My column for the July 11th, 2007, edition of the Pittsburgh Tribune-Review is one of the nine or ten of my columns that rank in my top-five favorites of all the columns that I’ve ever written . Not coincidentally, one of its implied lessons is that industrial policy is folly. It was inspired by the New Yorker’s weekly caption contest. You can read my column beneath the fold.
Assets are not automatically productive. They must be made productive by human creativity and effort. And the greater the number of people free to apply their creativity to the use of natural resources and other assets, the more likely it is that available assets will be used as efficiently and as productively as possible.
A weekly contest in The New Yorker magazine makes this point nicely. Each week on the last page of this popular journal is published a single-frame cartoon containing no caption. People are invited to submit captions to accompany the cartoon. New Yorker editors then choose the three submitted captions that they judge to be the funniest.
Readers then vote on which one of these three captions is the best — that is, which caption makes the cartoon as funny as possible. The person submitting the winning caption receives a small prize, in addition to the distinction of having his or her name and place of residence published in this prestigious magazine.
Importantly, you don’t have to subscribe to The New Yorker to submit captions. Anyone can submit. And people from all across the country do so. The result is an amazingly wide variety of hilariously funny captions.
Think of each uncaptioned cartoon as a capital good. It has the potential to create value (in this case, to make readers laugh). By itself, though, this capital good produces almost no value; without a caption, each cartoon is virtually worthless. The cartoon becomes valuable — it contributes to human satisfaction — only when a clever caption is added to it.
Suppose for a moment that The New Yorker allowed only residents of Manhattan to submit captions. No doubt many submitted captions, when added to the cartoons, would produce the intended humorous result. But editors of the magazine could not be certain that the best possible caption was submitted.
What if, for a particular cartoon, someone living in Brooklyn had an even better idea for a caption? By prohibiting non-Manhattanites from contributing their caption ideas to the cartoons, the caption that would have been submitted by the person in Brooklyn — the caption idea that would have added to the cartoon even more value than is added by the best caption from Manhattan — never is added. Thus, the cartoon — this particular capital good — fails to produce as much value as it would have produced had Brooklynites been among those who were permitted to submit captions.
Sadly, though, no one ever learns this fact. The winning caption submitted from Manhattan might be judged by everyone to be excellent. But because the even better caption from Brooklyn never materializes, no one ever discovers just how funny that cartoon could be.
If the goal is to ensure maximum value of this particular capital good (a weekly uncaptioned cartoon), clearly it is advisable to have larger, rather than smaller, numbers of people able to try their minds at devising clever captions. With everyone in the world free to contribute captions, each cartoon is joined with cleverer and more creative captions than would be the case if only Manhattanites — or only residents of New York state, or even only Americans — were allowed to submit captions.
The very same process is true of factories and machines and workers. It might be that the entrepreneur with the best idea for how to use a particular factory and its machines and workers to produce maximum value is an American. But fewer than 5 percent of the world’s people live in America. So it is inevitable that the best and most creative ideas for how to use particular assets that are located in America will often be possessed by non-Americans.
One of America’s great features is its openness to foreign investors. This openness isn’t complete, as attested by the intense opposition last year to the attempted purchase by some Chinese of an American oil company. But foreigners, overwhelmingly, are free to invest in America even when such investments give them controlling interests in U.S.-based companies.
To anyone who frets about foreign ownership of American assets, I say that our openness to such ownership is an important source of creative ideas and effort.
Our openness to ideas and efforts from around the globe ensures that each asset in the U.S. — each factory, each plot of land, each retail space, each machine, each worker — is used as productively as possible.
To reduce this openness, therefore, would be to make our economy weaker and ourselves poorer.