5
Special Economic Zones
Don’t be too timid and squeamish about your actions.
All life is an experiment. The more experiments you
make the better. —RALPH WALDO EMERSON
MAO’S SUCCESSOR DENG XIAO PING famously said, “It does not matter if the cat is black or white as long as it catches mice,” signaling that he no longer demanded that the country adhere to strict ideology, but wanted pragmatism to inform policy. His pragmatic statement was not only revolutionary during his time given the Communist ideological orientation in China back then, but it is even revolutionary today here in the United States as it relates to economic policy.
Fraud Called Economics
For decades, the study of economics in the West has been based on empirical observation of society and extrapolated into a broader theory in an attempt to turn a social science into a harder science. Mathematical formulas were further created to describe an economic theory or “law” in much the same way that mathematical formulas were developed for the hard sciences of physics or chemistry. The problem with economic theories is that economics isn’t a hard science no matter how much economists would like it to be. In the hard sciences, scientific experiments can be replicated. Atoms and chemical reactions are predictable. Humans however are not. Humans have the freedom to choose, and while humans may often make economically rational decisions, they are also just as likely to make choices based on other factors. Humans also can behave differently based on cultural influences. The best economists can do is create models or abstractions to use as a guide to understand the system. We cannot assume, however, that these economic models will ever represent the entire truth.
Moreover, mainstream economists cannot control conditions the way scientific experiments can be controlled in laboratories by isolating variables. Economists have taken surveys and sometimes do controlled experiments to research a single variable, but most of that research doesn’t shed much light because they have not been able to control enough of the other external conditions to ensure an apples-to-apples comparison. Oftentimes, modern Western economics is based on one theorist who makes a generalization after making some observations about an economy. The theorist then has a sophisticated mathematician develop a complicated model that is supposed to describe the theory in mathematical terms. Since the theorist may not be as strong at math as the mathematician, the theorist may not be able to verify the accuracy of the model. Conversely, the mathematician doesn’t know whether the theory is valid because his specialty is in economic modeling, not theorizing. Thus the two most important pieces in the economic theory cannot be relied upon with certainty.
To make matters worse, large economic organizations like the International Monetary Fund often use these economic models to make forecasts and economic policy decisions. The economists who use these models for forecasts often have neither the mathematical ability to fix the formulas to make them more accurate nor the research ability to test the original hypotheses. Since the models may be flawed, any inputs and outputs from the model are thus also flawed. Yet billions of dollars regularly get spent on policy decisions that affect billions of people based on potentially wrong data. For instance, macroeconomic models at the Federal Reserve today don’t incorporate microeconomic models that take into account incentives, fraud, and other factors in human behavior. Their models also don’t take into account the banking moral hazard of “too big to fail” (TBTF), which I go into in greater depth in chapter 6. While economist Hyman Minsky’s models are not used widely and are only macroeconomic, at least they took into account irrational behavior. Such deficiencies explain in part why economists are consistently wrong on their forecasts and why many economic programs prescribed by such economic organizations have failed miserably to fix the economic problems they were supposed to fix.
Add to this toxic combination the fact that most economists with PhDs have never spent any time working in the economy they purport to understand. Most of these economists went straight into graduate school studying only the theories and mathematics of predecessors, who also never worked outside of academia, creating an echo chamber where their ideas are not challenged by real-world experiences. It begs credibility that these people could explain human behavior when they themselves have not understood how economic players game an economy, how information truly gets distributed and shared, and why people respond differently to the same conditions because of cultural biases or other beliefs and values.
Every nation and its people grow up with differences—depending on their values, educational opportunities, and other circumstances that shaped their normative behavior. There are many factors that economists often fail to consider when they draw broad, sweeping conclusions. For instance, on the question of whether poverty leads to violence, they typically do not consider a variety of issues, such as whether the prospect of a more promising future deters violence in one nation versus one whose population feels more hopeless. Does the level of exposure to violence have a greater influence than poverty? What effect does it have for one to be raised by one’s own parents versus one where disasters like tsunamis or devastating earthquakes render such an upbringing impossible? What’s the verdict of neuroscience on violence?
