I’ve been enjoying the back and forth between Stephen Walt and Dan Drezner over whether America’s position is waxing or waning in terms of its ability to influence world affairs (Andrew Sullivan has been helpful enough to collect the links; start here and work your way back). I’m inclined to agree with Stephen Walt’s overall assessment that to ask whether America is “in decline” or “still number one” is to ask the wrong question. But I think the specifics of his retort to Drezner are somewhat lacking.
In 1950, the United States was the overwhelming leader of the West, and accounted for the overwhelming preponderance of global GDP. The world was bi-polar, with the United States confronting the Soviet Union and its allies across the globe. In that competition, the United States was decidedly at an advantage. China, in 1950, was a dirt-poor country only intermittently able to feed itself. But in 1950, America and China fought in Korea, and the Chinese were repeatedly able to inflict substantial reverses on the American and allied armed forces in a war that was ultimately fought not to victory but to a stalemate.
There’s very little question today that, if war came again to the Korean peninsula, the result would be a rapid and overwhelming victory for the American-allied South – albeit at a horrific cost in civilian life. There is no country on earth remotely capable of inflicting the kind of damage that we suffered in Korea. But the United States just fought a war in Iraq, and are still fighting a war in Afghanistan. And it is difficult to articulate any set of substantial war aims that have been achieved by our activities. (Iraq remains unstable, and inclines toward hostile Iran; Afghanistan remains downright chaotic, and the most likely endgame there is a return to some measure of power by the regime we fought to overthrow. We did eliminate Bin Laden – a vital war aim – but that operation was executed in Pakistan.)
From 1950 to 1980, America’s relative share of global GDP declined steadily, while the relative share of America’s former adversaries, Germany and Japan, grew steadily. By 1980, fears had been voiced for some time that America was in decline, and that these rival economic powers were in ascendance. The German economic model retains many admirers, and Japan has actually been rather more prosperous over the past twenty years than the aggregate GDP statistics would suggest. But on a relative basis there’s no question that the United States has outpaced Japan economically over the past twenty five years. Meanwhile, though, China, India, Brazil and other countries have risen to new prominence. For America to retain its relative economic position over the next twenty-five years would require truly extraordinary growth on America’s part or the tragic failure of economic development in much of the rest of the world.
The obstacles facing other powers in any attempt to rival America globally are much more substantial than the obstacles facing America in trying to retain its position of relative supremacy. China, for one, faces a brutal demographic crunch in the next couple of decades, while India’s social and economic development still lags very far behind China’s, to say nothing of the developed world. But to say that other major countries are unlikely to be in any position simply to scorn the United States is not to say that they are going to be obliged to bow to our interests. And even when our interests are broadly aligned, we can’t necessarily make other countries do what we want. The biggest economic risk to the United States right now is the unraveling of the Euro, which is the currency used by a collection of American allies, and there’s not really anything we can do about it. Patting ourselves on the back for doing “better” than Europe in handling the financial crisis doesn’t make me feel any better when we – inevitably – suffer for their failures just as they do for ours. The salient fact is: we are no longer big and dominant enough to be indifferent.
And then there’s the question of the “zone of chaos.” Among the nice things about the contemporary world are included: that there are no large, powerful revisionist powers (China is neither powerful enough nor following a radical revisionist strategy comparable to the Soviet Union or the Axis powers, and Iran is not ever going to be in that league in any conceivable world); that most of the other highly developed countries are our formal allies; and that the cost/benefit ratio for aggressive war for a developed power is about as negative as it’s ever been. These days, the only conceivably profitable wars for resources are being fought in extremely underdeveloped places like central Africa. The nasty thing about the contemporary world is: there are a lot of people in underdeveloped places – a lot more than there used to be. From a military perspective, a great deal of what being a “global hegemon” might mean is having the privilege of being expected to manage these zones of chaos as best we can. We might seek – or reject – that job for moral reasons, but unlike our relations with relatively stable states it’s very unclear how, in this area, maintaining our hegemonic position produces a positive feedback that, in turn, enhances that position.
