Robert Appelbaum,  May 12, 2015

Down with Dynamism

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A good way to flatter public speakers, teachers, or politicians is to call them “dynamic.” When the nineteenth-century social critic Thomas Carlyle first used the word, he compared “dynamism” to “mechanism.” The latter had to do with the repetitive energy of mere machines. The former had to do with the spark of “inspiration,” and was by far the stronger and better.

You might think that economists would be aware of the connotations of their words, the ways in which moral feelings get attached to concepts that are supposed to be scientifically neutral. But no. Using words like “dynamism” when describing economic conditions is another way in which neoliberal economists lie to themselves and to the rest of us, confusing articles of faith with articles of reason, prejudice with insight, and conviction with thought.

A case of this came up in a recent Brookings Institution paper by Ian Hathaway and Robert E. Litan, that was then worried over at length by New York Times contributor Thomas Edsall. “Recent evidence points to a U.S. economy that has steadily become less dynamic over time,” they say. The evidence was this: there has been a steady decline in the number of new businesses opening in the United States since 1978; there has been a decline in the ratio of new businesses opening to new businesses being closed down; and in 2011 more businesses closed than opened.

Why, why, why?, the authors worry. Never mind that 2011 was a year feeling the aftereffects of the worst economic downturn since the 1930s. The authors see a trend that is more significant than the ups and downs of periodic business cycles. “Business dynamism and entrepreneurship are experiencing a troubling secular decline in the United States,” they saya decline that affects all industries, all kinds of businesses, and all regions. They don’t have an answer to their main question, but they are confident that the decline is “troubling.”

Edsall called on a number of the usual experts to explain this troubling development. A number of them you guessed it!blamed it on “regulation.” Industries are overly-regulated, some say. For example, cosmetology. Did you know that a cosmetology certification in one state will often not be recognized by another? And so a potentially “dynamic” hairdresser from Connecticut will find it difficult to move to Georgia and open a new hair salon. Such restrictions make the business world less “vigorous,” as Edsall puts it. (Did you know that cosmetologists in nail salons are often poisoned, due to lack of oversight. Don’t expect to discover such inconvenient facts in discussions about dynamism.)

Experts also singled out the cause of “labor market fluidity.” In other words, people are less likely these days to move from home to find jobs elsewhere. What’s born in New England stays in New England. And there are too many restrictions on immigration, especially for the immigration of desirable foreignerspeople with skills and education. Moreover, as one prominent economist told Edsall, there’s that nasty business of the minimum wage. If we could only lower it, we would have more “fluidity.”

Edsall consulted more liberal economists who argued that the minimum wage was not a factor. But Edsall accepted the main premise without a struggle. We are not as “dynamic” as we used to be, and that’s bad.

The figures used by the Brookings Institution are completely skewered by the fact that the authors measured the number of new independent business incorporations, not the number of new business premises. In 1978, a clothing store named Banana Republic was opened in Northern California; it was moderately successful. In 1983, it was acquired by The Gap, Inc., and there are now 642 Banana Republics worldwide. Is that a decline or an increase? Is that a sign of a lack of fluidity, or a major business expansion requiring the labor of people throughout the world, from the Vietnamese weavers making fabrics for Banana Republic garments to the Polish immigrants selling Banana Republic clothes in an outlet in suburban Philadelphia?

“Business dynamism is inherently disruptive; but it is also critical to long-run economic growth,” write Hathaway and Litan, reciting and at the same time misconstruing the gospel of New Deal opponent Joseph Schumpeter. “Research has established that this process of ‘creative destruction’ is essential to productivity gains by which more productive firms drive out less productive ones, new entrants disrupt incumbents, and workers are better matched with firms.” Yeah yeah. That’s why it so hard to get a good, cheap haircut in Atlanta, or a decent pair of trousers in suburban Philadelphia.

Robert Appelbaum is professor of English Literature at Uppsala University, Sweden. His most recent book is Working the Aisles: A Life in Consumption (Zero).

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