Arguably many economists cannot control for all these considerations when they do a study. Contrary to what they want the public to believe, there is much room for advancement in our knowledge in all areas of economics. Economists’ current level of understanding may be on par with the era when doctors applied leeches to patients for curing disease. When economists develop macroeconomic theories based on observation, they can be quite sophisticated and convincing in their methodologies. But in the end, they may also be no different from the people who believed that the sun and planets revolved around the Earth before Copernicus came along to prove that the conventional wisdom of the day was wrong. As societies, we obviously must make do with the current level of economic understanding, but we must also remain cognizant of how little economists know and comprehend, especially across economic disciplines, and act accordingly.
One of the most blatant failures of economists was the financial crisis of 2008. Economists, including chairman of the United States Federal Reserve Board, Alan Greenspan, exerted enormous weight over the economic policies of the United States and the world, yet none of them have acknowledged their roles in creating the disaster. Either they did not believe the crisis was possible, they gravely underestimated the danger of selling credit derivatives to the world, or they secretly understood the riskiness of the situation but chose to hide knowledge of imminent disaster from the public. This third possibility would clearly show public malfeasance and criminal behavior on the part of these economists, which cannot be ruled out, especially if politics drove policies.
In the late 1990s, technology stocks surged, and 2000 was an election year when rates raised quickly and sharply. The tech bubble burst right before the election. When a new party was in the White House in 2001, rates were quickly lowered and held there to stimulate growth. Eerily, a similar pattern had appeared in the early 1990s with the real estate crash. A nascent recovery began after 1992, but the Federal Reserve raised rates just before the election in 1994, causing a double dip in the economy that prompted a change of control in Congress. Did politics drive policies in these cases?
However, if we choose to believe that economists were merely objective actors who relied on economic models that failed to predict the 2008 crisis, then the economists’ theory of efficient markets, the market’s ability to self-regulate, and a whole host of other economic assumptions were obviously wrong. Yet these premises have been accepted as fact by economists for years and incorporated into national public policy as if they were indisputable.
It is difficult, if not impossible, to separate economics from politics. That which benefits one group routinely harms another one. To pretend that economics is scientific in the way it has been practiced in the West is one of the most sophisticated hoaxes of the 21st century. Karl Marx understood that economics under the capitalist system would inevitably divide societies between the haves and have-nots. That the capitalist system is a natural law doesn’t hold water when other systems such as kibbutzim have also worked in modern society. More accurately, capitalism is a system as imperfect as those that preceded it, but it had better support from influential political advocates. Communism wasn’t necessarily doomed to fail. It was the way in which it was implemented by corrupted Communist Party leaders in the former Soviet Union and China under Mao that condemned that economic ideology to failure.
Economic Lab Experiments
China’s leaders, starting with Deng Xiao Ping, were astute and practical enough to recognize that it was not ideology that made one set of economic principles trump another. Rather, it was the tactical implementation at the microeconomic level that would determine if the economic policies would succeed or not in achieving a set of economic objectives. For too many decades, Mao had used the people to serve the Marxist ideology rather than the other way around. But after Deng had seen that a group of farmers had succeeded in increasing food output through profit retention, thereby flouting communist orders, he was wise enough not to punish the farmers but instead engineered a 180-degree course reversal at the PRC. Fortunately for the Chinese, Deng made public service to the people of China the number-one priority of the Party.
China’s leaders wanted to learn how to best serve the people, but they knew that sweeping policy changes would risk derailing the country, which was still shell-shocked from the brutality of World War II and Mao’s reign of terror. So they decided to embark on a much less risky approach by systematically testing different economic theories in small, contained regions. The regions that would be chosen to test these economic policies were called Special Economic Zones.
