The Paradox of Progress: Can Americans Regain Their Confidence in a Prosperous Future? - book reviews

Business Horizons, Nov-Dec, 1997 by Thomas A. Hemphill

The reviewer, Thomas A. Hemphill, is a fiscal officer with the New Jersey Department of Environmental Protection, Trenton, New Jersey.

Over the last few years, a barrage of articles, books, and television programs have focused on economic angst among America's middle-class. True, the new global economy has brought a wrenching economic transformation for hundreds of thousands of American blue- and white-collar workers who have found themselves replaced by productivity-enhancing technology or who have lost jobs in industries relocating offshore. And survey results show that members of "Generation X" (those Americans born after 1964) overwhelmingly believe they will live less prosperous lives than their parents.

But not all analysts have such a draconian view of the present and future American economy. Richard McKenzie, an economist and the Walter B. Gerken Professor of Enterprise and Society at the Graduate School of Management, University of California, Irvine, writes, "I remain convinced that, contrary to the prevailing view, the overwhelming majority of the country's children will live better than their parents." In his book, McKenzie draws on turn-of-the-century American economic history, evidence of late twentieth-century American industrial productivity and consumer affluence, and emerging technological opportunities in the U.S. workplace to support his position.

A disciple of Nobel Prize-winning social philosopher and economist F.A. Hayek, McKenzie expresses his (and Hayek's) view that the intelligence of the masses far outstrips the intelligence of the few to make the infinite number and array of adjustments required by a brighter socioeconomic future. The mistakes of centralized planning in the former Soviet Union and Eastern Europe bolster the argument against economic micro-management through industrial policy.

In an illuminating chapter on U.S. economic perceptions versus reality, McKenzie observes an American media focused on bad news and often inaccurate reporting--resulting in a public with a distorted view of economic reality. As an example, he notes that in a computerized media database search covering January 1, 1993 to April 30, 1994, he found that newspaper stories on plant closings and job losses were more than three times more prevalent than articles on plant openings and job gains. This is despite the fact that at the time of the search (April 30, 1994), U.S. industrial productivity stood at an all-time high and the economy's job base had grown by a net 2.5 million jobs during the 16-month period.

The economic uneasiness felt today by many Americans is a result of the opening of a new West, not the closing of the old West, says the author. The old West, a geographical region of America west of the Mississippi, was a vital force operating in the first century of the nation's existence. The historian Frederick Jackson Turner presented a powerful thesis explaining the formative impact of the old West on U.S. economic development and governmental institutions. According to Turner, the old West offered many social and political escape hatches for Americans fleeing repressive governments in Europe or an industrialized private sector east of the Mississippi. New economic opportunity in the form of abundant land and limited government could be had there for Americans with dreams to fulfill.

The "virtual economy" is the "new West" McKenzie envisions. The rapid development and commercialization of computer and communication technologies is the new vital force offering cyberspace as a social and economic frontier to be farmed. Internet technology has exploded into electronic bulletin boards, information databases, and entrepreneurial opportunities for the technologically facile. Brain power can be tapped globally to develop business strategies and new technologies. "Electronic immigration," which is breaking down traditional immigration barriers, will have an increasing influence on public policies concerning personal and corporate taxation, business regulation, and government subsidies. For most Americans, cyberspace and developments in other advanced technologies offer an endless frontier of economic opportunities.

"Economic tectonics" and "moral tectonics" are terms McKenzie uses to describe what will underlie the state of future opportunity. Economic tectonics involves a new world order of capital mobility requiring local business environments conducive to making human and physical capital competitive with the best in the world. Moral tectonics involves the basic moral infrastructure of the nation: a set of fundamental guiding principles intuitively understood by members of a society that allow for stable, productive communities to be established. America's moral infrastructure has undergone a slow crumbling, maintains McKenzie, yet he has faith that individuals will reestablish strengthened rules of responsible behavior.

These rules of individual responsibility ("rules of prosperity," according to McKenzie) underlying social and economic interactions are grounded in ethical, religious, and legal precepts. To allow markets to operate efficiently requires that self-interest be held in check and that property rights be respected. Society must have a moral foundation of cooperation to help neutralize personal excess and thereby divert resources from extensive legal enforcement into more productive economic uses. For Americans who wish to live by these rules of personal responsibility, technological opportunities will abound. They will work smarter, study harder, and cooperate to compete in a global economic environment.