Monday, January 30, 2017

The Truth about Hiding from the Truth

If you find an old-timer at the Dulzura Cafe, ask him about Bulldozer man and his fence. He was old back when I was young, and like many in this rural California outpost near the Mexican border, he used his acreage as he saw fit. Many of us shot skeet; some just left the sagebrush alone and enjoyed the isolation. Bulldozer man owned a big old Caterpillar bulldozer, and he spent his time moving mounds of dirt hither and yon.

Now, about the fence. True story. Happened in 1975, just outside of Dulzura. One fine Spring day Bulldozer man visited his neighbor, an affable, transplanted New Yorker who had gone native, complete with horses, boots, and plenty of Coors. Bulldozer's proposition was that they two share the cost of a fence that Bulldozer man was willing to build. Indeed, he had already begun piledriving large holes along the property line. But the affable Coors drinker saw no need to break up the beauty of the countryside with a fence. Bulldozer was enraged, especially since he'd already started on the hole digging. He stormed off, shouting something about how the fence will be all his. Soon the measure of this man had become public for all to see: Bulldozer decided to make the fence "his." He backed it up a full 10 yards, so that it was clearly and completely on his side of the property line, effectively giving up hundreds of square yards of real estate to our affable Coors drinker. Many a Coors was raised in thanks to this dimwitted neighbor in the years since.

So it is that often when we look out for #1, we end up doing more harm to ourselves than good. Same goes for public policies meant to protect domestic jobs and economic vitality. Truth is, when our companies have to compete, it does them good. You don't get good at anything by hiding away. (Think of how you shop for schools for your kids. You certainly don't look for a place where they can perform as poorly as possible and get away with it. You probably look for the best school, and do everything you can to encourage them to compete.)

Same with companies. Faced with competition from other countries, domestic companies either improve their performance or fail. There is plenty of evidence to back up this claim. Especially notable is a recent paper by Stanford economist Nick Bloom and his colleagues. They found that when Chinese imports increased as a result of that country entering into the WTO, the impact on firms in other countries was profound. Those firms picked up their game, often innovating much more in order to compete. The firms that did not pick up their games lost business, of course. But in the end, having to deal with competition from places like China turns out to be a big reason we have vibrant firms in today's economy.

Tough talk may sound good, but it does not make you a winner. And, for folks like Bulldozer man, bluster provides cover for downright stupid, self-destructive actions. When all the tough talk is done, you become competitive by competing. Hide from that truth if you wish, but the person you're hurting is yourself.

Read the research on this by Bloom, Draca and Van Reenen.