Special Economic Zones (SEZs) are geographic regions ranging from villages to provinces within China that were granted special privileges and allocations of national capital for a specific period of time to experiment with a new economic policy in order to test the merits of the policy. Ever since technocrats have run the country, their collective thinking has been shaped by a scientific approach to problems, even though they knew that assessing social policy is far less precise than conducting scientific experiments. Nonetheless, China’s leaders have placed primary importance on collecting as much empirical evidence as possible. Following Deng’s lead, pragmatism overruled ideology, and so to verify whether their hypotheses were correct and policies had the intended effect, limited populations piloted programs before they were launched on the wider public.
Most SEZs are used to test tax incentives and rules regarding foreign direct investment within different cities and provinces. Experts and policymakers would often be brought together to observe and analyze the outcomes in order to determine the right courses of action on a broader level. Invariably several provinces are designated SEZs at the same time in order to have control groups, and if economic outcomes are inconclusive, policies would be slightly modified for further observation. Furthermore, to avoid conflicts of interest, many of the experts are chosen on the basis that they have no self-interest in the interpretation of the outcomes, such as academics from other countries. Much like scientists in a lab collaborating to discover the right answers with repeated experimentation, China has created the first real-time economic labs in the world.
The concept behind SEZs is statistical experimental design, which underpins most scientific research today. Statistical experimental design is very mainstream and used by many sophisticated thinkers in research organizations. In fact, it is used for optimizing factories, product designs, marketing strategies, and countless other human endeavors. Above all, the concept is safe; we use it in everyday life in the West, so this method cannot be accused of being threatening, Communist propaganda.
It might be fair to say that China not only invented economic labs, but it has also turned itself into the largest pilot project in human history. By testing out different political and economic theories simultaneously throughout the country with well-managed plans and teams of experts who are entrusted with monitoring the developing situations, China has managed to turn the soft social science of economics into a much closer cousin of the hard sciences. Their economic experimentation has sped their understanding of human dynamics and institutions, which has translated into a model that has challenged the Washington Consensus for economic and societal development.
The first SEZs took place in Guangzhou, Shenzhen, and Shanghai back in the 1980s when the leaders decided to experiment with free trade after decades of centrally planned economies. One of the earliest and the most famous SEZ was Guangdong. Located in proximity to the thriving cities of Hong Kong and Macao, Guangdong had been plagued with low arable land, deficient energy and transportation infrastructure, and significant structural damage from the Cultural Revolution. Xi Zhongcun, a revolutionary hero from the 1920s, had been assigned to govern Guangdong in 1978 after Mao passed away. The vibrancy of Hong Kong contrasting sharply with the moribund Guangdong prompted Xi to contemplate the reasons for the disparity, especially since over 80 percent of Hong Kong citizens had come from Guangdong. After researching different hunches, he eventually concluded that economic governance was the dominant cause for the huge economic differences. Xi pleaded his case to China’s central government to permit Guangdong to accept capital from Hong Kong and Macau in order to upgrade farming technologies. When they granted him permission to set up an SEZ, Deng warned that Xi might be risking his life by going down a road less traveled. Although worried about his lack of experience, Xi nonetheless made it his mission to attract the finance capital from outsiders to modernize everything in the province. The last thing he worried about was being accused of resorting to capitalism. He is remembered among the Chinese for saying, “As long as you can boost the economy so that the people can enjoy a better life, just go ahead and make it happen. There are good things we can learn from capitalism too.”
According to the U.S. Census, China’s trade with the United States was a mere $7.7 billion in 1985. The Chinese government arbitrarily set interest rates and exchange rates. Even though the mainland Chinese knew very little about how to conduct business with the outside world, they quickly learned from the overseas Chinese businesspeople from Taiwan and Hong Kong who were among the first to venture into the country. These Chinese businesspeople recognized the vast opportunity that an awakening China represented, so they poured foreign investment over the borders to create factories of every stripe and color. By 2010, China’s trade with the rest of the world topped $3 trillion.1
The SEZs became enormous successes. Within ten years, the economies in those provinces were completely transformed, drawing more workers and more employers with every passing minute. The Chinese leaders, encouraged by the initial successes, gradually opened more provinces to the same rules, and China was off to the races.
