It’s Time to Release the Kraken … of Competition

It’s Time to Release the Kraken … of Competition

Repeal? Replace? How About Step Aside and Let Entrepreneurs Work? Especially in Healthcare.

Do you remember the great chewing gum crisis of 2005? When chewing gum cost $367 a pack on average, was only available in two inconveniently located stores, and tasted like sawdust? Of course you don’t, because it never happened. That is because the production and sale of chewing gum is left largely to market forces: supply, demand, innovation, and, ultimately, consumer choice.

Healthcare and health insurance are more complex than chewing gum to be sure but that is an argument for decreasing the government’s role in it, not turning it over to distant, unaccountable bureaucrats and, perhaps worse, politicians jockeying for position in the next election.

I am already on record with my own business plan, a mutual insurer offering combined life-health-disability policies that can begin in utero. I think it will work, but I do not know for certain. Other social entrepreneurs, like the trio of Amazon, Berkshire, and Bank of America, have their own plans, equally uncertain. Health insurers and healthcare providers, like Sanford in the Midwest, also have ideas percolating. The only real test is to offer rival plans to consumers and see which they prefer.

Right now, health insurance entrepreneurs are almost completely stymied by the dictates of the Affordable Care Act (ACA). Idaho is attempting to sidestep ACA but potential insurance entrepreneurs know that a state government cannot readily protect them from the federal government. (Look at how the Feds stomped on Colorado marijuana sellers by denying them access to the banking system.)

What entrepreneurs need is a credible commitment by the federal government to allow them to experiment with health insurance and healthcare delivery systems for the next 10, 15, or 20 years. That would require passage of a law requiring healthcare organizations to pay the same taxes on the same basis as their peers but otherwise giving them free reign to experiment in an environment that no longer favors employment-based group health insurance. 

Releasing the Kraken of competition will allow providers, insurers, and consumers to negotiate with each other directly, rather than via the government. If market forces are truly allowed to determine the results, they will almost certainly be better than ACA or any single payer or universal health system. If they are not, the political path to some system of socialized medicine in America should be clear. Before America goes down that likely irreversible path, however, it needs to do something that it hasn’t done since World War II, allow consumers to decide what type of healthcare and health insurance they want without distorting markets in favor of the largely pernicious employment-based variety.

What about the impoverished? It is quite possible that (social) entrepreneurs will find a way to adequately meet their healthcare needs, just as they do their needs for clothing, entertainment, food, refrigeration, transportation, and, yes, chewing gum. If not, the proper policy is to provide vouchers and let them decide which healthcare and insurance plans work best for them.

I call my proposal the Kraken, a mythical sea monster of mammoth proportions, to invoke the power of markets to destroy the old and thereby make room for the new. The Kraken of competition is indeed scary but it never destroys wantonly or capriciously. Rather, it directs its wrath at the weak and inefficient, at the institutions and practices that have made our healthcare and insurance system the wreck it is today.

Let's Value Quality Activist Scholarship as Much as the Traditional Variety

After the Great Debacle of 2008, I decided to connect my scholarship more deeply to the real world because the people in charge, who ranged from close to clueless to utterly useless, clearly needed help. I left the Stern School of Business for a more policy-oriented position in South Dakota, began writing policy history, and joined the board of Historians Against Slavery (HAS), an international NGO dedicated to using scholarship to help reduce the number of people enslaved in the world today. Subsequent events, including the Citizens United decision in 2010 and the 2016 election results, have only strengthened my conviction that America’s policy-making apparatus bears a striking resemblance to a toxic stew of incompetence and venality.

Other scholars have also decided that they can no longer remain on the sidelines. Joining the hundreds active in HAS are hundreds of others affiliated with the Tobin Project, “an independent, non-profit research organization motivated by the belief that rigorous scholarship on major, real-world problems can make a profound difference” and “improve society.” Named after James Tobin, recipient of the Nobel prize in Economics in 1981, the Tobin Project won the McArthur Award for Creative and Effective Institutions in 2013.

My goal is not to lure out researchers who desire to remain in their ivory towers conducting traditional forms of scholarship because I, like most scholars, believe that the pursuit of knowledge for its own sake is a noble endeavor. Rather, my goal is to induce ivory tower-types to: first, not stand in the way of those of us who would like to address real world problems in direct, yet scholarly, ways; second, ask themselves if they actually pursue knowledge for its own sake or if they merely engage in intellectual self-titillation.

