Monday, 25 November 2019

Bright Futures Depend on Radical Entrepreneurs, not Radical Politicians

The legacy of William Soltau Davidson's first profitable frozen meat shipment transformed
New Zealand more radically than anything any radical politician ever did.

Guest poster Maciek Chawolski reminds us that letting market chaos reign makes us and future generations richer and better off beyond our dreams.

Recently, a colleague disparaged my reliance on "market magic” over his activist preference to use the government and its tax power to impose changes to technology and society. He berated me for believing that entrepreneurs professionals are (and should be) at the forefront of changes that make lives better for fellow citizens. He derisively repeated the joke, how many capitalists does it take to change a light bulb None. If the government would just leave it alone, it would screw itself in.
What he fails to see is all the activity that happens when government does leave things alone: which is all the things that make us and future generations richer.

Market Chaos

Here is a little thought experiment to support my views: Imagine a hot July day in 1900. You are standing on a street corner in Auckland looking at horse manure-covered streets while flies are buzzing around your head and spreading various diseases. You are 60 years old, and you were born in 1840 in Western Europe to a father who was born in 1810. All your life, you lived in pre-modern, agrarian, and feudal societies. The technologies that surround you are primitive. The question is: What would have been the smartest and fastest way to get the society from 1900 to 2020 levels?

New Zealand's "activist" Liberal Government of the 1890s to 1900s saw it as passing legislation -- passing labour laws, legalising unions, raising taxes and tariffs. Yet it was not these things that transformed the country in just over a century: it was the "unplanned chaos" of self-interested tinkerers and dreamers in the marketplace.

Consider how hard it would have been in 1900 to decide on the best future technologies and trajectories to get there. Back then, Auckland had only just welcomed its first car, a one-cylinder Star (it was "not anticipated that 'the fastest kind of motor car' will become common in the city"), and a case of plague is diagnosed. The first telegraph cable linking New Zealand to the world had only been installed two decades earlier, by the Eastern Extension Australia and China Telegraph Company, and the first trams of the Kelburn and Karori Tramway Company and Auckland Electric Tram Company began opening up city suburbs two years later. The first controlled little puddle jump flight in the country was four years out. Overseas, a tractor would be invented in 1904. Penicillin would happen in 1928. Something as simple as a shipping container would wait until 1956. The structure of atoms and DNA were still mysteries. (Rutherford would not "split the atom" until 1909.) There would be many decades until widespread water fluoridation. It would take the imaginations of many insightful people to build the future.

Fast-forward to 2020, and let’s repeat the same exercise. You are standing on that same street corner in Auckland with your smartphone and watching Uber and Amazon delivery trucks. You just checked on your house webcam because someone knocked on your door. A few minutes earlier, you spoke with your daughter who is studying in Europe ...

We can continue indefinitely listing the conveniences of our modern civilisation. If the trend continues, and at a vastly accelerated pace, another 120 years out, in 2140, our descendants will be living stepped-up lives very much different than the distance between 1900 and 2020. The same question stands: “what is the smartest and fastest way between 2020 and 2140 amazing future?”

When comparing 1900 to 2020, we recognise the enormity of revolutionary and transformative changes to everything around us that has gotten us here. For example, the heart treatments, kidney transplants, smartphones, modern aeroplanes, and inexhaustible entertainment options that are common today required numerous inventions over many decades to eventually enable today’s products and services. These inventions happened mostly by happenstance and a great deal of imagination—not as a result of conscious planning. It would have been a fantasy for someone in 1900 to draw a plan for the smartphone market release in 2007 and decide what should have been done in each decade between then and now and by whom to come up with a smartphone.

The Effects of Economic Freedom

Still not sure? Thirty years after the collapse of the Berlin Wall, East and West Germany are still different. They are the same people, but the West has been much richer and better off due to economic freedoms.

Even technology predictions about short-term events are rarely accurate. Just ask people who recently shorted the Tesla stock waiting for it to collapse because they doubted the technology readiness. In late October, they must have felt silly when Tesla stock price shot up from $254 to $328 per share. Why do we expect an activist or a government planner to be more successful than people betting their own money?

The problem with my colleague is that he does not recognise how technologically primitive our world will be to those in 2140. He does not have skin the game. He is not investing his money and does not consider trade-offs and alternatives. His blind spot is that while the single-technology focus may accelerate it, it is impossible to correctly optimise the economy with thousands of products and services over even a few years.

Notice how many economic activities, investments, and trials happen out there. These are people who use their resources or for which they are responsible to investors at their risk. Some win, some fail—but they all learn. The "chaos" out there is entrepreneurs trying, and learning, and often succeeding -- sometimes spectacularly! However, it is unacceptable when the government taxes us so that unspecialised activists with no accountability decide which technologies should be funded. These people waste money on rear-view mirror ideas instead of building the future. They have good intentions and itch to do “something,” but the something they do is to destroy wealth.

In 2020, as was the case in 1900, there will be no virtual signposts for technologies to focus on, but there will be thousands of haphazard, "chaotic" and necessary discoveries that will happen in the meantime. From the perspective of 2140, what should professionals in 2020 be doing? Using their own (or investor) resources and relying on the chaos and unpredictability of the market to take us there. If we let activists take our money, we will end up much poorer and reach 2140 in 2240 instead.

Society is better off with visionaries and dreamers using their money to test and try whatever they fancy without any country plan whatsoever. Let the market chaos reign to make us and future generations richer and better off beyond our wildest dreams.
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Maciek Chwalowski is a Washington, DC-based international business consultant focused on improving performance outcomes. He is an adventurer and a world-traveller (126 countries visited). This post first appeared at the Foundation for Economic Education blog. It has been contextualised for New Zealand.

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