While I was teaching at Peking University in the spring of 2008, I had the pleasure of speaking to a visiting professor from the University of Washington who also stayed at the guesthouse on campus. She told me that she was working with the Chinese government on a project evaluating the “tragedy of the commons” economic theory. She said that some villagers were given a section of a forest to own and manage. Before the project commenced, the social scientists assumed that the villagers would chop down the trees, sell the wood, and keep the profit for themselves, thereby destroying the forest. To everyone’s surprise, the villagers preserved the forest because they discovered that they could earn more money harvesting and selling the pine nuts, thus receiving an income in perpetuity rather than chopping the trees for a one-time gain. This project was just one of thousands of such socioeconomic experiments that continue to this day.
Modern-Day Apprenticeships
While SEZs have had a dominant impact on economic development, another related policy also utilized by the CCP that underscores its pragmatic approach to development is the joint venture (JV). The JV has been used extensively in China to foster robust but careful economic growth. One well-known saying in Chinese is “Cross the river by feeling the stones” (mo shi guo he). In other words, it pays to move toward your goal slowly and carefully, even if it means taking one step back for every two steps forward.
Former president Jiang Zemin made a historic decision authorizing companies to go bankrupt and consenting to open competition by entrepreneurs. Private businesses competing with the state-owned enterprises (SOEs) enabled innovative ideas to be heard and implemented, even though it threatened the existing government-owned companies. However, the fall of too many SOEs would have threatened the stability of the country by making too many workers unemployed. Instead, a compromise structure was developed. The leaders realized that old companies could learn from new companies by tethering them to each other. Such an arrangement engendered osmosis of ideas and best practices through information sharing while causing less disruption and trauma to the workforce than letting all the old companies suddenly go bankrupt without the appropriate social safety nets in place.
Back in 2007, engineering students at California State Polytechnic University invented a car that got 1902 miles per gallon.2 Imagine that they were given support to start their own company and then asked to team up with General Motors. It is very possible that through this kind of collaboration, GM could have sped up its development of a competitive line of cars and avoided the crisis and government bailout money that eventually led to its bankruptcy anyway. Instead of bondholders fighting over the remains of the company, the workers at GM could have saved their jobs and started a new chapter in American innovation. Obviously, other issues such as cultural and generational incompatibility could make such a partnership highly problematic, but the main point is that such economic experiments through government mandate could yield new discoveries, insights, and productivity that would otherwise not take place.
Politics Rule
As mentioned earlier, this approach to economic development was a natural outgrowth of China’s leaders whose ranks were composed entirely of highly educated engineers. In contrast, the U.S. House of Representatives in 2009 was composed of 225 lawyers but only 16 doctors.3 While lawyers, like engineers, will use logic and supportive evidence to make their arguments, their style of arguments may be quite different. Because engineers see the world through a scientific lens, they notice such things as the need for redundancies in the event of unforeseen failures in systems. Lawyers are more likely to view the world as a set of competing interests over political issues. Their proclivity is to win an argument rather than simply let the evidence speak for itself. Engineers, on the other hand, are more apt to analyze the facts dispassionately and refrain from using the rhetorical devices of pathos and ethos, since few have been trained in the art of speech making. These differences in the ways these two sets of leaders see the world have no doubt influenced the policies and character of these two political and economic systems.
Some would argue that the United States already has some version of SEZs because it is composed of 50 laboratories of democracy, each with some level of autonomy and its own laws, but the American approach is more organic than systematic. Certainly the health care reform bill was based on a system that was pioneered in Massachusetts under former Governor Mitt Romney. However, the program had not been tested in other states and was not studied by objective experts who could have testified to its merits or drawbacks with solid data. Moreover, alternative health care solutions that were proposed by various candidates were not first tried in other states to determine if they worked better than the system in Massachusetts.
