Rich Thomas (center) is the contributing editor of Newsweek magazine in Washington, D.C. He has written and contributed to scores of the magazine's cover stories on economic developments in the U.S. and around the globe. Thomas has been the recipient of numerous journalism awards, including two Gerald Loeb Awards.
Before joining Newsweek in 1962, Thomas was the financial editor of the New York Post. He has authored articles for several other publications, including Reader's Digest, the International Economy, the Atlantic Monthly, the World Almanac, the Cato Institute and the Washington Post.
Rich Thomas is a member of the IPJ Board of Visitors and chairs its awards committee.
Rich Thomas: Creative Destruction & Economic Journalism
Rich Thomas of Newsweek delivered the following remarks to students of the 2005 Institute on Political Journalism (IPJ) as part of our Professional Journalism Awards program.
In addition to the Clark Mollenhoff Award for Investigative Reporting and the new Thomas L. Phillips Collegiate Journalism Award, The Fund also presents an Economic Journalism Award to magazine or newspaper writers whose submission provides the best understanding of free-market economic principles and their impact on policies and markets.
The Economic Journalism Award is open to both reporters and analysts. The judges seek to reward writing that features outstanding original reporting and fact-finding married to superior analysis, and expands the public's understanding of economic theory and reality.
We in the U. S. tend to take free markets for granted. With all their victories and hardships, competitive markets seem the normal way of arranging economic exchange in a free society.
But free markets have been and remain controversial. During the great depression, the world's faith in democracy itself - and not just free markets - was shaken. Continental Europe succumbed to fascism and communism. Even in the beleaguered U.S., socialism - or at least strict government control - was believed by the intellectual elites to be the wave of the future.
Joseph Schumpeter, an advocate for capitalism and one of the greatest economists of the 20th century, concluded in the 1930s that private enterprise was probably doomed. He noted, accurately, that the invention of economic freedom - unfettered markets - was the only reason that western civilization had gotten rich over the last 200 years.
Yet, Schumpteter feared that the very success of economic freedom contained the seeds of its own destruction. Economic freedom inevitably creates vast inequalities. Simply put, human economic talents, like other talents, are wildly unequal. Furthermore, blind chance and luck operate within free markets to exaggerate the natural inequality among humans.
The automobile revolution, 100 years ago, created one Henry Ford, several Horace Dodges, and a few score smaller millionaires. It also created hundreds of equally bright financiers and engineers who wound up bankrupt. Ford's own workers took home just fi ve dollars a day. Where is the justice in that?
Consider the personal computer revolution. It created one Bill Gates, now worth something like $50 billion. Question: Is Bill Gates 12,500 times smarter than Marc Andreeson, the founder of Netscape, the internet browser pioneer? Yet Andreeson wound up with just $4million when AOL bought him out.
Consider also, is Gates one million times smarter than the 20 something programmer who's working today for Microsoft for $50,000 a year? And what about many workers at IBM, Control Data and other main frame computer companies? Hundreds of thousands lost their jobs because of PCs.
Schumpeter invented the phrase for this phenomenon: he called it the creative destruction of capitalism. New technologies, businesses and industries constantly find better and cheaper ways to do things. In the process, they destroy existing technologies, businesses and industries. Such creative destruction steadily enriches society as a whole, and it is wonderful for the new guys, the winners, but it's hell, at least temporarily, on the losers. Justice? There seems to be little justice in this process at all.
Politics, on the other hand, is all about justice. Contemplating the contradiction back in the 1930s, Schumpeter figured the forces favoring equality and justice would win. He noted that ordinary workers - plus the intellectuals and the politicians who set the daily political agenda - would always vastly out number the capitalists and entrepreneurs.
These vast laboring, scribbling, and chattering classes, he said, would constantly chafe and rebel against capitalism's unfairness. They would forget that Henry Ford's five dollar a day pay scale, when it was announced, tripled the going wage rate. Ford's fortune, though, would be constantly recalled and hated.
Schumpeter predicted that a relent-less, populist push for legislation aimed at producing greater equality would gradually drive taxes so high and controls so tight that free markets and capitalism would be crushed, and economic growth would disappear.
Schumpeter's diagnosis is still powerful today. Europe and Japan have indeed pushed taxes so high and controls on business so tight that they have brought economic growth in their regions largely to a halt. Happily for the U.S., competitive markets still largely operate. As a result, America is now the fastest growing wealthy nation on earth, and has been for 10 or 15 years.
Our living standards are almost a third higher than in Europe and Japan, and the gap seems to be widening. The leaders of continental Europe, to their credit, understand they have overdosed on equality. They are trying to reduce regulation and taxes and escape stagnation. So far, unfortunately, they haven't had much success.
The rise of economic journalism has played a significant role in keeping the torch of liberty lit in the U.S. Good economic and financial journalism holds both business and government accountable. This keeps each sector relatively efficient and harnessed to the long term general good.
