Expeditionary economics

Transcription

Linda Livingstone (LL): I'm Linda Livingstone, Dean of the Graziadio School of Business and Management, and it is my pleasure to have with us today, Dr. Carl Schramm who is the President and Chief Executive Officer of the Kauffman Foundation, which is one of the premier foundations, really, around the world promoting entrepreneurialism and capitalism. We're really glad to have you with us, Carl. Carl Schramm (CS): Thank you. It's great to be here. LL: One of the things that you're working on right now is a concept called expeditionary economics. CS: Yes. LL: And talk to us a little about what that is. It's not a term I'm sure that most anyone who's listening to this has heard before. What is that concept all about? CS: Well, in many regards it's a new field in economics, and it really comes out of international development economics. The reason it's called expeditionary economics is because we've set this discussion about what economics should do in a development context in the framework of American expeditionary forces abroad, particularly in Afghanistan and Iraq, where the question is if we're going to extract ourselves, we will find that job much easier if there's a robust, growth-oriented economy that we've been able to build through the course of our presence there. So that's how the phrase, expeditionary economics comes forward. This may be the beginning of a new branch of trying to think about economics from a defense perspective. LL: It seems that much of what we've tried to do when we've been going into countries like this is really around the government system that they have set up. CS: Yes. LL: And that seems to be the primary focus as opposed to the economic system, and what you're talking about here is how we design the economic system. CS: That's right. LL: What's the sort of interaction between those two? How much emphasis should one get versus the other, and is there a better kind of government system to set up to help support capitalism versus otherwise. How does that play out in your thinking about it? CS: Well, a good way to think about this is to think about historically, our American competencies, we're very strong in military. We're very strong in diplomatic, I don't know if we're very strong, but that's where all of our energy has gone. And certainly, the third very, very much a stepchild in our thinking about international engagement has been economics. We don't have a Department of Economics, you know, the State Department handles negotiations and they do have USAID, but that's a development agency, that not withstanding its aid consequences, it's not really focused on economy building in a way that, I think, has to be focused upon. So in a sense, this is sort of the emergence of a third circle, if you will, in terms of American competencies. And you might think about it as if our military is very good about occupying, you know, that's what militaries do and ours does it better than anybody else. We've seen in Iraq that once we've got the ground taken, it's a whole other question about the counter-insurgency. And General Petraeus, among others, was important in seeing that. He led a group of people, he who wrote a manual on this. He really reinvented current insurgency thinking. And in a sense, what I'm thinking about is there's sort of a third leg of this tool, so it's invasion, or what the military calls kinetic activity. The second, of course, is counter-insurgency and stabilization, and the third has to be the creation of a robust economy to leave behind. And when I say leave behind, it's not just extracting our troops, what the long-term game should be is creating growth-oriented economies like the American economy so that in fact in the long, long haul, you have a vibrant economy, which is the real touchstone of a workable government. So in many ways I think your question is well taken in the sense that our focus is always on the government, when in fact I think, you know, we've known, we can see it's been present for several hundred years of study, governments are intimately connected with economies. And you just can't go from the State Department and declare this is what a government will look like. If you do that, if it's going to be robust, it's got to have an economy underneath it. LL: So if you were sort of the post-crisis czar in the government, and they were planning for going into a country and having to deal with the issues afterwards, what would be sort of the key, from an implementation perspective, the key elements you would feel needed to be put in place to set up this kind of sort of robust growth economy post-conflict? CS: Well, one of the things your question prompts, actually, is an observation that goes like this; you know, before we set foot outside, I think, anymore we should actually have the answer to that question. So it should be pre-thought. LL: I was assuming that it was pre-thought, yes. CS: Yeah, but it's not. LL: It's not always, no. CS: It, you know, our military planners plan the kinetic, okay? I think in the future our military planners will plan the kinetic and have a counter-insurgency, at least awareness before we start out. And what I think is necessary now is to have the kinetic, the counter-insurgency and the construction of a robust economy thought through ahead of time. Now the other part of your question was, "So what would you do if you could control this thing?" And there is no answer to that. Somebody has to do that, but I think at this point there's not enough of a playbook written. What I think a playbook might say though, is first, it's their economy. Each economy is really very different. Second, there was once an economy here. This is not like going into some spare part of the world where almost nothing had ever happened before, both in Iraq and it's certainly the case in Afghanistan, and maybe not as robust, but in Iraq the level of economic activity was very high, a very high level of human capital in terms of investment in education and competencies in humans. Same case, I think actually, in Iran. But each one is different, different sources, different cultures, different people, different trading partners, potentially different commodities that would come from the place, different capacities to manufacture. So the first thing is it has to be indigenous and appropriate and contextual to the place. Then I think the second thing is, it is all about starting new firms. That is the lost insight in traditional development economics. The more firms you have started, the faster your rate of growth. The more firms you have started the more people will have employment, the faster and more firms that you start, the likelihood of GDP growing will go up with each firm. So the trick, I think, is there is no one size fits all. It has to be tailored to the situation. It has to be contextually appropriate economically. And then, in every case, it really is about the formation of new firms. LL: So related to that last comment about the formation of new firms, you're talking about that in these post-conflict settings, but I believe from some data you've shared that in this recent recession, it is one of the first times during recession when there have been a fewer number of new businesses started during this stretch than you would normally see during a recession. So we're not doing very well ourselves at starting new firms that will generate capital and jobs. What, from a policy perspective, is important - and it may be different in the United States than it would be in a developing economy or a post-conflict economy - what's important from a policy perspective to encourage the creation of new firms? CS: Well, our economy is radically different from other economies, except around this question of the absence of enough new firms in this recession. Generally, it's new firm formation goes up in a recession and they're very important in pulling us out of a recession. This recession they've gone down. And in that regard, there is a similarity with a post-conflict situation in the sense that firms are really important to growth. But that's about where it stops, because the policy to induce new growth, new firm growth in let's say Iraq is different from the United States. Ours is a very sophisticated country. You know, in the United States my prescription might be, as I think it would be, you know, you have to cut employment taxes if you want employment to grow and you want firms, you want to induce people in. Do something about employment taxes, right? You know, my own view is if we're going to have health reform, which is an uncertainty in the world of new firms, it should be made immediately workable. Well, it's not going to be around for some years. So still, if you're a brand new entrepreneur, you know, you don't know quite what to do about health benefits. So it's an uncertainty, and in a nutshell what you do is you want to reduce uncertainty so people will invest, not only their money, their risk capital, but they'll invest their time in creating a new business. LL: Now, you've got an article coming out, I believe, soon on expeditionary economics. If people want to read more about your thinking in that area and reflect on that, where can they find that, and how might they respond to that? CS: Well, the easiest place would be to go to Foreign Affairs, that's a journal of consequence, I think. People think that's sort of the preeminent foreign affairs journal. And that will be out at the back end of April, 2010. It will be up on the Internet, I'm sure. And if people read that and want to communicate with me, the can do that by writing to me at [email protected]. LL: Wonderful. Well, we really appreciate you being here. We have honored Dr. Schramm with an Honorary Doctorate in our April 2010 graduation for the wonderful contributions he's made to education and to business. And so we appreciate you sharing some of your insights and thinking with us in addition to sharing your words with our graduates at graduation. CS: Thank you. LL: Thank you.