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October 13: San Francisco,  Mexican Small Entrepreneurs and Professionals.   Sponsored by Consulate General of Mexico in San Francisco to discuss possibility of a new regional association.  The meeting will be held in Spanish and everyone is welcome but translation will not be provided for this specific meeting.  For more information contact Bernardo Mendez, Consul for Trade and Business Promotion at: 415-354-1731

    Opinion: Is Laissez-Faire Right for California?    back

At the Republican convention in September, Governor Schwarzenegger repeated his now famous "girlie men" comment.  Whether you consider this to be a funny joke or an insult to the opposition it is important to consider the full context of the Governor's statement: 

To those critics who are so pessimistic about our economy, I say: Don't be economic girlie-men. The U.S. economy remains the envy of the world. We have the highest economic growth of any of the world's major industrialized nations. Don't you remember the pessimism of 20 years ago, when the critics said Japan and Germany are overtaking the U.S.? Ridiculous.  Now, they say that India and China are overtaking us. Don't you believe it. We may hit a few bumps, but America always moves ahead. That's what Americans do.

This is a classic laissez-faire economic philosophy of the eighteenth century.  It is French (yes French!) that translates as "leave us alone" and it was, according to the Columbia Encyclopedia: based on the belief that the natural economic order tends, when undisturbed by artificial stimulus or regulation, to secure the maximum well-being for the individual and therefore for the community as a whole.  Historically, laissez-faire was a reaction against mercantilism a system of commercial controls in which industry and trade, especially foreign trade, were merely seen as means of strengthening the state.   A translation of this laissez-faire philosophy into contemporary American English could be stated as "As long as the Government does absolutely nothing, everything will be great".

With all due respect to the Governor, this philosophy is wrong for California and possibly dangerous.  There is an important difference between the Japan and Germany of the eighties and the China and India of today.  Japan and Germany had lots of smart people, but their populations were far smaller than ours.  China and India also have lots of smart people but their population is vastly greater than ours, and they continue to produce, some would say over-produce, huge numbers of highly educated professionals, engineers and scientists.  In other words, we are greatly out numbered by very smart people.

The intellectual underpinnings of free trade is an economic theory called "the Law of Comparative Advantage" which is widely accepted by both economists and politicians and says that free trade promotes the well being of both parties.  Exporting routine work to lower wage countries, for example, allows us to spend our resources on higher value activities.  Recently, however, the distinguished American Economist and Nobel laureate Paul Samuelson noted that this theory might have a fatal flaw: "what happens if the lower wage country also captures the advanced industry?" he asked, "Free Trade is not always a win-win situation.  It is particularly a problem in a world where large countries with far lower wages are increasingly able to make almost any product or offer any service performed in the United States". 

Another problem with the laissez-faire approach is that there is no guarantee that our competitors will play by the same rules.  When the Governor recently vetoed some outsourcing legislation that applied only to government work he said,  "there is a right way and a wrong way to expand economic opportunity in California" and went on to explain why he thought this was the wrong approach, but he never really said what he thought was the right approach. It is understandable that the Governor would veto poorly thought out legislation but does this mean that we do nothing to protect out own interests?   The State of California is simply not addressing this issue.  We are "balkanized" with conflicting interests and plagued with "regionalism" and the State government is doing nothing about it.

The (now defunct) California Technology, Trade and Commerce Agency was an unmitigated disaster- the word "corrupt" would not be too strong a term to use in describing this Agency.  The State Legislature absolutely did the right thing in deciding to abolish it entirely.  Still, this leaves California as the only State in the Union without any significant Economic Development or Trade Promotion Authority.  The one surviving State Government program: the Community College "Centers for International Trade Development" (CITD) is plagued with entrenched bureaucrats who's primary interest is their own long term job security.

There is other bad news too.  Most of the Trade Associations in the State are on the decline and many are outright failing.  The remaining World Trade Centers, for example, are suffering from a drastic loss of membership- victims for the Internet and an outmoded business model.   These and other trade associations do not tend to share information, even among themselves, and in fact often compete for members.  Economic Development Agencies, when they decide to dabble in international business  have an unfortunate tendency to give themselves junkets to exotic and interesting places and claim that this is international business development.  The Ports of California- the only organizations with the money and political power to change things put most of their efforts (including an network of overseas offices) into encouraging imports, rather than exports, because imports is where they make most of their money.

So now what?  First we need to recognize the gravity of the situation.  What if our larger, and maybe smarter, economic competitors also find more effective ways to work with each other?  In other words, what will happen if we stay on a laissez-faire course while our competitors become more mercantilistic?  Will we become nothing more than a large consumer population gradually becoming more and more impoverished?   We need to get our act together quickly and it may not be an overstatement  to say it should be considered an emergency situation.   We need to figure out a way to get the State government, our large Corporations, and especially California's small business community to work together and use our respective strengths to our mutual advantage. 

We need to start sharing information more effectively and use our temporary edge in Internet technology to establish platforms for communication and collaboration.  We need to identify and secure international opportunities, and develop effective delivery system to ensure that this information gets in the right hands in a timely manner.  This needs to include "all the people" not just an elitist few if we want California to thrive in a globalized economy.  Before we do all this, however, we need to rethink this laissez-faire approach and put a dash of mercantilism- and maybe even "California Nationalism" into the mix. 

Rob Gordon