“Explanations for our current political volatility abound: toxic partisanship, the ever more fragmented and strident news media, high unemployment, economic upheaval and the clamorous upwelling of inchoate populist angst,” wrote Stanford University historian David Kennedy in an excellent essay in the New York Times following the 2010 elections. “But the political instability of our own time pales when compared with the late 19th century. In the Gilded Age the American ship of state pitched and yawed on a howling sea of electoral turbulence.”
The Gilded Age is the name given to the era following the Civil War, roughly from the end of Reconstruction in the 1870s to the turn of the twentieth century. It was a period of intense political competition between the two parties, with a string of presidents that few now remember. “Generations of American scholars have struggled to find a coherent narrative or to identify heroic leaders in that era’s messy and inconclusive political scene,” writes Professor Kennedy.
Yet, the Gilded Age was also a time of major innovations and rapid economic growth. The country kept moving on and making progress, including the development of railroads, steel and factories of all sorts in what is often referred to as the Second Industrial Revolution. The telephone and electricity were both invented and initially deployed during this period, as was the world’s most comprehensive public education system. By the beginning of the 20th century, the US emerged as one of the world’s industrial and economic powers, as well as an increasingly prosperous and powerful country.
I thought of Professor Kennedy’s essay when reading The America that Works, a special report on US competitiveness in the March 16 issue of The Economist. “Luckily, dysfunction in Washington is only one side of America’s story,” is the tag line in the report’s overview article. As was the case in the late 19th century, this is a tale of two very different Americas.
Inside-the-Beltway America deals primarily with issues concerning the federal government, the many lobbyists and contractors surrounding it, and the 24/7 media that covers it. “Its debt is rising, its population is ageing in a budget-threatening way, its schools are mediocre by international standards, its infrastructure rickety, its regulations dense, its tax code byzantine, its immigration system hare-brained - and it has fallen from first position in the World Economic Forum’s competitiveness rankings to seventh in just four years. Last year both Mr Obama and his election opponent, Mitt Romney, complained about the American dream slipping away. Today, the country’s main businesses sit on nearly $2 trillion in cash, afraid to invest in part because corporate bosses cannot imagine any of Washington’s feuding partisans fixing anything.”
“Yet there is also another America, where things work. One hint comes from what those bosses like to call the real economy. Recent numbers from the jobs market and the housing sector have been quite healthy. Consumer balance-sheets are being repaired. The stockmarket has just hit a record high. Some of this is cyclical: the private sector is rebounding from the crunch. But it also reflects the fact that, beyond the District of Columbia, the rest of the country is starting to tackle some of its deeper competitive problems. Businesses and politicians are not waiting for the federal government to ride to their rescue. Instead, . . . they are getting to grips with the failings Congress is ignoring.”
Comparing our times with the Gilded Age is instructive. The US was then facing a number of critical challenges. It was a time of major economic and social dislocation, as the country was navigating the transition from an agricultural to an industrial economy, and from a rural to an increasingly urban society. Millions of immigrants were being absorbed. Many jobs were wiped out by the emerging industries and technologies. Many new jobs were also created, but they required a basic level of literacy that was lacking among the poor migrants that were arriving to the fast growing US cities from both rural areas and other countries.
Some of these challenges sound familiar. We are once more going through a period of economic dislocation as we transition to a post-industrial information and knowledge-based economy. Many jobs are being replaced by increasingly sophisticated technologies. A high school education is no longer enough, as highly skilled, educated workers are needed to fill many of the new jobs being created. We are struggling to come up with reasonable immigration policies. Urban areas now account for over 80 percent of the US population and continue to grow faster than rural areas.
Looking at the US top-down, that is, through the eyes of Washington, - and the 24/7 online news, cable stations and talk radio that amplify its every conflict, - you could conclude that we are a country in decline. Watching the dysfunction in Washington you might think that the separation of powers and checks and balances devised by the Founding Fathers in the 18th century are no longer adequate for our fast moving 21st century.
But, as The Economist argues, if you look at the country bottoms-up, a more cheerful picture emerges. “[B]eyond the Beltway no one is waiting for the federal government to fix the economy. At the regional and local level America is already reforming and innovating vigorously.”
Innovation in the US, for example, is alive and well. “America’s inventors are as busy as they have ever been, and its entrepreneurs are seizing on their ideas with the same alacrity as always. Investment in research and development as a share of output recently matched the previous record, 2.9% of GDP, set at the height of the space race. America is home to 27 of the 30 universities that put out the most-cited scientific research - and it is still good at developing those ideas.”
Earlier this year, the Brookings Institution released a study that looked in detail at patenting activity in the US from 1980 to 2012 - Patenting Prosperity: Invention and Economic Performance in the United States and its Metropolitan Areas. By looking in detail at the patent rate per capita from 1790 to the present, the study showed that periods of high patent activity correspond to major cycles of innovation. The late 19th century was one such period.
Chief among its findings is that the rate of patenting in the US stands at historically high levels. Despite the fact that its economy is still recovering from the worst financial crisis since the Great Depression, the US Patent Office granted the highest number of patents ever in 2011. This is not surprising given that, as the study reports, that there are more scientists working today than ever before and that R&D spending is at an all time high. “Science professors, engineers, and scientists comprised less than 1 out of every 1000 U.S. workers in 1910, but 25 out of every 1000 in 2010. Perhaps, that is why the rate of patenting is nearly as high today as any point in U.S. history, . . [and why] the intensity of invention in the United States is high compared to both the rest of the world and its own history.”
Energy is one of the major areas being transformed by innovation. “A mixture of government-funded basic research, built on and deployed by business, lies behind two of the innovations that are doing most to help America out of its current economic doldrums: hydraulic fracturing (fracking) and horizontal drilling, . . .” writes The Economist. “Sporadic research into both had been conducted under the auspices of the Department of Energy since the 1970s, but they were perfected only in the 1990s when the private sector took them up. They are now giving a massive boost to the oil and gas industry - and hence to the broader economy.”
Beyond energy, major changes are taking place at the state and local levels in immigration, education and infrastructure. “Local officials are competing viciously to lure migrants and investment. They are using every imaginable enticement, from scrapping income tax to building more bike paths. But they are also embarking on far-reaching reforms. Education, for example, is being turned upside down in the most comprehensive overhaul in living memory. On infrastructure, mayors and governors are grasping the nettle Congress will not, by coming up with new funding mechanisms.”
“So perhaps the stasis of the Gilded Age and the stalemate of our recent years reflect not so much the defects of our political structures as the monumental scale of the issues at hand,” wrote Professor Kennedy in his NY Times essay. And, as we have learned in business, when dealing with disruptive economic conditions, a central governance model is generally too rigid to adequately deal with a fast changing marketplace. A more distributed organizational style offers the needed flexibility required to adapt to major changes. The expertise is out in the cities and regions where the rubber meets the road, as it were. That is where people know what is really going on and what they should do about it.
I think that the Founding Fathers understood these governance principles when they set up our system of checks and balances. It is actually incredible that they somehow foresaw back in the 1780s that the country was too big, complex and diverse for centralized decision making, especially when going through major transitions with little consensus on how to move forward.
During such times, Let 50 flowers bloom, the title of the last article in The Economist’s special report might well be the wisest course. And, while Washington continues to drift from one crisis to the next, innovative reforms at the state and local level point the way to a brighter future for the rest of the country.