What all this means is: even if – as is likely – America stays “number one,” this doesn’t mean what the enthusiasts for hegemony want it to mean. Which, I think, is Walt’s fundamental point. If we want to be the leader in providing genuine public goods through power projection – freedom of the seas, for example – we are very capable of can easily afford to continue doing that. If we define our interests somewhat narrowly, that also puts us in a good position – if we want it – to be the sponsor of regional security arrangements, such as might wind up obtaining in Southeast Asia depending on how China behaves. When other powers trust our intentions more than those of a regional threat, and we have the power in reserve to balance effectively, of course other powers will seek good relations with us. What we’re not in a position to do is injudiciously throw our weight around and expect the world to simply accept it, which is precisely the way the previous Administration talked on a regular basis, and the way it behaved in Iraq, and how this Administration talks (and behaves) at least some of the time. Walt’s “balance of threat” thesis applies to us as well as to other powers. Under these circumstances, if we want to maximize the long-term value of our position of preeminence, it might not be wise to continue to assert our rights to the purple of global hegemony.
We may well remain the biggest kid in the sandbox for a very long time, but the sandbox is much more crowded than it used to be.
A philosophical question: how can there be any returns, in aggregate, to capital as such?
Allow me to elaborate. You have a pile of money. You want to invest it. Where do you put it?
Well, you might invest it in a business of your own creation. But let’s say you don’t have either the head or the stomach for entrepreneurial activity. So instead you invest in somebody else’s venture: a bakery, let’s say, that a friend wants to start.
Let’s say that baker friend has no money of his own to invest in the bakery, and you are the sole backer. He does all the work, and you provide the working capital. So you split the business 50-50.
Say the business is a success. For five years, he draws a salary, and you earn dividends. Then you sell the business and split the proceeds. From a tax perspective, the salary is taxed as wage income, the dividends are taxed as dividends, and the sale of the business is taxed as a capital gain. But from another perspective, the business is entirely the product of the baker’s labor.
Or is it? Let’s say it wasn’t a bakery. Let’s say it was a hedge fund. You’ve got the money. Your friend has the talent for picking good investments. He sets up a hedge fund to manage your money, and selects investments for you. In fact, he doesn’t select them individually himself; he creates a series of computer programs to find investments. Theoretically you could continue to operate his investment strategy if he were hit by a bus. Again, for five years he earns a salary and you earn returns; then you sell the fund – and the intellectual property embedded in the computer programs – to an investment bank.
Again, it looks like he did all the work, and the value of the business is the product of his labor. But his labor, in this case, consists of making decisions about where to put money. Which is exactly the kind of decision you made in the first example: you decided to back his bakery. And, in this second case, you made the crucial investment decision to put money into his hedge fund, rather than another one.
The difference between the returns to a particular investment and the returns to an investment category is called “alpha” in the investment-world parlance. Assuming alpha exists at all (believers in the efficient market hypothesis basically have to believe that alpha is either extremely ephemeral or is completely illusory), it is the product of the labor of those involved in making decisions how to allocate capital. This is intellectual labor, but it is labor. It’s not 100% clear to me why we don’t think of it, intellectually, as such – why we think of it as a return to inert capital.
Even the difference in returns attributable to the choice of investment category is, effectively, a form of alpha. The choice of stocks versus bonds is an allocation decision. Relative to a properly neutral benchmark (I’m not sure what that benchmark should be), all investment returns – positive or negative – are alpha.
There’s obviously a difference between taking a return for labor in the form of an uneven revenue stream from a venture and taking a return in the form of a salary. But these are points on a continuum, not differences in kind. Your salary may come from a more or less viable employer – that is to say, different levels of credit risk may be embedded in your employment choice. On the other hand, part of your return may be in the form of enhancements to your human capital – you may be foregoing current income in order to acquire new skills that you’ll be able to monetize later. You may receive part of your compensation in the form of a bonus linked to performance, or even a commission; some portion of this may be deferred so that it can be “clawed back” if the business takes a negative turn in the future. Your investment in the company, meanwhile, may be more or less risky depending on the venture; dividends from one company may be more certain than an interest payment from another. Indeed, a salary from one company may be more at risk than a dividend payment from another.
What I’m getting at is this. From a theoretical perspective, in aggregate all returns are returns to human activity – that is to say, to labor of one sort or another. And yet, we tax different kinds of labor differently – we tax wages one way, and we tax returns to labor (sweat equity or the labor involved in allocating capital) differently. Lower. Much lower.
I can see an argument for encouraging risk-taking, and therefore encouraging taking returns in the form of equity rather than salary or debt. (On the other hand, I can see arguments on the other side as well.) But I haven’t heard a cogent argument in favor of engaging in the labor of capital allocation over other forms of labor. And yet our tax code is tilted in precisely that way.
