“In reality all economic activity outside the stationary state is speculation.” – Ludwig von Mises, Socialism
McDonald’s presently has over 2,500 restaurants in China, but expects to have more than 4,500 by 2022. Mimicking the mercantilist-minded for a moment, the previous stat is evidence that “America” has a fast-food edge over “China.” Actually, “America” has no such edge. McDonald’s is meeting the needs of increasingly flush Chinese consumers in splendid fashion, not America.
That China will eventually be the largest market in the world for the Chicago-based restaurant chain is more evidence of the genius of economic freedom: so long as markets are open, the profit-motivated will serve all who are productive and free regardless of where they live. Economic freedom means the Chinese can outsource their dining needs to a profit-hungry corporation on the other side of the world, all the while focusing their energies on what they do best. Imports of goods and services by definition improve their recipients because they enable specialization. Looking into the future, the American people will see their living standards skyrocket the more that Chinese brands are ubiquitous in the U.S. in the same way that American brands presently dot the Chinese commercial landscape to the economic betterment of the Chinese people.
Which brings us to a recent opinion piece by General Motors (GM) CEO Mary Barra. Writing excitedly in USA Today about the life-enhancing potential of electric vehicles, Barra concluded that their looming proliferation exists as a “historic opportunity to make personal mobility safer, better and more sustainable.”
About the eventual growth of electric-car ownership Barra may be right, or she could be stupendously wrong. The future is hard to predict. As the quote that begins this piece makes rather plain, “all economic activity outside the stationary state is speculation.” Since change is a constant in a dynamic capitalist country like ours, it’s really difficult for investors and entrepreneurs to divine what the future will look like.
Figure that some investors doubtless lost substantial sums in the early 20th century based on a bet that “motor-cars” would never beat out horse-drawn carriages, not to mention all the investor money lost on actual automobile companies. Indeed, while Americans are familiar with GM, Ford and Chrysler, most aren’t so familiar with the other 99% of U.S.-based carmakers that went bankrupt amid all the early excitement about the automobile.
What can’t be stressed enough about all this is how much the failed speculations about cars made their mass production and ongoing improvement possible. Failure is information that doesn’t hold innovation down as much as there cannot be innovation without it. Since the future is intensely opaque, we should view feverish experimentation with excitement. While the intrepid investment and subsequent economic activity will unearth endless blunders, some life-enhancing and life-extending advances in the transportation space will surely emerge.
Unknown once again is what they will be. It’s certainly possible as Barra expects that electric vehicles will be the future of passenger cars, but the latter is by no means a certainty. Returning yet again to the early 20th century, it was a known quantity that man would never fly. And while the Wright brothers disproved what was known, they speculated that motor-cars would never be widely owned given their frustrating unreliability. Many decades later, some of the most prominent names in computer technology scoffed at the notion that personal computers would ever become a thing….
That the future is once again unknowable speaks to why readers should cast a skeptical eye on Barra’s professed certainty about electric vehicles, while being even more skeptical about her call for a “50-state” plan that “will help move the U.S. to a leadership position in electrification.” Barra expresses conviction that electric cars are the future, but not certainty as evidenced by her assertion that development of the cars she views with such optimism “requires collaboration by the private and public sectors, supported by comprehensive federal policies.” Translated, Barra wants taxpayers to foot the bill for her speculation on what the future will look like. If Barra were truly certain, she wouldn’t ask for taxpayer support. Furthermore, her proposal is a bad idea.
It’s a bad idea mainly because as the proliferation of the gas-powered car hopefully reminds us, it’s very hard to know what will click with the buying public in the decades ahead. That the future is less than clear explains why there shouldn’t be any “collaboration by the private and public sectors,” and there shouldn’t be any “comprehensive federal policies” with regard to the automobile. Precisely because Barra thinks consumers will move on from gas-powered vehicles, it’s essential that the feds don’t subsidize a narrow approach to what’s coming.
Better it will be if the federal government adopts a non-interventionist stance. It should stay out of the way as all manner of carmakers and tinkerers from well outside the industry speculate on what the buying public will want. All the experimentation will surely result in some stupendous failures, but that’s the crucial point. While private investors will quickly sunset the failed experiments, government-funded ones rarely meet the same ruthless fate. That government-funded ideas theoretically operate with unlimited financial support is all the evidence one needs that collaborations between the state and private industry invariably put brakes on actual innovation. That’s the case because failed ideas that mis-allocate sizable amounts of precious human and physical capital invariably last longer than they do in the private sector.
In short, Barra gets it backwards. If she wants the “United States” to “lead this transformation” of passenger cars, she should be calling for the “United States” to step aside so that individuals backed by profit-hungry investors can place countless bets on the future of transportation. Those who are correct will become very rich by virtue of being correct. Good.
And what if all U.S.-based bets are proven incorrect by public-private collaborations outside the U.S.? Better yet, what happens if these public-private collaborations meet the needs of consumers through the development of the electric car? If so, wonderful. Just as the Chinese gain from the growing ubiquity of McDonald’s stores there, so will Americans gain from electric cars crafted overseas so long as our markets are open. What others do for Americans will free Americans to focus on what they do best. Imports improve people. Always.