Should the United States adopt China’s systematic approach to testing out programs, much waste and political dysfunction could possibly be eliminated. Conducting these trials doesn’t require any ideology to dominate despite the differences in opinions between saltwater and freshwater economists. (Saltwater economists refer to those macroeconomists who practice at universities situated along the coasts, whereas freshwater economists comprise those associated with universities surrounding the Great Lakes. They disagree primarily on the effectiveness of government spending on the economy and how to account for irrational behavior.) Rather, more microeconomic research needs to be incorporated into macroeconomic theories and models. While they are considered mainstream, both dominant macroeconomic views suffer from incompleteness and ought to be tested simultaneously since the United States is large enough to have control groups. But piloting programs does require the willingness to seek truth from facts, which unfortunately may put those with established interests on the defensive. After all, the large multinational banks in the United States would hate to admit that the trillions in bailout money did not result in economic growth for the country. In fact, they continue to argue against more regulation even after inflicting the worst financial crisis in history upon the world.4 The beneficiaries of existing policies understandably would not want policy changes even if proof of the destructiveness of existing policies was borne out.
After watching numerous congressional and senatorial hearings, many Americans have largely concluded that U.S. politics trump economics and social justice. In surveys conducted by Pew Research Center in 2011, as many as 84 percent of Americans polled cared most about jobs, but only 23 percent are satisfied with current national conditions.5 Clearly, the political rhetoric in Washington that has been aired daily on television has not satisfied the American public. Real reform of the root causes that led to financial crisis and the derailment of the American economy has remained elusive. For instance, despite the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, large banks that pose systemic risks to the financial system still exist. Debt levels remain elevated in both the private and public sectors in the United States. Quantitative easing measures are used despite public pronouncements from the government and the Federal Reserve that the economy is improving. More troubling is that all these indicators mirror the economic situation in the United States right before it entered World War II. As larger and more serious problems appear on the horizon, such as world resource constraints, rising unemployment, and growing trade tensions, the United States can ill afford to continue to paper over problems with political rhetoric.
A Way Out
With a little political will, the United States can try to incorporate the SEZ model by offering incentives to states for trying out various economic programs. By working closely with states to avoid violating states’ rights, the federal government can arrange for nonpartisan groups to develop and oversee the programs alongside state representatives in order to achieve consistent oversight and metrics.
A prime example for study is the EB-5, which is a visa that allows foreign nationals to get green cards. To obtain the visa, individuals must invest $500,000, creating at least 10 jobs. In its current state, it is rife with corruption. Often, authorized EB-5 centers take foreign money and invest it in projects that are unprofitable and don’t generate employment while falsely advertising that their investments are guaranteed by the U.S. government. Foreigners routinely hand over millions to these unscrupulous EB-5 operators thinking they will receive green cards only to find out that they have lost their money and cannot live in the United States. This widespread fraud damages the reputation of the United States while spoiling a real opportunity to create jobs for Americans. However, such a policy, if better designed and implemented with the appropriate supervision, could be tried in several states over several years with careful surveillance by outside academics to determine the efficacy of the program. If it worked according to the original intent of U.S. job creation, the policy could be rolled out slowly on a regional basis until it became uniform across the United States.
Similarly, the joint venture, already used by some corporations to limit their risk, can be encouraged more consistently by the U.S. government. The United States could offer lucrative tax incentives to encourage more large corporations to join forces with an entrepreneurial outfit every two years to ensure that the speed of innovation doesn’t slow down. Corporate internal research, while also valuable, may not operate at its potential when organizational politics and group thinking can override innovative hunches. Once acquired, entrepreneurial companies run into the same risk of losing their innovative capabilities when they are absorbed into a larger organization where the dominant culture might be antithetical to more independent thought and creativity. According to Professor Geoffrey West of the Santa Fe Institute, in order to maintain steady growth, corporations and cities must continually reinvent themselves and innovate at faster and faster rates to avoid obsolescence and death. If corporations fail to do so, they will go bankrupt. Most companies that were around a hundred years ago no longer exist today, so he surmised that Google or Facebook will also disappear one day if they fail to innovate continuously. If cities fail to do so, New York can easily look like the slums of New Delhi because population and pollution growth will add strains to the existing infrastructure that are unsustainable unless innovations can accommodate these changes.
