainly possible that greater government involvement in health care could do the same. But it should do so, if the lesson is correctly learned, not by competing with the private sector to deliver health services, but by investing in infrastructure (and “rules of the road”) that will lead to a more robust private sector ecosystem.

…platforms always require choices, and those choices must periodically be revisited. Platforms lose their power when they fail to adapt. The US investment in the highway system helped to vitiate our railroads, shaping a society of automobiles and suburbs. Today, we need to rethink the culture of sprawl and fossil fuel use that platform choice encouraged. A platform that once seemed so generative of positive outcomes can become a dead weight over time.

As we head into the second decade of the 21st century, we as a nation, we as a world need to make good choices about where we invest our time, our resources, and our ingenuity. It’s the job of our leaders to make choices that give us leverage, that is, that create multiplier effects on our efforts.

The choice isn’t between climate change alarmism and climate change denial, or between big government and small government. The choice is between dynamism and stagnation, between leadership that creates opportunity and leadership that protects the status quo, and, at bottom, between effective and ineffective strategies for increasing the total wealth of our society.

And of course, that wealth is more than material. Quality of life means more than quantity of stuff, and a single well designed device (or immaterial service delivered through said device) can deliver more value than a mountain of schlock. We all want to consume less and enjoy more, and it’s certainly possible that there will be revolutions in which the next great innovation is itself a technology platform, a substrate of possibility on which immaterial economies grow and prosper.

I’d love to see, in this New Year, this new decade, deeper thinking about the society we want to build, and what kind of policies will encourage the market to make the right choices.

And I’d love to hear your thoughts about policy choices that might encourage 21st century industries here in America and around the world.

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