On the first point, I have heard too many promising scholars say that they would like to try to improve the world but they cannot work on that right now because their chairs, deans, or provosts expect them to push out articles or books if they want tenure. If they dare push back, they are met with malarky about metrics, standards, and other bureaucratic detritus. If department chairs and other campus administrators cannot discern the quality of their own faculty without outside crutches like ‘journal ratings,’ they ought to step down, or at least aside, and leave the decision to those who are unafraid to make difficult judgements.

Many tenured professors also feel pressure to conform to the dictates of administrators and churn out ‘scholarship’ that few will read but that will raise their department’s ‘ranking,’ as if a number based on essentially nothing matters while people needlessly suffer and die, the environment deteriorates, and institutions of higher education degrade. Again, almost everyone values those seeking knowledge for its own sake but I would like to see scholars who want to improve the world not be punished professionally for doing so, i.e., to enjoy the academic freedom they once did. As John Stauffer noted in a recent speech at the International Slavery Museum in Liverpool, the best historians long engaged in activist scholarship, as have important scholars in other disciplines, including John Dewey, the Lynds, and Robert J. Lifton, among many others who conducted research before the professionalization virus struck the academy, like the swine flu, several generations ago. In short, those who like the ivory tower should by all means stay up there but out of the way of scholars-activists like Sara Goldrick-Rab, who makes a telling distinction between scholarly activism and political advocacy.

I would also enjoin traditional scholars to introspect and ask themselves if they truly seek knowledge for its own sake or if they merely amuse themselves and a few acolytes. Veteran economist Steven Payson raises the same difficult question in How Economics Professors Can Stop Failing Us (2017), a scathing indictment of academic economics. The economics journal ranking system, he argues, is rigged in favor of the students and friends of superstars, most of whom simply churn out derivative mathematical models too abstract to represent any real economy, past or present. (Little wonder, then, at the events of 2008.) The emperor of economics has no clothes, Payson explains, because he is actually buck naked, not because non-economists lack the mathematical prowess to see his highness’s resplendent garb. Based on personal experience, casual conversation, and discipline-specific critical literature, I believe that Payson’s critique of academic economics also holds to some degree for other social science disciplines, history and the humanities, management, and even science and engineering fields.

Acknowledging the shortcomings of traditional scholarship, however, should not be taken to imply that all activist scholarship is worthy. The new subfield called the ‘history of capitalism’ is particularly suspect. Most historians of capitalism have an activist agenda, whether they openly admit it or not. They want to expose the flaws of capitalism (which they never define but basically equate with the status quo) to pave the way for financial reforms and reparations for the descendants of slaves. Their activist impulse is not the problem, though, their poor scholarship is. Most of the subfield’s canonical works have been heavily criticized by economic historians, like myself (The Poverty of Slavery, 2017), and economist historians, including most recently Eric Hilt (“Economic History, Historical Analysis, and the ‘New History of Capitalism’,” Journal of Economic History, 2017).

Contrary to common assumption, scholarship with any chance of improving the world has to be better, much better, than traditional scholarship. That is because its audience, so to speak, is reality, not a handful of self-appointed experts or the friends of the author’s dissertation adviser. To have any chance of improving the human condition, activist scholarship has to address real world problems rather than traditional academic questions, follow the rules of logic, and ground itself empirically as well as theoretically. (For an excellent recent example, see the 2017 Tobin Project volume attacking the Citizens United decision edited by Naomi Lamoreaux and Bill Novak, Corporations and American Democracy.) Even the best activist scholarship probably will never help anyone or anything, but it is far more likely to improve the world than is careerist work, like proposing marginal tweaks to some arcane ‘literature’ and getting it published with help from academic nepotism.

So let’s all endeavor to start valuing quality activist scholarship truly aimed at improving our deeply troubled world as much as we value scholarly work performed for its own sake, self-gratification, or professional advancement.

A note to my "progressive" friends ...

Progressives, lend me your ears!

Yeah, you have every right to be upset with the state of the nation and the world and kudos for trying to change it. But here's the thing. Waiving your arms at "capitalism" isn't going to accomplish anything useful. For starters, nobody agrees what capitalism even means. It has become a catch all for "scary stuff I don't like," much the way that "Glass Steagall" became some kind of supposed super regulation after the Panic of 2008. Most of you have no idea how financial markets and intermediaries work and hence have no clue about which regulation(s) might be better than others and you wouldn't know adverse selection from moral hazard.