The entrenched interests would predictably revolt against such an idea unless the government subsidized these ventures. Currently, the U.S. program that is the closest to the Chinese-style joint venture would be Defense Advanced Research Projects Agency (DARPA), which has a portfolio of Defense Department investments in private companies that could have military applications. By supplying capital, sharing knowledge, and offering a market to these entrepreneurs, the government is providing a smoother transition from prototype to a viable company. The obvious drawback in this program is that the investments focus specifically on espionage and means of destruction—such as robots capable of deception and human memory-erasing programs—rather than explore broader applications for enhancing sustainable living on the planet.
The only reason there is even such a program in the United States is because the military industrial complex has become so powerful that the defense budget has grown 9 percent annually on average since 2000, while spending on other budget items either decreased or were subject to freezes.6 This relentless increase in military spending guarantees crumbs for a few entrepreneurs lucky enough to attract attention from government venture capitalists who have mandates to find technology with possible military applications. But for the majority of start-up companies, the door to government contracts is closed. Military administrators in charge of granting contracts tend to award them to large companies where they are ensured jobs upon military retirement. Small entrepreneurial companies that may have more compelling technology are rarely given a chance at securing a government contract because they are frequently too limited in their resources to hire retired military employees as favors in return.
The Story of Elastol
Consider the story of Jerry Trippe, CEO of General Technology Applications (GTA). For 30 years, he tried to respond to the growing environmental crisis, but to no avail. His company sold a substance called Elastol, a nontoxic chemical polymer that can be combined with any number of other materials to solve some of the world’s most insidious problems. When Elastol is added to an oil spill, for instance, it causes the oil to separate from the water and form a thin film that can be easily be skimmed off the surface. It can clean oil spills at a fraction of the time and cost of the conventional methods. Moreover, Elastol leaves the environment much cleaner and is much safer to use than other existing methods. Finally, the recovered oil can actually be restored to its original form by running it through a machine that will reliquefy the oil.
Sadly, despite having positive results after nine years of testing with the Environmental Protection Agency (EPA) and other international organizations, such as the Environmental Department of Canada and the Mineral Management Service off the coast of Newfoundland, the substance is never used. GTA found itself being defeated by Big Oil. The oil lobby had convinced the EPA to allow dispersants to be used to treat oil spills. Dispersants are highly toxic chemicals that cause the oil to break apart and disappear from the surface although it remains in the water and never gets cleaned up. Dispersants are produced by big industry including some of the oil companies such as Exxon. By using dispersants on oil spills, oil companies can not only make money through the revenue of selling themselves the dispersants, they can also make the oil disappear from sight before the media can report on the accident.
After the Exxon Valdez spill, which garnered significant media attention, Congress passed the Oil Pollution Act in 1990. OPA 90, as it is called for short, was supposed to require every oil company to create a new response capability to hydrocarbon liquid accidents. GTA responded by contacting the oil companies to sell them Elastol. But during the eleventh hour while negotiating the contracts with two oil companies that were required to comply with OPA 90, the oil companies were informed by their lawyers that they no longer had to comply. The chemical and oil companies had lobbied hard and won, although the quiet defeat was never reported or explained to the public.