All this is by way of arguing that the folks arguing for cutting capital gains in order to reduce the incidence of “double taxation” have grasped the wrong end of the stick. Leave aside the fact that not all capital gains come from investments in corporations, and that in aggregate American corporations pay far, far less than the nominal 35% rate in taxes. In aggregate, there can be no returns to capital. Capital, absent a human being engaged in the labor of allocating it, is inert. All returns are returns to labor.
We should reform the corporate income tax to dramatically lower the rate and wipe out the deductions, bringing it more into line with practice in other countries. And we should raise the tax on dividends and capital gains to the same rate at which we tax other income. Corporations need to pay something to avoid wanton creation of corporations to hide income, but it should be an internationally competitive rate. But they are not people. People are people. And when people earn a return, that is a return to their labor. Because there’s no place else for returns to come from.
As TAC’s “house liberal,” I’ve felt an obligation to write something about my own approach to liberalism, but I haven’t found a good hook for it until the last few days. I’ll expostulate on my own framework before introducing the “hook” just because I’m difficult like that.
I’ve honed my own understanding of liberalism through an ongoing argument with Damon Linker. Linker’s liberalism is what I would call a “thin” liberalism – that is to say, a liberalism that declines to take a position on questions of “the good” but merely tries to come up with a political and intellectual structure within which individuals can pursue their own visions of “the good” without unduly burdening other individuals on their own quests. Linker calls this the “liberal bargain” – all sides give up the possibility of “winning” a war to control the culture, and thereby also avoid decisively “losing” said war to the opposing side.
The problem with this approach is that, as Linker’s own book demonstrates, it sends you inevitably in the illiberal direction of policing the “legitimate” bounds of political debate and questioning whether individuals and movements are truly committed to upholding this bargain. Moreover, the state as it actually exists is just too big to ever uphold a bargain that truly avoids touching these kinds of questions. Where the state provides for the education of its citizens, it must determine the content of that education, including moral content – by which I don’t mean, primarily, hot-button moral questions like whether and at what age kids should be taught about contraception but much more fundamental matters. Indeed, teaching children that they have to find their own road to what constitutes “the good” is, in itself, teaching a kind of liberalism, and subversive of some traditional approaches to moral instruction. Where the state provides health care for its citizens, it must determine what care is warranted and when, and who are acceptable providers, all of which raises the prospect of a host of potential conflicts with different moral perspectives which I probably don’t need to run down in detail.
For those obsessives who want a thorough rundown of my debate with Linker, start here and here and work backward. Where I wound up at the end of the debate is defending something I might characterize as Aristotelian liberalism – Aristotelian because it is fundamentally grounded in an exposition of the liberal virtues, and therefore in some vision of the “good life” rather than starting from a set of axiomatic “self-evident” truths about inalienable “rights.” But it’s an Aristotelian liberalism leavened with a Socratic skepticism about the wisdom of its own conclusions. As I described it to Linker, it’s a liberalism that is both more confident (willing to defend its substantive moral commitments as “good” and not merely as “necessary”) and more humble (willing to concede the possibility that those commitments are not, in fact, a complete picture of “the good,” and therefore to respect illiberal virtues and institutions that embody those virtues).
What brings this all to mind for me is Rod Dreher’s series of posts on the recent HHS decision on Catholic hospitals and schools (see here and here) and the recent Supreme Court unanimous ruling in Hosanna-Tabor vs. EEOC.
To recap the issues: Catholic hospitals and schools don’t provide coverage for contraception, or sterilization for their employees. Under the ACA, there are new Federal standards for what constitute “comprehensive” coverage, which include coverage of a variety of family planning services. The Catholic church sought a waiver to allow them to continue to carve out such coverage; HHS came up with a compromise that was basically a denial of the waiver.
The official Catholic reaction has been that the decision threatens the integrity, and therefore the existence, of an extensive network of Catholic institutions. The Catholic church is not willing to pay for services, or coverage of services, that it considers profoundly wrong. It will, to one extent or another, tolerate that wrong, but it won’t participate in it. So, from its perspective, HHS is basically saying that the church can either violate its conscience or get out of the business of healing the sick.
But another perspective would be to say that HHS is saying that the church can either violate its conscience or get out of the business of providing health insurance to its employees. Inasmuch as a Catholic hospital provides healthcare services, it isn’t running afoul of the regulation. Rather, it’s running into trouble because it’s providing health insurance as an employee benefit. And why, one might ask, should the Catholic church – or any employer – be in that particular business?