When Schumpeter wrote in the 1930s, economic journalism did not really exist. Journalism was all politics and cops and robbers. Three or four New York papers had a Wall Street reporter or two, and that was about it. The first business publications, such as Business Week and Fortune, were just getting started. The Associated Press hired its first economic columnist only in 1940.
Jump to today. Economically literate journalists and columnists now grace every big daily newspaper and national television network. General journalists in the hundreds now also cover economic and business themes. Business and financial publications count in the hundreds. Problems like Social Security, the costs of health care and corporate governance and scandal are covered with a factual grasp that would have astonished Schumpeter.
The Fund for American Studies and the Institute on Political Journalism launched the economic reporting award five years ago to encourage these trends and to recognize outstanding achievement.
Today, we're here to honor this year's winners. For the first time, we are awarding an honorable mention. This is a prize of $1,000 for John Schmid of the Milwaukee Journal Sentinel. Schmid is starting to make a habit of this. He won the top award last year for a series on the impact of Chinese manufacturing on Wisconsin industry.
This year, Schmid produced a three part series that documented, in anecdote and precise statistical analysis, the devastating impact on Milwaukee's black community of the decline of old line blue collar industries - autos, brewing, machine tools, steel and leather tanning.
Schmid's final piece in the series describes the efforts of local foundations and young black leaders to rebuild the community's fortunes by stimulating private enterprise. They hope for a private market solution to a problem that government has worked on for decades and utterly failed to solve.
The first prize for economic journalism was advertised at $5,000. It's been this large for the first five years, but a man named Thomas Phillips woke up one morning, this spring, and decided that $5,000 wasn't enough.
Phillips is an enormously successful entrepreneur, chairman of Phillips Publishing. Among other innovations, Phillips created Regnery Books, which pioneered the printing of conservative authors. None of the mainline trade book publishers thought there was a market for such titles, but Regnery became so successful that now all the big publishers have created conservative publishing houses of their own.
Phillips has also long been the driving spirit behind the Institute on Political Journalism. Never mind that Pulitzer prizes are $7,500. Tom decided our economics award should be $10,000. He came up with the extra five thousand from his own pocket and made it retroactive.
So, Alwyn Scott and Brier Dudley and Jake Batsell of The Seattle Times are getting checks for $3,300 and change instead of $1,600 and change.
Let me say right here that the judges were unaware in making their pick that Jake Batsell was a graduate of the Institute on Political Journalism. We learned this delightful fact weeks after the award was announced. Honest, folks, this wasn't rigged, but it's a nice sidebar to this year's award, all the same.
Almost two-thirds of the 26 entries for the economic journalism award this year were articles on the impact of globalization. Several of the finalists did wonderful series on the subject.
Ron French of the Detroit News wrote a series that presented the progressive impact of Asian/Chinese competition on one Michigan company, Clements Manufacturing. Clements progressively moved most of its jobs first to Mexico, then to Honduras and then to Wuhu, China. French reported the story without tears, but with great compassion.
A team of writers for Business Week produced an equally impressive package of stories showing the world wide impact of low cost manufacturing wages out of China. Their Business Week cover story was called, "The China Price." That's the price that all suppliers to big manufacturing assemblers everywhere must now meet if they're to be able to retain their business.
Bruce Strokes, a columnist/reporter for the National Journal, submitted half a dozen globally oriented analyses covering everything from Poland and Turkey to China's impact on third world apparel manufacturing.
Scott, Dudley, and Batsell, The Seattle Times trio, topped all these excellent finalists in the minds of the judges. Their pieces were all based on detailed, on-site reporting. Their articles explored the impact of globalization on the jobs, exports and imports of business and industry in the Pacific Northwest.
One set of articles explained the rise of Microsoft's exports and imports as a consequence of the development of computer software and service in India. Microsoft gained domestic jobs by boosting exports to a wealthier India, but at the same time, it lost some other jobs as it outsourced programming to Hyderabad.
Another excellent set of The Seattle Times articles showed the benefits and costs that coffee growers in Latin America gained by producing high quality coffee beans for Starbucks.
Still, a third set of articles described the transfer of Washington State's entire asparagus growing and canning business to Latin America. An end to U.S. tariffs and quotas on fresh vegetables triggered this migration.
A final article described the devastating effects of high tech piracy out of China on one local inventor and his company. Piracy destroyed his business, because he lacked the resources to chase the pirates through the courts in this and half a dozen other countries. The Seattle Times article then described the inventor's ingenious plans to counterattack.
In all, theirs was just a brilliant series of long reports, a dozen pieces running one to three news pages each. It gives me great joy to award Alwyn Scott, Brier Dudley and Jake Batsell the Institute on Political Journalism's 2005 Award for Excellence in Economic Reporting.
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