To have any chance of changing the world for the better, you have to understand it first! If you blog, tweet, even snap, crackle and pop to the same few (hundred, thousand, million) like-minded people, you're just pandering to a base, not effecting positive change. If you don't have the analytic skills and knowledge base to critique a system in concrete terms, you have no intellectual basis for calling for the eradication of this, or the regulation of that.

Until you understand some economics (theories as well as institutional details), please stick with human rights issues. I hate to have to criticize the thoughts of friends and colleagues but feel I must when they start talking out their you know whats. If you agree and want to learn more about economics, the financial system, public policy, and so forth, feel free to start here.

Why are many Indians so poor? In short, BIA-induced socialism!

Little Biz on the Prairie

By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University

For West River History Conference, Rapid City, So. Dak., 13 October 2017

My book about the history of entrepreneurship in South Dakota, Little Business on the Prairie, has two themes relevant to this conference. The first is that South Dakota has an unusually strong record of entrepreneurship, proprietorship, and self-employment in part because it always has. The second is that taking the Indian’s land was not the worst thing that Euroamericans did to them, stripping them of their entrepreneurial heritage was.

History tells me that I better talk a bit about entrepreneurship. Specifically, last year at the annual South Dakota book doohickey held in Brookings a woman straight up asked me how the word was pronounced and what it meant, pointing at it in the subtitle of my book. “No wonder it has only sold a few dozen copies,” I thought to myself. Will Baumol, my good, now deceased friend from New York University’s Stern School of Business, where I used to teach courses in business history, always said there were three types of entrepreneurship: innovative, replicative, and exploitative.

The first type is what people usually think of as entrepreneurship: inventors, business innovators, and what not. You know Thomas Edison and Elon Musk types. South Dakota has had its fair share of inventors and business innovators. A good way for history buffs to while away an afternoon is to look through the old patent records by using Google’s advanced patent search engine and the names of inventors mentioned in my book. Unfortunately, researchers still cannot systematically search patent applications by state for patents filed before the mid-1970s. I found the ones in my book the old fashioned way, by digging around.

South Dakota has also had its fair share of exploitative entrepreneurs, though perhaps none as famous as the fictional Tony Soprano, the most recognizable exploitative entrepreneur, who make a living by raid instead of by trade, by taking rather than making. The so-called Wild West was full of sundry bank robbers, desperadoes, gunslingers, and so forth. Some Indians were exploitative entrepreneurs, too. The most well-known example is the massacre and slave raid at Crow Creek circa 1350 AD.

But most entrepreneurial activity in South Dakota, both before and after Columbus, was replicative. Replicative entrepreneurs extend existing techniques and technologies to new geographical areas, so almost all agriculturalists, butchers, dentists and doctors, fishers and hunters, photographers, shopkeepers, and all other proprietors engage in replicative entrepreneurship. Their employees and government workers are the non-entrepreneurs according to Baumol’s typology, which is the one I use because it’s the best.

Previous typologies made lame distinctions between, for example, legal and illegal enterprises. Well, a gambling establishment or a brothel in Deadwood, though illegal, is just replicative entrepreneurship because the patrons willingly pay for the services offered. A legal monopoly, by contrast, Baumol rightly categorizes as exploitative because it has the power to set prices or quantities to maximize its profits at the expense of buyers.

So we can now turn to the proposition that South Dakota has always been very entrepreneurial. We know that because big businesses were few and far between in the state from its inception as a territory to the present. Eventually mining companies like Homestake supplanted individual placer miners and the timber and food processing industries spawned or attracted companies that employed hundreds of people. Nevertheless, more of South Dakota’s income comes from proprietors than any other state. Throughout history, relatively few South Dakotans were employees and most of them were employed by very small businesses, from ranchers to small retailers to professionals.

The relatively strong entrepreneurial presence in early South Dakota attracted yet more entrepreneurial types, whose very example helped to spur even more to form their own businesses. A few entrepreneur-driven companies, like Raven, became very successful and relatively large but many entrepreneurs were happy just to make a living and moved on to new endeavors as the economy transformed away from extractive industries like mining and ag and into trade, light manufacturing, and professional services. Those people, called serial entrepreneurs, that is S E R I A L not C E R E A L entrepreneurs, sometimes became public or private sector employees for awhile before growing tired of bosses or co-workers and struck off on their own once again.

In most states, economic recessions led to high rates of unemployment but in South Dakota laid off workers tended to simply go into business for themselves. An exception was during the Great Depression and that was because there was no money to start up a new business as most banks that hadn’t failed during the agricultural recession of the 1920s failed during the great bank failure waves of the early 1930s. And the remaining banks were not about to finance new businesses that would not be able to find paying customers.