Consider if the ACA had created a single-payer healthcare system for the United States. Undoubtedly, such a system, financed by taxes, would have provided some kind of contraceptive coverage. That’s not because contraceptive coverage is an “inalienable right” but because it is cost-effective and because there is a hegemonic (but certainly not universal) view in the United States today that contraception is not only morally neutral, but that for individuals to develop mature and responsible sexual autonomy is a positive good (the scope of debate mostly revolving around what defines “mature and responsible” and what is the best developmental path to such a destination). That is to say: the conclusion in favor of contraceptive coverage reflects a substantive majority judgment on what constitutes the good (and what doesn’t) and not just a technical judgment on what is or isn’t a violation or this or that right.
Well and good. So, under a single-payer healthcare system, believing Catholics would be paying taxes to fund contraception, just like believing pacifists would be paying taxes to fund war, and so forth. And that’s just the way things work in a democracy: you pay for lots of things you oppose.
But that’s not what the ACA did. Rather than provide health insurance directly to the citizenry, the ACA built on the existing infrastructure of employer-provided health insurance that dominates the American system. In effect, it coerced private actors – employers, individuals – to participate in a national system, rather than simply taking money from those private actors and creating that national system de novo.
If the Catholic church’s goal is to keep its hands clean, so that it is not directly providing coverage for contraceptives and other services it considers morally wrong, it should approach the issue in that spirit. The endgame, then, would be moving employees away from employer-provided insurance and towards individual purchases on the health-care exchanges, or an arrangement that gave employees the option of cash compensation to purchase such coverage in lieu of insurance provided by the employer, with the latter still having a carve-out excluding contraceptive coverage.
But I doubt this is the only goal. The Catholic church is not just a worship-service-providing institution. Neither is it a worship-service-providing institution that happens to have a bunch of ancillary businesses taking advantage of the tax and other advantages a church affords. The reason the Catholic church sponsors hospitals is not merely to heal the sick, but to do so in such a way that witnesses to the truth of their doctrine – that witnesses to God’s presence in the world. The church has every reason to seek maximal autonomy in running such institutions, as well as maximal scope in the kinds of services these institutions provide.
The Catholic church, in other words, represents if not a total approach to society and to “the good” certainly a very “thick” approach, touching most important aspects of life, and as such is necessarily a competitor with a hegemonic state. So the question at issue is not really freedom of religion – it’s actually pretty easy to reconcile the individual conscience with the HHS rules, provided sufficient flexibility in getting to new institutional arrangements that don’t transgress that conscience – but how large a scope the hegemonic state wants to give to such competition.
The Hosanna-Tabor ruling suggests a scope that is narrow but deep. Recall what was at issue in the case. The plaintiff had been terminated for refusing to settle a disability-related discrimination suit privately. The Court ruled, basically, that a church has pretty near absolute autonomy to determine its own personnel with respect to functions actually related to worship and the promulgation of doctrine. Since the plaintiff taught divinity-related classes (even though this was not her primary responsibility), she could be forced to comply with a code of conduct that mandated private dispute resolution under church auspices, and could be dismissed with impunity for violating that code even if she claimed she was being discriminated against because of her disability.
I would suggest that this scope of autonomy is too limited – but that the impulse to keep it so limited may in part be driven by the recognition of how deep it is. We don’t actually want to extend this kind of immunity broadly to everyone involved in a religiously-affiliated institution, because we believe in the universality of the civil and criminal law. But it’s worth trying to think more creatively about how to preserve a wider scope of autonomy even if it is relatively more limited. And I don’t see any particular reason it should be limited to religious institutions.
It is, in the long run, in the interest of a hegemonic liberalism to have robust critics of its values that are engaged in the general culture, and not walled off in intellectual and social ghettos. But, in the long run, its also in the interest of those critics to be subjected to the discipline of accountability to an external authority. We want autonomous institutions to be able to run things their way, even if that means requiring employees to make substantive commitments of one sort or another. And we want those employees to be able to effectively blow the whistle when those institutions use that autonomy as a cover for corruption and abuse.
. . . I probably won’t, which surprises me, because when I started watching “Mad Men” on Netflix earlier this year, I was hooked immediately and practically gobbled up the first couple of seasons. And then, things started. To slow. Down.
For most of the people I’ve talked to, the appeal of the show boils down to two factors: one, the aesthetics of the era; two, the character of Don Draper, Old-Fashioned Manly Man. I certainly appreciate the first, but I’ve never entirely understood the chatter about the second. Is it actually news that a strong, ambitious, handsome man who has a palpable sexual hunger for women is attractive? That’s a surprise? I remember reading all these ruminative articles wondering whether there’s a “lesson” – or a “problem” – for feminism in the fact that the male-chauvinist Draper is so appealing to women. Does that prove that equality kills sex appeal?
