Sunday, February 28, 2010

America An Empire of Wealth

Life has been crazy in the last three weeks. I heard the stories about the consulting jobs being hard on personal life and being very stressful. I can validate these horror stories with my experience at my new job. Life is always on “emergency” mode. Any mistakes in the project can crucify the firm. Negligence is not an option.
I think two skills are the most important for success in Business Consulting:
• Attention to detail
• Stamina (to work 14-16 hours a day without losing concentration)

America and its history of wealth

Not to mention, my new job has tremendously slowed my reading and has adversely affected my contributions to the blog. In the last ten days, I finished a rather detailed economic history of America. The book is titled “An Empire of Wealth” written by Mr John Steele Gordon. Mr Gordon, who reminds me of a cheap Vodka Brand sold in the US, is a very well respected American Historian. He has an uncanny ability to write in a simple language and to tell a story in an appealing manner.

American history of wealth is a detailed tale that starts with the colonialisation of the North American continent by the Englishmen and other Europeans. The initial attempts to settle were quite unsuccessful due to unpleasant weather, lack of resources to sustain life, and disease. Slowly, the settlers adapted and the real boom in the agriculture started with the introduction of a cash crop called Tobacco in Virginia. America for its initial 125 years of history was a net importer, most of the exports were agricultural commodities and the imports consisted of processed metals, machinery etc.

American industrialization developed on the foundation of stolen intellectual property from Europe. Most of the machinery for the industrialization such as clothing mills, weapon designs, smelting and steel furnaces etc. were copied from the European designs without paying any royalties towards these inventions.

US and other western countries never flinch to criticize corruption or inefficiencies in ruling associated with democracies. The book accounts the widespread corruption and crony democracy that infested in the US in the second half of the nineteenth century. Slowly but steadily, the system of governance improved and led to the current powerful (though not without corruption) institution of democracy and freedom. This book provides some hope and optimism to the sustainability of the democracy, especially for countries like India.

Another key aspect of the US’s development into a strong nation was its trade policy. For a significant duration of the US history, the trade policy was extremely protectionist, guarding the US’s domestic industries from the European industries that enjoyed large economies of scale. The distinction between the North and the South of the US becomes very clear in the discussion of the trade related policies. The North, which was highly industrialized, demanded tariffs and barriers on the foreign goods. The South, an agrarian economy, relied on the export of the commodities to other countries. Therefore, the Southern states were opposed to any tariffs on the trade. These dichotomynexits till date, the South being more conservative (read Republican) that the North (Liberal).

The story of the US economy is far from perfect. It was a system that took several iterations and painful series of failures to come to the current form. The main theme of the story always was pursuing self interest. The success of the US sometimes overlooks the high volatility of its economy and its vulnerability to producing bubbles and busts.

A good lesson from this book is regarding the role any Government should play in running the economic affairs of a nation. Trusting the direction of the economy on the “invisible hand” is not the best way to drive. The US history attests this theory with its endless cycles of continuous booms and busts that came to existence only because of the US’s policy of supporting Wild West style of capitalism.

America became an industrial and economic power first. The innovation and ingenuity that we associate with the US is a new phenomenon (post WWII). The achievement of large scale industrialization sows the seeds of invention and creativity. I think the next wave of large scale innovation and invention will come from Chine, which has been reaching industrialization scales once reached by the US in the nineteenth century.

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