Sunday, August 27, 2006

Gladwell's latest

A piece by Malcolm Gladwell, "The Risk Pool," in the current New Yorker is generating some buzz. Yet with Gladwell it is always best to remember that all that glistens is not gold.

To be sure, the writer addresses a serious problem. All of our competitors in the industrialized world have some form of national health insurance. Because we do not, major firms, especially in the auto industry, have assumed a massive burden of covering employees, including retirees. It is estimated that this disparity may add as much as $1500 to each American car. The resulting competitive burden is hastening the process of deindustrialization that is devastating this country.

Gladwell goes back to an idea advanced half a century ago by Walter Reuther, head of the auto workers union. Reuther proposed spreading the risk pool for pensions and health care among a number of industries in each locality. Gladwell implies that this plan was a forerunner of national health coverage (which he and I agree we need). This seems unlikely. Moreover, Social Security, which he also cites, is not a form of insurance, but an income-transfer program. (Hat tip to Gayspecies for this point.)

Gladwell is enamored of a principle he calls the "dependency ratio." He thinks that the reason East Asia progressed so spectacularly vis-a-vis Africa is that people in those countries cut down on the number of children they had. Proportionately there were more workers in comparison to those who were dependent.

So having few children yields prosperity and having many spells poverty. How then does Gladwell explain the village of Hasidic Kiryas Joel in Orange County, NY. People in this place, now a town of some 18,000 inhabitants, have many children. The average age of the town is fifteen! Yet the citizens of Kiryas Joel are not poor. Culture trumps dependency ratios.

Another counterexample communicated to me by a friend.

"[T[hat explains why Ukraine, with a total fertility rate of 1.17 babies per woman, is so prosperous these days. Yet, Ukraine has a higher percentage of its population in the age 15-64 bracket than Ireland, which Gladwell cites. But Ukraine's per capita income is barely 1/6th of Ireland's.

"No, I think, internationally, that it's the productivity of the workers that differs more than the ratio of workers to dependents."

In large measure East Asia has progressed because of culture. Economic advance corresponds to the heritage of Confucianism. Countries that have been exposed to this influence--China, Korea, Japan--are advancing, while the Philippines (Catholic) and Indonesia (Muslim) are not. This is not the only variable but, Gladwell to the contrary, it is a very significant one.

Africa fell behind because of a number of factors, including culture and misdirected foreign aid. To say that this result is the product of "dependency ratios" is simplistic.

Speaking of villages, a remark by Gertrude Stein applies to Malcolm Gladwell and others of his ilk. "He is a village explainer. Excellent if you are a village. If not, not."


Anonymous Anonymous said...

A "competitive edge" involves both the rate of productivity and social albatrosses (such as private financing of health care, transfer of payment schemes, etc.). The "dependency ratio" applies only to the social albatrosses, those rules, regulations, programs that we impose on business. It has no effect on productivity.

In the past, America's rate of productivity was so vastly superior to all competitors that the "cost" of social albatrosses could be absorbed and U.S. companies still held a competitive edge. The introduction of robotics in industrial manufacture, together with much cheaper overseas labor, affect America's competitive edge. Add to the leveling of the "rate of productivity" the social albatrosses we impose on corporate America, and the competitive edge is lost.

For me, the most salient point of the article was the substitution of transfer-of-payment schemes for true social insurance programs. The former should be confined to welfare programs only, and otherwise should be disallowed by government or business. Not that social insurance is cheap, but its self-funding nature makes it parallel to its benefits, with the investor reaping his own investment, rather than playing Robin Hood between generations. If a company or government wants to impose both, with transfer-of-payment schemes to "sunset" over the short term, that may be feasible. But straight, unfettered TOP is a liability no one should advocate for any reason other than welfare programs.

12:09 PM  

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