But Draper’s defining characteristic is not his male chauvinism. That doesn’t distinguish him from Peter Campbell or Roger Sterling or any of the other major male characters. His defining characteristic is that he’s a Gatsby character, not merely a self-made man but a self-created one (with a rather over-ripe backstory, true, but I was willing to run with that). He treats most of his relationships – including with his wife – in a superficial and manipulative manner because he interacts with people on the level of his persona. The two women he truly bonds with in the first season – Peggy Olson and Rachel Menken – are the two women in whom he senses a kindred spirit of also being in the process of willful self-creation. The only woman he truly loves and trusts, Anna Draper, is also the only one who knows who he was before he created himself.
The “Gatsby” character is perpetually interesting, both for its own sake and because of its continuing relevance for the American experience. When the show is “about” anything, it’s about creating of a powerful external persona and interacting with the world on that basis, and how reality exploits and widens the cracks in that persona. Advertising represents that process in the world of business, and the show is set in the early 1960s because that period was the apotheosis of the post-war American persona in the world, and the moment when its cracks began to widen. The romantic relations between the major characters generally revolve around this same axis: men and women relate on this superficial basis between personae; the real person underneath is a danger. The two most appealing female characters – Peggy Olson and Joan Harris – have taken entirely opposite approaches to the same process of persona-creation; the most terrifying – Betty Draper – is also the least self-aware, and the least in control of a persona that is not, one senses of her own creation.
I’d say a good point of comparison for the show would be something like Trollope’s The Way We Live Now.
The problem with the show is that it lost track of what it was about, and became a soap opera set in a stylish era. In soap operas, characters don’t have arcs; they just have histories. And that, unfortunately, has become the fate of the characters on “Mad Men.” I don’t care about what happens to any of the characters anymore, because I know that all that’s going to happen is . . . stuff. And while apparently that’s enough for a lot of people – the soap opera is an enduringly popular form for a reason – personally I have trouble caring about characters whose actions have no meaning. And in fiction as in life, meaning comes from (or is expressed through) structure.
A lot of the flack Mitt Romney has taken over the years related to his time at the helm of Bain Capital concerns the ethics of making money by laying people off. And I suppose that’s worth debating – though I’d be curious how such critics propose generalizing the implicit principle here.
But some of the more trenchant criticism of the “Bain way” revolves around the assertion that their deals were structured so that Bain was unlikely to lose money, even if the company ultimately went bankrupt. The logic of the leveraged buyout is that it’s a check on what amounts to self-dealing by incumbent management. Running at a low degree of leverage, the business can continue to operate while generating a sub-par return on equity. That shouldn’t be tolerable to equity investors, but they have limited ability to change company performance directly. Their ultimate leverage is to sell out to a private equity firm that will completely change management – increasing leverage substantially, raising the risk of the business and forcing changes (particularly cutting overhead and eliminating unprofitable lines of business) to increase free cashflow and profitability. If all goes well, the business becomes more successful and sustainable. If all goes south, well, the company goes bust but the private equity fund also loses its investment. The assumption, in other words, is that the investor’s incentives are properly aligned: Bain makes money if the business succeeds, loses it if the business fails.
This logic goes out the window if the private equity investor makes money whether the company succeeds or fails. But the question is: how can deals be structured to achieve that?
There are a variety of ways to do it. For one, Bain could hire itself for what amounts to consulting. Bain invested $5 million of its own money in Ampad, for instance – one of the more notorious deals – but paid itself a $2 million annual fee for managing the company, plus millions more for arranging a series of acquisitions and, in 1997, the IPO of the company. If you knew you could get paid millions per year in fees for making a $5 million investment, you might be willing to make that investment even if your expectation was that you would lose it – provided you believed you would earn enough in fees to more than offset that expected loss. If you could keep the company limping along for 3-4 years, you might come out ahead. That, in turn, would increase your tolerance for leverage, which in turn would increase the chances that the company would, in fact, go bust.
If the company does succeed – either by increasing sales or by reducing costs or by acquiring additional assets – the equity investor can pay himself rather than leaving the money in the business. The equity investor might even borrow to increase the leverage of the company, and pay himself dividends with borrowed money rather than out of free cash flow. Bain did something of this sort, it’s alleged, at Ampad in 1995, borrowing to finance an acquisition and then paying itself a large special dividend out of a portion of the borrowed funds. Again, there’s an asymmetry: the returns from the original turnaround accrue to the investor who bet on the possibility of that turnaround, while the company has to repeat the original turnaround success merely to remain solvent.
