Over the next few posts I intend to start going into some of the domestic factors that I believe are holding the US back. This will all be very speculative and based on a rather general observation of mine that I admittedly haven't researched enough to have 100% confidence in. That is that I believe that over longer periods of time the key thing holding back societies is their inability to maximize the potential of their labor supply and that an emphasis on capital rather than labor leads to the misallocation of resources. I believe the key thing to long run development is to balance development of all of a nation's resources. In the modern USA I believe we have enough capital sloshing around that capital is unlikely to be the limiting factor. Growing our supply of capital will do us little benefit, though it will shift incomes around, if it is instead the quality of labor where our society is lacking. This is sharply different from the 18th, 19th, and the first half of the 20th century where we remained under-capitalized. This is no longer the case here, though investment is likely to be the limiting conditions in less developed nations.
This is a slight shift in emphasis from what I generally see as the main thrust of mainstream social science and is rooted in a basic criticism I have towards the field that we place too much emphasis on 18th, 19th century and early 20th century thinkers (this does not apply equally to all subfields, some of which are much more modern). The major emphasis in both political science and economics has been in explaining industrialization. While I agree this was a major event, I also think it was a unique one and the lessons learned from it are not truly generalizable. I believe there were elements of this transition that stood out so strongly that other threads of development were left completely obscured by the key role that capital development played in the transition to industrialization. Focusing on capital formation distracts us from deeper issues that are playing a greater role today as we move more completely out of the initial transition to an industrial society and into whatever is coming next. This is rooted in a few observations, such as the lack of success of slashing taxes to encourage capital formation towards creating broad based growth and the ability to sustain growth and production in countries that focus more on encouraging a highly skilled labor supply, but I will admit it is very preliminary.
Based on what may be a faulty starting assumption however, I will be suggesting that a focus on taking an approach that seeks to maximize the quality and efficient allocation of our existing labor supply is the proper foundation to build a new approach to American politics and government on. While education will be a significant part of this I intend to make the approach much broader. I wish to examine how various policies, such as our prison system and discrimination against ex-cons or the difficulty of gaining a university degree or advanced technical training later in life, are leaving significant portions of our population in a condition where they can be nothing but under-utilized. I will also be looking at how existing policies make labor mobility more difficult and policies that are blocking the kind of organizational flexibility that would be necessary to get every American working at their full potential.
My vision of society may not be widely shared but at its heart it's one that we give people as many chances as they need to get their act together so they can contribute and that breaks down any barrier that provides someone with an excuse not to put in the effort to better themselves. I think our focus on trying to spur private investment and the focus on incentives does little to spur those people that have more awareness of the possibilities for failure than they do of the possibilities for success. American society already has everything it needs to make the best and brightest do their thing, doing more to encourage this has little to no pay off. Getting those who aren't the best and brightest to pull their weight and contribute everything they can is the real challenge we need to meet if we're going to compete with nation's having a multiple of our population in the 21st century. They can afford to chew people up and spit them out if they don't meet their standards. We used to do this, and still do, but it's no longer a luxury we can afford.
[Update: After looking over this I think my brief digression into half thought out theory may have been unclear. I'm not proposing anything terribly new or anything terribly different, just a shift in emphasis. What I have in mind is that:
1. Growth is limited by a number of limiting conditions such as capital, labor, technology, or organizational sophistication.
2. We tend to overemphasize capital as a limiting condition because the foundation of much of our social sciences comes from the 18th, 19th, and first half of the 20th century when our society was not yet fully industrialized so lack of capital was generally the limiting condition. Also, capital formation is easily amenable to economic methods while the labor issues and technology I am pointing out falls into the less mathematically amenable realm of political economy as social forces and political concerns dominate over the actions of the private sector and the relatively easily tracked cash flows necessary for capital investment.
3. While we certainly will continue to need more emphasis on capital formation than earlier societies did, our challenges are more likely to be in the form of trying to develop a sufficiently skilled labor force, though technology and science is also likely to be an issue. This is because a society such as ours has an ample capital base and enough capital seems to be produced in its normal operation to meet our capital needs. Additional capital has a decreasing rate of return because the amounts of skilled labor, technology, etc. are not available to give the full return on new capital spending.
4. The incentives to stay in school and get a good education are already enormous so lack of incentives is unlikely to be the reason our labor force is inadequate.
5. We need to look at why people are failing to develop skills that are rewarded in the modern economy. Also, we need to think about how careers that can be very rewarding to society as a whole, such as scientific careers, are unable to capture their full social benefit.]