Even with the cost of the BP disaster running into the billions, oil companies would rather not acknowledge the existence of Elastol, since doing so would mean that they would have to take responsibility for it and deal with the public backlash of ignoring a superior solution to the problem. Furthermore, pretending the capability doesn’t exist would exempt them from cleaning it up. And evading a problem by using highly toxic dispersants is always cheaper than stockpiling Elastol and using machines to clean up the mess. Their attitude is environment be damned since the only thing important to big industry is dollars and cents.
Even more perversely, when crews are summoned in to clean up oil that has polluted protected estuaries, beaches, and other important areas, they refuse to use Elastol because the cleanup crews are handled by private companies that get paid by the hour and therefore have no interest in increasing their operational efficiency. These private companies have long-standing contracts with the government and threatened GTA employees never to bring up Elastol again unless they wanted to die an untimely death at the bottom of the ocean. Unless a constituency is formed to improve cleanup, it will not be the people affected by the pollution who call the shots, but the responders who make money from the spills.
Elastol has other miraculous properties as well. Mixed with sawdust, it will enable birds covered with oil to clean themselves off naturally without taking off the protective coating of natural oils underneath their feathers. Cleaning birds with detergent removes the natural oils from their skin and often causes birds to die from hypothermia with the onset of cold weather. Yet despite documentary coverage by the Discovery Channel and the Smithsonian, none of the environmental groups in the United States or Canada have openly embraced the solution. Mr. Trippe asserts that the EPA, again, was a blocker, citing that birds are not worth the money in rescue activities. Indeed, the failed bird rescue efforts following the BP oil spill appear to support his claim.7
The Toxic Cloud: The Poisoning of America’s Air, a book written by Michael Brown in 1987, details how crop spraying contaminated the air with toxic chemicals that traveled hundreds of miles. Again, Elastol could have prevented this from happening because the polymer inhibits vaporization when added to the insecticides. By keeping the poisons from evaporating into the air mass, toxins could have been prevented from spreading. Yet, not enough people read the book, so there was effectively no public pressure for the crop sprayers to change their methods. The only institution in the country that did any work to introduce new technology to this field was the University of California at Davis, but that was only because the agriculture sprays affected the neighboring vineyards.
Critics may argue that GTA didn’t know how to market Elastol or suffered from other execution problems. It may be true that GTA could have possibly found an ally or a customer in another country. But Mr. Trippe was no naïve entrepreneur. Having worked in the State Department for many years, he knew who to approach in the government to sell his products. He also managed to get shows like Nova and Beyond 2000 to broadcast his groundbreaking technologies. He was rewarded 16 patents for these new discoveries, and he didn’t give up for 30 years.
Ironically, the Economist reported that X Prize Foundation has set up a $1 million prize for anyone who can come up with a solution for cleaning up oil spills. Such prizes are disingenuous public relations ploys that mislead the public into thinking nothing has been done because of lack of know-how when, in reality, solutions already exist but are actively ignored by companies and even regulators. Indeed, many entrepreneurs who have tried to submit their solutions reported that their applications had been firewalled from the submission website.
It is entirely possible that Elastol has drawbacks that Mr. Trippe did not convey to me. But even with drawbacks, one would think that an open marketplace would allow for more than one solution to address problems. The sad lesson we learn from the story about Elastol is that when new technologies are developed for markets that are already occupied by strong, entrenched powers, these innovations face strikingly low odds of succeeding due to powerful political resistance.
Just as we know that working out once a month doesn’t take off excess weight, we should acknowledge that following existing economic prescriptions, which are often piecemeal, will continue to fail if we don’t make some real adjustments. To quote Einstein: “The definition of insanity is doing the same thing over and over again expecting different results.” If Americans want to fix the structural impediments to our economy, we must leave outmoded assumptions behind. We need to test new economic policies and develop fresh theories of what is possible. Some of these theories and policies may seem radical—such as demanding that that the U.S. government levels the playing field for new entrants. But we must be open to experimentation in order to save our future. China’s SEZs have demonstrated that this technical model has worked in a country of over a billion people. Isn’t it time that the United States give it the old college try too?