These are troubling practices. But the logical check on these practices should be the debt markets that finance LBO activity. After all, the debt-holder is on the other end of these asymmetries. If the equity investor has an incentive to suck all the value out of a transaction, then the lender to that investor should be aware of that incentive, and respond to it either with restrictive covenants (typical in bank loans) or extremely high yields (typical in the subordinated “junk” bond market) to compensate for the obvious risks. These responses should prevent a situation where LBO firms have an incentive to do “bad” deals – deals that would be expected to destroy the value of corporate assets but that would nonetheless earn returns for the LBO firm.
If LBO’s routinely generate excess returns for equity investors, that could be due to one of two possibilities. One possibility is that corporate assets of various assets are routinely underpriced, and LBO practitioners are skilled at identifying undervalued assets and unlocking their value. In that case, one could argue that LBO firms – buy increasing the value of corporate assets – are providing a real service, even if one can still debate the distributional consequences of their mode of business. And the question would be why more money doesn’t flow into private equity to end this market inefficiency.
The other possibility, though, is that the debt side of the market is inefficient – that, on average, investors who lend to LBO firms earn sub-par risk-adjusted returns on their money. If that is the case, then there is indeed an incentive to do “bad” deals. If an LBO firm knew that it could dump risk on debt-holders – by, for example, borrowing to pay itself special dividends – then the incentive to preserve the value of corporate assets would be subordinate to the incentive to extract value by means of financial engineering. But the question would remain why such a mispricing of risk in the debt market would persist.
I would be curious to learn how the Ampad transaction, to pick one example, was financed: how much was done with loans versus bonds, how the debt was syndicated, what kinds of covenants were in place, how those covenants (if any) were negotiated, etc.
The Bain “issue,” it seems to me, isn’t whether Romney learned how to “create jobs” as head of Bain Capital but whether he learned how to create value. And even this isn’t really the issue. If Bain could figure out how to do “heads I win / tails you lose” deals, I’d expect them to do them – they’re in business to make money. And, on the other hand, being a good investor has very little to do with being a good President. Financial engineering is simply a tool. If savvy market participants face incentives to use that tool to destroy value rather than creating it, that’s what they will do. Recognizing when such incentives exist, and acting to counter them, is a big part of the job of our regulatory infrastructure (and regulations can create those perverse incentives as well as counter them, of course). And in the wake of the financial crisis, it’s incumbent on any candidate for high office to articulate a vision for how that job will be carried out.
Romney, because of his experience at Bain, is in an exceptional position of knowing some of this world from the inside. It would be fascinating to know what he learned that’s actually relevant from the perspective of the public interest. It’s a shame that nobody will ask him.
I see that Steve Sailer and Matt Yglesias are both wondering why Apple’s iPad textbook initiative is so lame. Sailer wonders why Apple isn’t exploiting the interactive possibilities of the tablet to make textbooks much more effective. Yglesias wonders why Apple (or the Gates Foundation) don’t just give textbooks away for free, and thereby both increase the appeal of the tablet and reduce costs to hard-pressed school districts.
The answer is: Apple is a big company, and the Gates Foundation is a huge philanthropy. Large institutions are not the places to turn to, generally, for disruptive innovations.
Apple has no reason to go head-t0-head with textbook publishers, any more than it has any reason for going head-to-head with music labels or book publishers. It’s a much sounder business strategy for Apple to coopt these complementary businesses and make them dependent on Apple. Which is precisely the strategy that Apple has pursued.
The Gates Foundation is a somewhat more complicated story. In their case, I’d say the complementary relationship is between the foundation and the foundation’s clients – and their clients are education reformers, not education professionals. Simply giving textbooks away for free would upset an incumbent that the reformers are not particularly targeting, and would not put in place any structure for the creation of new textbooks. And incubating new products really is beyond the scope of what the foundation does.
Within the world of regular public school education, educational professionals have distinctly limited ability to express any kind of preferences – and the Bush-era education reforms have reduced this scope even further. The target market for textbook publishers is the politicians who set the curriculum for the nation’s largest school systems where that curriculum is set statewide: California and Texas. It matters very little what an individual teacher in Houston or Oakland wants or needs – or thinks their students need.
If you want to see disruptive change in the textbook market, then, you’d need to identify both a potential supplier of the product with no stake in propitiating the incumbents, and a buyer of the product for whom the product solves a problem.
