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Today's Little Thousands, Tomorrow's Big Three

By Marc Tracy

We've been largely in favor of helping out the Big Three automakers, at least enough to stave off their total collapse, under the theory that many, many entrepreneurs, small businesses, and indeed entire regions are dependent upon the economic activity and jobs they create (though we also want specific help for those many entrepreneurs). But we also want to talk about this tremendously good post that Harvard economist Edward Glaeser just wrote on a New York Times blog. The post is called, "The Big Three? Try The Small Many".

Glaeser argues that it is the myriad small businesses all trying to make names for themselves through innovations that are the true drivers (pardon the pun) of economies, and not the big, lumbering, old companies. "That is how innovation works: small companies competing like crazy and trying out new things," Glaeser says. "Across cities, there is a strong connection between an abundance of small firms and local growth. The last thing that the government should be doing is propping up big declining firms. Real innovations are far more likely to come from someone’s garage."

In fact, guess which major innovation, which ended up doing untold economic good for the U.S., was driven by a bunch of competing entrepreneurs? That's right: the automobile, especially its mass-produced variant.

As Glaeser puts it, "The true story of the invention and mass production of the car...teaches the value of free competition among private entrepreneurs and the exchange of ideas across countries."

Indeed, Detroit, that great dying city, was once a center of innovative entrepreneurship: "The Detroit area had earlier been a center for engine works, often servicing boats on the Great Lakes, and carriage production, which took advantage of Michigan’s forests. Henry Ford came out of the engine business; Billy Durant made carriages."

Glaeser adds, provocatively: "Detroit a century ago looked a lot like Silicon Valley today. It was a city of small businesses, with an entrepreneurial genius on every corner."

To be sure, Glaeser is not 100% against a Big Three bailout--"The Big Three automakers pose real policy problems. The government is already on the hook for their huge pension liabilities. Vast layoffs will make the recession worse. I am not arguing for complete laissez-faire"--but he is against thinking of the bailout in terms of helping the economy get better as opposed to preventing it from getting worse. It is clear, rather, that he believes what will make the economy better is a sort of paradoxical government stance of hands-off encouragement towards entrepreneurship.

This is the sort of industrial policy--post-industrial policy? post-"industrial policy"?--that we need; and it stems from the recognition that it is the little guys who are the only ones who can pull us out of this mess and put the U.S. in a position of global economic leadership again.

Youngstown, anyone?

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