As I already mentioned, the book makes a big point about Indians. If you believe in the theory of conquest, the big crime was not taking their land, it was denuding them of their entrepreneurial heritage to the point that today some Indians themselves believe that their ancestors were somehow non-economic entities. In fact, Indians, including the Lakota, had a long history of entrepreneurship well before Columbus sailed the ocean blue, so the kids in South Park could have a day off “skoo.” In addition to exploitative entrepreneurship like that at Crow Creek, Indians were innovative and replicative entrepreneurs as well. From the time they arrived in the New World some 12,000 or more years ago until incarcerated on Reservations in the late nineteenth century, Indians were thriving. One piece of evidence of that is that they populated both North and South America lickety-split. And their bones look good, better than those of Europeans over most time periods.

Innovative and replicative entrepreneurial activities include the Mitchell site, which apparently was a factory that produced pemmican from bison and prairie berries that was then shipped down the Big Jim and Mighty Mo rivers in bull boats to Cahokia, near present day St. Louis, where it was traded for pottery. Other evidence of long distance trade also abounds. It turns out that those trading meets held throughout the West were not the idea of Euroamerican trappers, as once assumed, but long-standing and purely native institutions analogous to European trade fairs.

‘Tis true that Indian technology lagged behind that of the Europeans in some ways but that does not mean that it was stagnant. Atlatls, for example, eventually gave way to bows and arrows. Moreover, Indian medical technology was well ahead of its European counterpart in many ways. It was the Europeans, after all, who didn’t bathe very often and who thought everything could be cured with a good dose of mercury and a blood-letting.

As Jared Diamond pointed out some 20 years ago now, the Europeans were able to conquer the Indians due to guns, germs, and steel. The germs were pure luck of the draw, the steel due to Eurasia’s relatively huge market area and hence relatively more advanced division of labor, and the guns due to the European’s proclivity for warfare, which was in turn a function, Diamond explained, of its funky geography, which lent itself to the creation of numerous competitive polities and hence lots of warfare.

The point of all this is to show that Indians were not unusually dumb or lazy, or uninterested in technology or entrepreneurship, they simply found themselves on a part of the planet that was not the best suited to inventing guns or steel first. For that, they suffered the loss of their land. As I mentioned before, that taking is somewhat justified by human history. The Lakota themselves drove off other indigenous peoples, for example.

But what is unconscionable, and the second theme of Little Business on the Prairie, is stripping Indians of their willingness and ability to engage in entrepreneurial activities. The Bureau of Indian Affairs is the main culprit here as it has essentially created socialist enclaves throughout the U.S. in the form of Indian Reservations. It created a system of socialized medicine and education and denied Reservation Indians the right to own land in fee simple, which is the way most Americans do. It even mandates acceptable signage, which is why most of the few native-owned businesses on Reservations do not have appropriate signs to indicate their existence.

To make matters worse, various Left-leaning anthropologists in the 1950s and 1960s managed to convince some Indians, particularly Lakota, that their ancestors were eco-friendly communists. Yeah, they often used all of the bison but do you think that any part of cattle or hogs or chickens go to waste today? Heck no! Does that make Morrell’s an eco-friendly communist? Heck no! In fact, individual Lakota were extremely entrepreneurial, until that spirit was sucked out of them by generations of welfare programs deliberately designed to infantilize them. Of course such policies all began, in the Dakotas anyway, in the late nineteenth century. The problem is that we allow them to persist and then blame the Indians themselves, or their culture, for the extreme poverty still found throughout much of Indian Country.

When Tom Isern, a North Dakotan scholar, reviewed my book, he chastised me for asserting that all the Indians need to thrive is the ability to borrow money to form small businesses and otherwise to be left alone. I really do not understand his criticism as Indians have always taken advantage of economic opportunities until they are snatched away, usually by the BIA. From natural resource exploitation to tax-free smokes and gas to casinos, Indians know how to make a buck or two, or two billion in the case of some well-placed casinos. Leave them alone, let them borrow money when their ideas merit it, and they will do just fine, just like all other South Dakotans will, from immigrant Norwegians to immigrant Germans to immigrant Ethiopians. South Dakotans don’t need fossil fuel fracking to thrive, as they can summon corn from the ground, balloon companies out of thin air, and tourism out of Chinese birds, old bones, and just about anything else you can think of!

Thank you.

Any questions?