My suspicion is that your best bet would be to have the supplier and the purchaser be, in some sense, the same entity. And I can think of two parts of the educational landscape where that situation might obtain: the KIPP network of high-performing charter schools and the home-schooling movement.
KIPP has the advantage of having a centralized structure and access to funding to implement a strategy. They already create their own curricula. Creating their own textbooks would be the logical next step. If the educational advantages Sailer sees as the potential in tablet-based study really exist, KIPP – which is already very data-driven in its approach to education – would be ideally placed to realize them. Similarly, if the cost advantages exist – initially, reduced spending on textbooks; over the longer term, reduced spending on teachers, as highly interactive tablets made it possible to stretch teachers over larger groups of students – KIPP actually has the incentive to realize these as well. One downside might be that KIPP would have an incentive to retain intellectual property in anything they created – but if it was successful, it would probably spur other charter networks to respond, and the smaller networks would be well-advised to work together rather than independently, simply for reasons of scale, and therefore to do something more open-sourced.
The home schooling movement, by contrast, has no access to funding nor any decision-making structure – but it has the advantage of having a much larger network of individuals potentially capable of committing resources to the project. One could imagine a Wikipedia-style process of textbook creation, where hundreds of thousands of home-schooling moms and dads donate a small portion of the time they already spend on teaching their kids to producing or editing material for the virtual textbooks they all use. You would, of course, need some kind of central structure to handle the programming – but even much of this could be relatively decentralized once the essential framework was in place.
Working either through the charter movement or the home schooling movement would enable a tablet textbook project to start small, yield immediate returns to participants, and scale easily, while largely ignoring the interests of incumbent institutions. And it wouldn’t require the sponsorship of an Apple or a Gates Foundation. Working through the regular public school system, which would certainly require some kind of megadollar sponsorship, would start big, would have to coopt the interests of incumbent institutions, and would make it difficult to impossible to actually yield quick returns to the most important participants: the teachers and students in the classroom. Which, unfortunately, has been the fate of all too many big-think reform proposals for the regular public schools. Much more sensible to build something in more natural laboratories for innovation, and then figure out how to “port” an already proven solution to the regular system.
Continuing on a rare (for me) foray into thinking about this election contest, I took a quick look at the GOP primary calendar to assess the possibility that this really will be a contest that goes for the long haul.
Assume that Gingrich wins Florida. (If he doesn’t, I think Romney wraps this up relatively quickly, and South Carolina looks like a fluke.) The next set of contests are:
- February 4 – Nevada caucus
- February 4-11 – Maine caucus
- February 7 – Colorado caucus, Minnesota caucus, Missouri primary
- February 28 – Arizona primary, Michigan primary
With the exception of Missouri, the early February contests are all very Romney-friendly. [UPDATE: actually, Missouri is the most Romney-friendly of them all, because Gingrich didn’t qualify for the ballot.] Caucuses put a premium on organization – Romney’s strong point, not Gingrich’s. Moreover, Nevada and Colorado are both states where the Mormon vote should be meaningful, and Maine is a relatively moderate northeastern state. (Gingrich’s best caucus prospect is probably Minnesota.)
It’s entirely plausible that, even if Gingrich wins Florida, he loses the subsequent slate of early-February caucuses. The Romney folks will say that Gingrich hasn’t won anything outside his own backyard (South Carolina and Florida both border Gingrich’s home state). Gingrich will say that, apart from New Hampshire, Romney has only won caucuses, which don’t “count” as much as primaries (shades of Hillary Clinton’s argument from the 2008 Democratic primary race).
Then come two primaries that do count: Arizona and Michigan. Romney is a favorite son in Michigan; losing there would be like losing in New Hampshire, absolutely fatal, and extremely unlikely.
Arizona, on the other hand, would present a very interesting challenge to both candidates. It’s got a decent Mormon population – good for Romney – but it’s always been a right-wing state, and the state party has only gone further in that direction in recent years – which should make it fertile terrain for Gingrich’s smash-mouth style.
But a huge issue in Arizona politics is immigration. And that’s one issue where Romney has consistently gotten to Gingrich’s right.
The Romney-Gingrich contest may give immigration-restrictionists something they have been seeking for a while now: a high-profile contest that hinges predominantly on their signature issue. If Romney runs an immigration-restriction-focused campaign against Gingrich in Arizona, and wins, it could be a turning point in his campaign. That would have real implications for the perception of immigration as an issue within the GOP going forward, and would certainly have implications for what Romney would do if elected President. (Yes, even Romney would have a hard time simply reversing field on an issue where he made explicit promises that were central to his victory.) On the other hand, if he lost, all the signs of the significance of the contest would be reversed.
