“I Pity the Fool” That Obstructs Avoiding The “Fiscal Cliff”

To quote a well-known, prudent, compassionate scholar from the 1980s, “I Pity the Fool” who obstructs a mutual and effective collaboration in avoiding the “fiscal cliff”, come the 2014 elections.

It is painfully obvious that the large majority of the American electorate wants cooperation, not confrontation, in Washington so that we can finally make some real headway with the economic headwinds that have been produced by political brinksmanship. Most everyone agrees that the economy is recovering from the recession, albeit fairly slowly. Politicians and the unemployed naturally want U.S. businesses to start hiring again. The Obama administration has heard from CEOs who have expressed their desires to mend fences with business. Maybe President could study how Roosevelt did it.

When the U.S. became enmeshed in World War II (in 1941), the U.S. was the world’s mightiest industrial power, but lagged behind the major war powers in military strength. But in 1942 (the first year of war production), U.S. factories produced more tanks, aircraft, and artillery than all the Axis powers combined. That same year, the U.S. out produced Japanese naval builders by an astonishing 16-to-1.

To accomplish this extraordinary feat, Roosevelt had to recognize that the business community that he had irritated and estranged during his first two terms in office held the key to the nation’s continued existence. As the historian Richard Overy explains in his book “Why the Allies Won,” Roosevelt’s response was basically to turn over war production to his political opponents.

The administration, in attempting to resist the natural tendency to micromanage, he writes: “Corporate bosses had as much, if not more, experience of the kind of planning and coordination needed in a wartime economy than did government officials, whose only real experience was the ill-starred New Deal.”

No Ford 150

One of the most legendary accounts of the war entails the B-24 bomber, the U.S. wartime workhorse. Henry Ford was invited to bid on a parts contract. He abruptly refused. Seems he would prefer to build the entire plane, he said, from beginning to end, using his proven assembly- line technique that his company had established as a successful and efficient method of mass production.

Everyone, including military leaders were originally dubious. How could the mass-production techniques that turned out automobiles be modified to the manufacture of planes, tanks and ships? A car, after all, had about 15,000 parts; a B-24 bomber had 1.5 million. The tried and true method of building one plane at a time, rather than using an assembly line, appealed more to both the generals and the civilians in charge of production.

But Ford insisted that he could build a plant that would produce a bomber an hour. Skeptics roared. “Impossible, ridiculous, foolhardy”, his opponents declared. Nonetheless, in the end, the administration gave him his chance. The result was the Willow Run plant, one of the great success stories of wartime production. Running full bore, the factory almost met the goal that once seemed so preposterous: A finished bomber came off the line every 63 minutes.

Moreover, it’s not just that Ford was correct. It’s that he was motivated by the desire to maximize profit, which provided the necessary enticement to innovate.

As the war went on, notes Arthur Herman in his book “Freedom’s Forge: How American Business Produced Victory in World War II,” the business community successfully resisted efforts to place a single czar in charge of the production of war materiel. It preferred the present system, which left “defense production in the hands of business, not the government.” Clearly, a great deal of this was self-interest, but not all of it. According to Herman, the system remained unaffected “largely because everyone could see how well it worked.”

The point isn’t that business is unavoidably better or smarter than government. It’s that government isn’t necessarily better or smarter than business. That’s why authentic discussion and the exchange of ideas matter so much.

Lessons Learned

Regrettably, the Obama administration, during its first term, screwed the pooch when it came to dealing with the business community and never fully recovered.

The reason? An increase in the cost of employees tends to lead to fewer employees. This isn’t advanced economics. It’s simple arithmetic. Sometimes the trade-offs are worth it, and being honest about them is helpful. Environmental regulation hit the Coal Belt hard, but led to cleaner air, business doesn’t always have to get its way. But it needs to be an essential part of a sober and thoughtful discussion.

The politics of such conversations are touchy to be sure. So far, to judge from the accounts in several reliable sources, the Obama administration has handled them poorly.

That isn’t to say it is easy to handle them well. In his book “Knowledge and Coordination,”  economist Daniel Klein points out some factors holding back the crucial collaboration. “If the conversation is friendly and cooperative, commentators clamor against the influence of lobbyists and special interests. If the conversation is fearsome and demanding,” he writes, “some complain that business withheld information or misled officials.”

If the discussion is one-sided, it isn’t a discussion at all; it’s a monologue. This has nothing to do with whether one thinks the administration’s agenda is anti or pro-business. The president can have profuse good will toward the private sector and still distinguish that there are more good ideas than his own experts and associates have come up with.

Nor is the point whether the administration has friends in the business community — obviously it has many. It’s whether Obama is willing to reach out to those with whom relations are more strained. Outreach doesn’t mean a speech, or a roomful of press, but an actual private conversation from which both sides might gain knowledge of the others’ expertise, followed by the opportunity of stepping away from ideological certainties and allowing businesses to lead rather than follow.

That’s what Roosevelt and his people did. Getting the economy unstuck isn’t the same as winning the war against fascism, but that doesn’t preclude us from using the same techniques.

From this beginning, political opponents built the mightiest industrial power the world has ever known. If the U.S. is to maintain its predominance, it could do worse than starting out with the same approach.

Harvey Gold

Enhanced by Zemanta