America's Competitive Edge

How did America become and why does it remain a super power? Here some possible factors:

• Large size - Basic economics tells us that there are huge advantages to be gained from specialization and trade. However, the magnitude of the advantage depends on the size of the market. For example, I can't specialize in making toilets if I live in a small village of population 100 and have no contact with the rest of the world. Why not? Because I won't have a large enough market to be able to sustain myself in that specialty. As a result, when someone does need a new toilet in my small isolated village, they will have to either produce it themselves, or hire someone in the village who has made toilets before to make one. Needless to say, quality will be low, and price will be high. America has at times been somewhat isolated from the rest of the world in trade terms. However, even during those times the US was a relatively large country with a large market for goods and services, and so it captured a large benefit from specialization within the market. I think this is also much of the explanation for the Soviet Union's ability to remain a super power for many decades during which it was economically isolated from the west.

• Free Market Capitalism - There are a couple of important features of free market capitalism that I believe make a big difference to the amount of wealth that is produced within the society. First, the freedom to compete within the marketplace spurs innovation, both for market incumbents and for new entrants to the market. I feel this every day at work (I'm an engineer working for a manufacturing firm) as we are constantly seeking to improve our processes and products in order to remain viable within the market. Everyone in the company knows that standing still means we'll all be out of jobs in a very short time because our competitors will beat us in the market with better products at lower prices. The second part of free market capitalism that is important is that it rewards good ideas and good execution, and punishes bad ideas and bad execution. Inefficient firms die while efficient firms take market share. The image below illustrates how differently capitalism is viewed in much of the rest of the world. If free market capitalism really IS an important part of high productivity and high standard of living, then those who reject it are putting the gun to their own heads.

•  Regime Certainty - This is the opposite of regime uncertainty, where no one is sure if the law will be the same today as it is tomorrow, whether there will be civil war tomorrow, whether property rights will be respected tomorrow, etc. The US has been stable and secure, with mostly predictable application of the law, for decades. This matters! When there is regime uncertainty investment drops because the value of any investment is a value that will mature over time, and uncertainty about the future of something as basic as the law or property rights decreases the value of any and all investment. Look to sub-Saharan Africa for an example of what regime uncertainty does to growth. Of course, the concept of regime certainty also embraces the fact that America was not ravaged by two world wars during the 20th century.

•  Immigration - The US accepts more immigrants than does any other country in the world. The US is characterized by its immigrant population, including those of us whose ancestors came here prior to the 1930s, and now think of ourselves as 'typical' Americans. I think that it is the case that the US has been very successful at attracting the best minds and the most innovative people from around the globe, in part because of the benefits of free market capitalism and regime certainty. Innovative people are drawn to places where they will be free to innovate. Entrepreneurs are drawn to places with regime certainty. I think this is much of the explanation for why the US is such an innovative and entrepreneurial nation. Listen to Paul Graham's comments on immigrants starting businesses to get a better idea of what I mean.

Now I know that this list isn't exhaustive, but these are the main things that come to my mind when I puzzle about the US and its accomplishments and place in the world. What have I left out? Or better yet, what is wrong in my approach altogether to this question?

Cultural Differences

A few weeks back I had a conversation with a coworker from Sweden about the differences in Swedish vs. American corporate culture. Notably, in Sweden there is a high value put on cooperation and consensus, and a lot of time and energy are spent trying to reach agreement. My coworker from Sweden contrasted this with his observation that in the American approach decisions are taken relatively quickly by managers, with or without agreement from their direct reports and colleagues. Inevitably this talk about how business is conducted in America reminded me of Dilbert, and of several particular Dilbert strips that I had read over the years.

However, I was quite surprised to learn that my Swedish colleague had never heard of Dilbert. Dilbert is such a large phenomenon in America, and so much American culture is exported to other countries particularly our culturally near neighbors in Europe, that it hadn't occurred to me that Dilbert would be unknown in Sweden.

I wonder why Dilbert hasn't found a foothold there. Could it be because it is difficult to effectively translate closely written comic strips into other languages? Or, are most popular American comic strips just so bad that there is no market for any American efforts in the field in other parts of the world? Or is it because of those differences in corporate culture between the US and Sweden? Maybe the jokes just don't work over there?

Here's one I like a lot, even if it isn't about corporate culture.

Heroes: Part II

Sexual reproduction is a curious evolutionary adaptation. It reshuffles the genes of the current generation, guaranteeing that the next generation is similar to, but distinct from, its parents. Why do this? If a particular set of genes has been successful, why not reuse them as they are, rather than risking passing on a worse combination?

The answer is flexibility. The environment (and, indeed, the competitive environment) is not static, so a static genetic mix will not serve for long. The ideal system is one that passes nearly all of the most successful traits to the next generation, with a very small percentage of novelty thrown in. The novel genes are an insurance policy against change.

Societies use this strategy as well.

Conventionalists are society's standard gene load out - the tried and the true. Even Romantic Conventionalists, who oppose the prevailing the culture, are part of the standard genetic material. Because they pull directly against the tide of the society they prevent accelerating groupthink. They anchor the society against drift.

Fundamentalists are the novel genetic material. Their commitment to their ideas, rather than to society itself, means that they are forever moving in a completely independent direction. Sometimes they can be a cancer, like the thinkers who produced eugenics. Sometimes they can provide the adaptation that takes the society in a new evolutionary direction, as did the men who dreamed of a purer democracy, without royalty. Most often they are interesting, but harmless, with no strong effect on anyone but themselves (let me again refer you to Eric Falkenstein's brilliant post on how unusual ideas are one of the penalties of being intelligent).

Heroes

Having heroes is a form of study. You can see it in the rooms of teenagers who have decorated their walls with posters of musicians, or other popular figures. The posters, quotes, and facts about the person of renown are used by the teenager to try to understand what it is in this person that has made him/her great. Teenagers emulate the behaviors, language, dress, political outlooks, etc. of their heroes because they are searching out the combination of qualities and actions that constitute greatness.

The process doesn’t end with the teenage years.

It may be a false dichotomy, but it seems to me that heroes get evaluated either in terms of popular reaction to their exploits (either epic or romantic), or less commonly, against an objective set of criteria established only in the mind of the devotee.  The difference is significant. It tells us something, not about the hero, but about the person who is aspiring to heroism.

If my definition of heroism depends upon either embracing or bucking popular values, then I am a Conventionalist. I define myself entirely in relation to other people, and to the prevailing culture.

If my definition of heroism depends upon a set of principles and beliefs that I accept for their own sake, without dependence upon the opinion of my society, then I am a Fundamentalist. Ironically, many heroic figures may themselves be Fundamentalists, while gaining a vast following of Conventionalists who wish to emulate them.

It is my experience that there are very many more Conventionalists than Fundamentalists in the population, though it is not always easy to distinguish who is who.  Fundamentalists often possess values that are largely in harmony with their culture. Romantic Conventionalists take positions in opposition to the prevailing culture, and so may appear Fundamentalist, but actually are not, because they define themselves relative to the culture, not based on independent values or beliefs.

Eric Falkenstein relates intelligence to having unusual ideas. This is a related but distinct concept.