I don’t actually think Romney will do anything like that – because he’s not running an idea-driven campaign. I do think Romney will use immigration against Gingrich as soon as we get past Florida (one state where, even in a GOP primary, the issue would almost certainly backfire – Gingrich is the one likely to tout his relatively liberal immigration stance in Florida, Romney the one likely to seek to change the subject). But I don’t think he’ll run on it – identifying himself with a specific set of proposals and promises – precisely because I don’t think Romney has any true convictions on the matter and doesn’t want to box himself in for either the general election or his presidency.
But you never know. People do surprising things when it looks like they might actually lose.
I’m genuinely puzzled by arguments like this one from Jennifer Rubin that Republican “leaders” need to intervene in the race to stop Newt Gingrich from becoming the nominee. It’s like she hasn’t been paying any attention at all to the last three Republican primary contests.
In 2000, the GOP party leadership successfully gift-wrapped the nomination for George Bush, and he went on to basically blow the general election contest. In 2008, the party leadership cast about looking for anyone other than John McCain who could be the anointed nominee. Rudy Giuliani basked in the bulk of that leadership’s adoration – and wound up being a non-entity on the campaign trail. Fred Thompson could barely rouse himself from his pastoral torpor. And Mitt Romney . . . well, kind of like this time, Romney couldn’t get actual voters to vote for him in sufficient numbers. The leadership reluctantly closed ranks behind McCain – and the party rank-and-file still never really reconciled themselves to the fact that they had a nominee they didn’t want. And now, in this campaign season, the party rank-and-file have overwhelmingly supported anybody that the party leadership deemed unacceptable or simply unlikely: Paul, Bachmann, Cain, Santorum, and of course, Gingrich. (Perry was the only establishment-acceptable candidate to get a burst of popular support, and that burst lasted about thirty seconds.)
News flash: the Republican party hates its leadership. The biggest millstone around Romney’s neck in this race has been that he’s tried to win by making himself into the establishment candidate. He’s the only one to have racked up any significant number of endorsements. Once Rick Perry revealed himself to be . . . Rick Perry, he was the only remaining candidate that the party leadership considered remotely plausible as a nominee. If establishment support could do anything to help him, it would have done it already.
Moreover, the big problem with Mitt Romney’s “Romneyness” is that he seems like a manager rather than a leader. To put it very crudely, he just doesn’t seem like an alpha male. Gingrich, by contrast, is a walking catalog of everything that is wrong with alpha-maleness. But for better or worse, Americans want to believe that their President is a leader, captain of his own ship, commander of his own destiny. Romney is an organization man. Having the organization come in and try to muscle him to the top will only provoke a greater rebellion, which in turn will damage the organization more than it will help Romney.
If Romney wants to win this, he has to win it. Himself. By making the case for himself. This isn’t about having a “vision” for the future of America or of the GOP – what on earth is Gingrich’s vision? And it certainly isn’t about comparing resumes – and, in the end, that’s all talk about “electability” is. It’s about him. Presidential politics in America has gotten absurdly personal, but that’s just a fact of political life. Romney needs to convince first the Republican electorate, then the general electorate, that they would follow him.
In other words . . .
Not being a Southerner, I can’t comment on Rod Dreher’s post on freak-toleration from direct personal experience. But I suspect part of what he’s seeing is the difference between a hierarchical society and a conformist egalitarian one, the difference between hierarchical Louisiana and conformist Iowa being somewhat similar to the difference between hierarchical (and famously eccentric-tolerating) England and conformist Sweden. A hierarchical society depends for its stability not on the notion of everybody being the same but on the notion of everybody knowing his or her place. And you can make some kind of a place for just about everyone. The question then is whether people will tolerate being kept in their place by others when it starts to chafe.
My own hometown, New York, follows neither of these models, but is dynamically heterogeneous. We pride ourselves on being “diverse” and “tolerant” but what that winds up meaning in practice is that the overall society is a negotiated coalition among smaller sub-cultures, each of which tends to figure a surprisingly high degree of internal conformity. When a group is struggling with other groups for a relative share of power, dissent is harder to tolerate. On the other hand, when no group actually dominates local society, disaffiliation – to join another group, or none – without physically leaving becomes a much more realistic option.