SwampFox

An economic strategy built around a rule that doesn't work because it's golden, but is golden because it works

People thrive in communities, especially those with lots of affluent, educated people. It's why people move to talent magnets like Raleigh, Austin, or Silicon Valley.

There is a golden rule that has been discovered by different cultures in different places in different times. Jesus said, "Do unto others as you would have them do unto you." Confucius said, "Never impose on others what you would not choose for yourself." This ethic of reciprocity existed in some form across diverse ancient communities from Babylon, Egypt, Persia, Greece, and Judea, to India and China.

The older I get, the more I come to understand that this rule doesn't work because it's golden, it's golden because it works. The golden rule is the lubricant that makes communities work well, and because people thrive in communities, the rule applies across cultures and across centuries.

Free markets work best in communities where the golden rule is the strongest. Both sides benefit from a free exchange, or the exchange in a free market wouldn't happen.

Here is a simple illustration. I grow apples and you grow oranges. The first apple I have is very valuable to me, because I like apples. But as I pick apples in my orchard, the value of the next apple picked diminishes. By the time I get to the last apple picked, I'm overloaded with apples and don't much care if it is picked or not. On the other hand, I don't grow any oranges, so the first orange I get is very valuable, because I like oranges. So I trade you my last apple, which has low value to me, for my first orange, which has high value to me. I have gotten something more valuable to me in exchange for something less valuable to me, so my wealth has increased. You're the other side of this trade. You trade your last orange, which has low value to you, for your first apple, which has high value to you. Your wealth has increased too. We're both better off, which is why we are both willing to make this trade. Both of us are wealthier as a result of trading.

A free market motivates us to specialize and trade in this way. Plato observed in Athens that each citizen could spend each day meeting all of his individual needs for food, shelter, and clothing. But they would be better off if each specialized. If one becomes the farmer, he develops specialized skills (he becomes educated in agriculture), and he is able to grow four units of food instead of three. And if one becomes the builder, he develops specialized skills and he is able to build four units of housing instead of three. And if one becomes the tailor, he is able to build four units of clothing instead of three. If the three citizens trade so each of them has one unit of food, shelter and clothing, each of them has one unit left over, which is how wealth is created. Higher education leads to specialized skills leads to more productivity leads to wealth creation.

Note that in Plato's city, you have to be educated, specialized and productive to participate fully in the Plato's free market. If you are not educated, you increasingly will get left behind in Plato's city. That is in fact what is happening in our society. Unemployment is around 4% for college graduates, while for non high school graduates it is 14% and even higher if those who have given up are taken into account. Even when non high school graduates do have jobs they are considerably lower paid than college graduates.

This basic notion that Education = Prosperity is attacked all the time. I was recently told by an education leader that, "as a sociologist, I know that education does not create jobs in an economy. Americans could all get Ph.D.s and professional degrees, and, while there would be more higher education faculty to make this happen, the same percentage of us would be driving taxis and making fast food." In other words, there are only so many high paying jobs to go around. Plato showed that is not true. More educated, specialized people become more productive which leads to more wealth and higher paying jobs.

A predominant business leader once told me that wealth is only created in "traded clusters." That is you have to trade with someone outside your community to create wealth. The implication is that there is only so much wealth to go around in a community. Again, Plato showed this is not true either. The Athenians did not have to trade with the Trojans for wealth in Athens to increase. Taken to an extreme, in recent centuries overall wealth on the Earth has increased dramatically, and Earthlings did not have to trade with Plutonians for wealth on the Earth to increase.

Doug Woodward at the Moore School recently completed a study showing that 3% of the private firms in the state produced 2/3s of all of the next new jobs in the state. These "gazelle" companies are led predominately by highly educated people. More highly educated people create more and higher paying jobs.

For decades our economic strategy has been built around the notion that opportunity was out there somewhere. We have an industrial recruitment strategy that searches the world for deals that we can recruit here. Basing our economic strategy on industrial recruitment alone is increasingly obsolete. In Greenville, per captia income relative to the national average has been declining for a decade and a half. The economic development community takes credit for job announcements, but they do not take responsibility for job loses that are the result of our branch manufacturing recruitment strategy.

We need a comprehensive, economic strategy based on the understanding that the most valuable assets in our community are the people who live here. The most important way we grow wealth and prosperity is by increasing the level of education here. Affluent, educated people are attracted to communities of other affluent, educated people. Education = Prosperity.

I was in an economic planning meeting this week, and said how important I thought it was to have a comprehensive, economic strategy. The moderator told me he agreed, but we just don't seem to have enough of an innovation mindset.

He may be right, and I am particularly concerned that our political culture today is increasing strident about the world being a zero sum game. If you are winning it is because I am losing. This is inherent in our political system. In races for offices like the president or governor, someone wins an election and someone else loses. In legislatures, there are only so many seats, and in each race one party wins and the other loses. As a result, politicians are motivated to divide and conquer. The ever insightful Winston Churchill was on point when he observed we have "the worst form of government, except for all the rest."

But that is not how most of the rest of our free society works. I am looking for the enlightened leader who emphasizes that we are all in this together. That we are all better off living in an affluent, educated society. That everyone is innately creative. We all lose if if we don't realize the full human potential of everyone, so everyone becomes educated, specialized and productive. We all should work together because it is in our enlightened self-interest to work together to make each other better. Opportunity isn't out there somewhere. Our greatest opportunity is right here at home.