The Spirit of Enterprise

Понеділок, 10:38, 04/04/16 | Публікація

Why are nations like Germany and the U.S. rich? It’s not primarily because they possess natural resources — many nations have those. It’s primarily because of habits, values and social capital.

It’s because many people in these countries, as Arthur Brooks of the American Enterprise Institute has noted, believe in a simple moral formula: effort should lead to reward as often as possible.

People who work hard and play by the rules should have a fair shot at prosperity.Money should go to people on the basis of merit and enterprise. Self-control should be rewarded while laziness and self-indulgence should not. Community institutions should nurture responsibility and fairness.

This ethos is not an immutable genetic property, which can blithely be taken for granted. It’s a precious social construct, which can be undermined and degraded.

Right now, this ethos is being undermined from all directions. People see lobbyists diverting money on the basis of connections; they see traders making millions off of short-term manipulations; they see governments stealing money from future generations to reward current voters.

The result is a crisis of legitimacy. The game is rigged. Social trust shrivels. Effort is no longer worth it. The prosperity machine winds down.

Yet the assault on these values continues, especially in Europe.

Over the past few decades, several European nations, like Germany and the Netherlands, have played by the rules and practiced good governance. They have lived within their means, undertaken painful reforms, enhanced their competitiveness and reinforced good values. Now they are being brutally browbeaten for not wanting to bail out nations like Greece, Italy and Spain, which did not do these things, which instead borrowed huge amounts of money that they are choosing not to repay.

The estimated costs of these bailouts vary enormously and may end up being greater than the cost of German reparations after World War I. Germans are being browbeaten for not wanting to bail out Greece, where even today many people are still not willing to pay their taxes. They are being browbeaten for not wanting to bail out Italy, where future growth prospects are uncertain.

They are being asked to bail out nations with vast public sectors and horrible demographics. They are being asked to paper over fundamental economic problems with a mountain of currency.

It’s true that Germans benefited enormously from the euro zone and the southern European bubble, and that German and French banks are far from blameless. It’s true that the consequences for the world would be calamitous if the euro zone cracked up. It’s true that, in a crisis, you do things you wouldn’t otherwise do; you do things that violate your everyday values.

But our sympathy should be with the German people. They are not behaving selfishly by insisting on structural reforms in exchange for bailouts. They are not imprisoned by some rigid ideology. They are not besotted with some semi-senile Weimar superstition about rampant inflation. They are defending the values, habits and social contract upon which the entire prosperity of the West is based.

The scariest thing is that many of the people browbeating the Germans seem to have very little commitment to the effort-reward formula that undergirds capitalism. On the one hand, there are the technicians who are oblivious to values. For them anything that can’t be counted and modeled is a primitive irrelevancy. On the other hand, there are people who see the European crisis through the prism of some cosmic class war. What matters is not how people conduct themselves, but whether they are a have or a have-not. The burden of proof is against the haves. The benefit of the doubt is with the have-nots. Any resistance to redistribution is greeted with outrage.

The real lesson from financial crises is that, at the pit of the crisis, you do what you have to do. You bail out the banks. You bail out the weak European governments. But, at the same time, you lock in policies that reinforce the fundamental link between effort and reward. And, as soon as the crisis passes, you move to repair the legitimacy of the system.

That didn’t happen after the American financial crisis of 2008. The people who caused the crisis were never held responsible. There never was an exit strategy to unwind the gigantic debt buildup. The structural problems plaguing the economy remain unaddressed. As a result, the United States suffers from a horrible crisis of trust that is slowing growth, restricting government action and sending our politics off in strange directions.

Europe’s challenge is not only to avert a financial meltdown but to do it in a way that doesn’t poison the seedbed of prosperity. Which values will be rewarded and reinforced? Will it be effort, productivity and self-discipline? Or will it be bad governance, now and forever?


Published in NY Times: December 1, 2011

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