Ed Driscoll

Let the Power Fall

“Writing about the onset of the Great Depression, John Kenneth Galbraith famously said that the end had come but was not yet in sight, Walter Russell Mead writes in his latest essay. “The past was crumbling under their feet, but people could not imagine how the future would play out. Their social imagination had hit a wall:”

The same thing is happening today: The core institutions, ideas and expectations that shaped American life for the sixty years after the New Deal don’t work anymore. The gaps between the social system we inhabit and the one we now need are becoming so wide that we can no longer paper over them. But even as the failures of the old system become more inescapable and more damaging, our national discourse remains stuck in a bygone age. The end is here, but we can’t quite take it in.

In the old system, most blue-collar and white-collar workers held stable, lifetime jobs with defined benefit pensions, and a career civil service administered a growing state as living standards for all social classes steadily rose. Gaps between the classes remained fairly consistent in an industrial economy characterized by strong unions in stable, government-brokered arrangements with large corporations—what Galbraith and others referred to as the Iron Triangle. High school graduates were pretty much guaranteed lifetime employment in a job that provided a comfortable lower middle-class lifestyle; college graduates could expect a better paid and equally secure future. An increasing “social dividend”, meanwhile, accrued in various forms: longer vacations, more and cheaper state-supported education, earlier retirement, shorter work weeks, more social and literal mobility, and more diverse forms of affordable entertainment. Call all this, taken together, the blue model.

In the heyday of the blue model, economists and social scientists assumed that from generation to generation Americans would live a life of incremental improvements. The details of life would keep getting better even as the broad outlines of society stayed the same. The advanced industrial democracies, of which the United States was the largest, wealthiest and strongest, had reached the apex of social achievement. It had, in other words, defined and was in the process of perfecting political and social “best practice.” America was what “developed” human society looked like and no more radical changes were in the offing. Amid the hubris that such conceptions encouraged, Professor (later Ambassador) Galbraith was moved to state, in 1952, that “most of the cheap and simple inventions have been made.”

Kodak likely thought the same thing. Then the digital camera was born in the late 1990s, and the legendary purveyor of film and film cameras failed to adapt, as Nick Gillespie and Matt Welch write at Reason:

Eastman Kodak share prices tumbled from $60 in 2000 to $40 in 2001, to $10 in 2008, and under the $1 threshold by the end of 2011. The Dow Jones kicked the stock off its bedrock industrial average in 2004, and the New York Stock Exchange threatened the company with de-listing. Kodachrome—subject not just of a hit Paul Simon song but of the 1954 antitrust settlement that the federal government was trying to maintain four decades later—vanished from stores in 2009, and developers stopped processing the stuff for good on New Year’s Day 2010. The company closed scores of plants, laid off more than 10,000 employees, and has now filed for Chapter 11 bankruptcy.

What happened? Technological advances gave consumers choices that Kodak’s fat bureaucracy was unwilling to provide. Writing in the Wall Street Journal in November 2006, William M. Bulkeley explained how the implications of this insight ranged far afield from the world of processing photographs:

Photography and publishing companies shouldn’t be surprised when digital technology upends their industries. After all, their business success relied on forcing customers to buy things they didn’t want. Photo companies made customers pay for 24 shots in a roll of film to get a handful of good pictures. Music publishers made customers buy full CDs to get a single hit song. Encyclopedia publishers made parents spend thousands of dollars on multiple volumes when all they wanted was to help their kid do one homework paper. The business models required customers to pay for detritus to get the good stuff. . . . Eastman Kodak and Fuji Photo Film had a highly profitable duopoly for 20 years before digital cameras came along. They never dreamed customers would quickly abandon film and prints.

When given real choice, especially the choice to go elsewhere, consumers will drop even the most beloved of brands for options that enhance their experience and increase their autonomy. We have all witnessed and participated in this revolutionary transfer of loyalty away from those who tell us what we should buy or think and toward those who give us tools to think and act for ourselves. No corner of the economy, of cultural life, or even of our personal lives hasn’t felt the gale-force winds of this change. Except government.

Think of any customer experience that has made you wince or kick the cat. What jumps to mind? Waiting in multiple lines at the Department of Motor Vehicles. Observing the bureaucratic sloth and lowest-common-denominator performance of public schools, especially in big cities. Getting ritually humiliated going through airport security. Trying desperately to understand your doctor bills. Navigating the permitting process at your local city hall. Wasting a day at home while the gas man fails to show up. Whatever you come up with, chances are good that the culprit is either a direct government monopoly (as in the providers of K–12 education) or a heavily regulated industry or utility where the government is the largest player (as in health care).

Unlike government and its sub-entities, Kodak couldn’t count on a guaranteed revenue stream: Consumers abandoned its products, and now the company is basically done. The history of private-sector duopolies and even monopolies is filled with such seemingly sudden disappearing acts: The A&P supermarket chain—if you’re under 40 years old, or from the West Coast, you probably haven’t even heard of it—enjoyed a U.S. market share of 75 percent as recently as the 1950s. Big-box music retailers and bookstores were supposed to bestride the land like colossi at the turn of our new century, but Virgin megastores have all but disappeared, and Borders has been liquidated. Dominant newspapers in one-paper towns were able to book some of the economy’s highest profit margins for four decades—more than 20 percent a year, on average, positively dwarfing such hated industrial icons as Walmart—yet with the explosion of Web-based competition, these onetime mints are now among the least attractive companies in the economy.

The president’s plan during these changing times? As Daniel Henninger wrote last year, “For Barack Obama, the private economy is an intellectual abstraction.” How abstract? This abstract:

“On Tuesday at the State of the Union, I laid out my vision for how we move forward,” President Obama said at a campaign event in Las Vegas, Nevada. “I laid out a blueprint for an economy that’s built to last, that has a firm foundation. Where we’re making stuff and selling stuff and moving it around and UPS drivers are dropping things off everywhere.”

No wonder, as Mead writes, “The blue social model is in the process of breaking down, and the chief question in American politics today is what should come next.”