In 1776, two important documents were created: The Declaration of Independence was signed 237 years ago on July 4, and the lesser known book, “The Wealth of Nations,’’ was published. While the 900-page book pales in historic comparison to the Declaration of Independence, its contents are equally revolutionary.
Adam Smith, a Scottish moral philosopher and professor at the University of Glasgow, wrote “The Wealth of Nations’’ as a reaction to a closed European economic system which favored the state over individuals. Both documents are products of the Enlightenment. They delineate principles that established the basis for American democracy and our market-based economic system that some observers have said may be the worst system of all – except for all the others.
The Declaration of Independence is fraught with 18th century neoclassical liberal thinking about the inalienable rights of individuals. It is in sharp contrast to the monarchical, mercantilism doctrines that dominated England and its colonies for more than 150 years. It is doubtful our founding fathers read “The Wealth of Nations” before putting pen to paper. Nonetheless, it is obvious that the Enlightenment way of thinking permeates both texts.
Adam Smith was concerned that state-owned and/or state-controlled enterprises would inevitably discriminate against the individual in favor of these public or quasi-public enterprises. Furthermore, he believed powerful companies and state agencies would collude and conspire against public and privately held companies if competition was stymied by government.
The 18th century philosopher was not an anarchist any more than were America’s founding fathers. He saw legitimate roles for government: One was to assume defense of the country, and another was to provide services a profit-driven market economy would not, such as public transportation. Finally, Smith also believed it was the responsibility of government to create and maintain a judicial system that enforces, among other things, intellectual property rights.
Adam Smith was one of the first to suggest that a centralized economy overseen by the state would inevitably lead to a lack of individual freedom, less productivity and a decline in the wealth of all within a nation.
He would no doubt feel comfortable today in commenting on the strategies centrally controlled economies like China’s use in securing industrial secrets from other countries. Most likely, he would also see similarities between mercantile England of the mid-l8th century and the centralized government and economic system of China in the early part of the 21st century.
The motives behind former National Security Agency (NSA) analyst Edward Snowden’s alleged actions are debatable. It is clear, however, that the alleged thievery from NSA has become a public relations coup for one of our nation’s chief competitors. China has suggested the Snowden incident proves the U.S. is engaging in exactly the same kind of espionage that we have accused the Chinese of doing. We should know, however, that the organized stealing of another country’s patented scientific, biological and industrial secrets is hardly the same as intelligence gathering that is designed to assure our national security.
Why is the U.S. not engaged in the wholesale theft of patented products from other countries? As Adam Smith pointed out many years ago, for one simple reason: Who would the U.S. give secrets to? Would the United States government lend stolen communications patents to Microsoft or Google, or the myriad of other firms in the industry? Would our government give aerospace secrets to Boeing or General Dynamics, or biomedical secrets to GlaxoSmithKline or Johnson and Johnson? Of course not. These firms are not state-sanctioned monopolies. They compete against one another thereby optimizing creativity and efficiency.
There is little reason for one country to steal from foreign firms when private enterprise is the basis for economic activity between countries. Just like 18th century Britain and China today, when there are vague and non-existent boundaries between companies and government, the incentives to engage in industrial espionage are strong. Company profits are not owned by entrepreneurs, shareholders or employees, but by the government itself. These governments enrich themselves through industrial espionage.
In “The Wealth of Nations,” Adam Smith introduces the famous “invisible hand.” Unencumbered by the dictates of government, private enterprise and competition would guide individuals to seek their own gain which in turn leads to the betterment of all, according to the professor and philosopher. This 237-year old axiom is as true today as it was when he penned it in the same year we declared our independence from England.
Private business ventures continue to be the most efficient way to discourage industrial and intellectual espionage, while it also encourages growth in enterprise and rewards honest individuals who seek to prosper in the marketplace.
Michael A. MacDowell is a former economics professor and the retired president of Misericordia University in Dallas, Pa. He resides at Harveys Lake, Pa