Does government have a role in the 21st century?
The big economic question in much of the world today is usually framed as the fight between advocates of austerity and advocates of growth. But another way to view the debate is as a contest between those who think that 21st-century government can be effective and those who don’t.
Indeed, some of America’s most outspoken capitalists have begun to fight the “Buffett Rule,” which would set a minimum tax level for millionaires, and other calls to raise taxes for those at the very top, with the argument that money is best left in the bank accounts of the superrich because they are more effective at using it than the state is.
“I’m a job creator. I’m one of the guys who can help us out. I’m a Silicon Valley guy who can invent and create,” T.J. Rodgers, chief executive of Cypress Semiconductor, told me. “If you tax me more, I will either give less to charity or I will fund venture companies less, or I will sell the stock in my own company or other companies I own, like Intel and Google. I will do one of those three things to return the money to the government.”
If that were to happen, Rodgers told me, the economy would be hurt, because he is better at investing money than government bureaucrats are.
“The money will go into cash for clunkers or another program. And somehow we’re supposed to believe that taking money from the investments, my investments, out of Silicon Valley, where they have been very, very good for the economy, and putting them into cash for clunkers, or the new scheme, whatever it is, is somehow going to make America’s economy better,” he said. “It’s just wrong. It’s going to hurt the people that they’re pandering to. It’s going to hurt the very people that think if we vote for this, then we’ll get more money. What will happen is the economy that they depend on will be less robust and they’ll be in worse shape.” “Cash for clunkers” is a term for a U.S. government program in 2009 that provided rebates to those who traded in older, fuel-guzzling cars for more efficient models.
Edward Conard, a former partner at Bain Capital, the buyout firm once led by Mitt Romney, the Republican presidential candidate, makes the same point in Unintended Consequences, a book published this month. Conard, like Rodgers, argues that society overall benefits when the rich are taxed lightly because the rich – by virtue of their wealth – have shown they are the best investors of capital.
As Conard writes: “For every dollar earned by a successful innovator or lucky risk taker, society captures forty cents of investment. Were society to pay the incremental dollar of income to a middle-class consumer, he would charge society ninety to ninety-nine cents of consumption for every penny of investment – a steep price. It’s cheaper for society to allocate income to the rich.”
There’s a lot to unpack in this line of reasoning. For one thing, it is hard to escape the obvious self-interest – it is certainly convenient to believe that low taxes for oneself not only are a personal boon but also serve the collective good. The debate is also ideological. The right has long been campaigning to reduce the power of the state and to increase the power of the individual.
But there is also a special resonance to arguments about the relative efficacy of the private sector over the state when you hear them in the 21st-century United States from a West Coast technology entrepreneur. After all, whatever your political allegiances, it is hard to disagree that in recent decades, when it comes to transforming the world, the Valley has outdone the Beltway.
One reason for that gap may be that while our private and business lives have been transformed by the technology revolution, government largely has not. To understand what hasn’t happened – and the possibilities the future might hold – I spoke to another entrepreneur at the cutting edge of the global technology revolution: Nandan Nilekani, the co-founder of an Indian outsourcing behemoth, Infosys.
Nilekani has gone on to another pioneering job, working inside the notoriously slow-moving Indian government to create a unique digital identity for each citizen. That second career has given him a different perspective on the state: He agrees with Rodgers and Conard that it needs to be reinvented, but he also argues that it is absolutely essential, not least as a foundation for private-sector entrepreneurship.
“Just as technologies are disrupting industries – retail or publishing or whatever – technologies can also disrupt the way you do government,” Nilekani told me. “The thing is that we don’t yet know how to do it well.”
“If you have grown up using a tablet or a smartphone, with nice user interfaces, and one click, you get everything, you get maps everywhere, you’re used to a certain level of responsiveness and efficiency,” Nilekani explained. Government is often not very good at delivering either, he said, which can make us more frustrated as citizens than we are as consumers.
One response to that gap is that of Rodgers and Conard, namely to give up on the state. Nilekani advocates something different. What we need to do, he argues, is reinvent government, just as the technology revolution has forced most businesses to reinvent themselves.
Nilekani thinks this transformation of the state is one of the world’s most urgent challenges because he believes that without a powerful and effective government, private entrepreneurship is impossible.
“I think innovation is something best done effectively in the private sector,” he told me. “But it’s the role of governments to create public goods which are platforms for innovation. If you look at the U.S., the Internet was a government defense program on which today you have this huge innovation ecosystem. GPS is another example.” That system “was designed for military applications. But today it’s used for maps or car navigating systems or whatever. So the ideal is to create these global public goods or these national public goods that are platforms. And then make them open so that people can innovate.”
That’s an important paradigm shift. Instead of arguing over whether to shrink the state or expand it, or whether money is better spent by the private sector or by the state, maybe we should be focusing more on reinventing the state for the 21st century.