WASHINGTON – America is doing OK, (if compared to declining Europe and Japan), but not great. The once powerful US economy is not firing on all its cylinders. In fact, it would be appear that some cylinders are missing.
What happened?
What happened to the once large, sustained US public and private investments in science and technology? And where are all the new start-ups courageously pushed forward by legions of young, enthusiastic entrepreneurs? (Contrary to popular belief, business formation in America is at a 35 year low. These days there are fewer new companies created in the US than in many slow moving European countries). And what happened to the once highly respected US public education system?
Lawrence Summers has good suggestions
Economist Lawrence Summers is aware off all this and has a few good suggestions. The Harvard Professor, and former Secretary of the Treasury (under Clinton) and Director of the US National Economic Council (under Obama), talked to McKinsey. They put this interesting interview on-line.
More R&D
Summers reflects on many different economic issues. He says that we have to redouble our commitment to science and technology. In fact (contrary to popular belief) we never spent a lot on this critical sector. But now we are spending much less than we used to. This is a very bad sign.
Our future prosperity and global competitiveness depends on the pace and quality of innovation. And a big portion of tomorrow’s breakthrough ideas that will be translated into commercial applications will come from basic science programs funded today.
Of course, innovation cannot be willed into place. And spending more money on R&D is no guarantee of a good return. Many new projects lead to nothing. But a few may lead to incremental innovation, or even to epochal, transformative discoveries.
For sure, if we do not even try, we shall get nothing.
Education is key
We also have to improve the standards of our public education, says Summers. Our future will largely depend on the quality and drive of our human capital. It is a well-known fact that the quality of American public education has deteriorated, a lot. All credible international surveys place American high school kids in the lower half, or worse of all the academic achievement rankings encompassing developed countries.
And this alarming mediocrity in most cases is not due to lack of funding. It is about entrenched and politically protected bad systems that allow the hiring and retention of unqualified teachers. This is unacceptable.
Let’s take care of our infrastructure
And then we have basic infrastructure. Although this issue has become very political, (who sets priorities? Where do we spend the money? Who benefits politically?), common sense would dictate that we should do something, and fast, at least about basic repairs and maintenance. With interest rates at 2%, Summers points out, borrowing money today for public works is extremely cheap. If this is not the right time to build new structures at Kennedy Airport in New York City, (they were built 50 years ago), then when will the right time come?
Yes, we need oil pipelines
In an indirect jab at the Obama administration, Summers also argues in favor of more modern oil and gas pipelines. He observes that without permits to build these pipelines, large amounts of oil are transported by rail. This is cumbersome, very expensive, inefficient, and very dangerous; as a number of recent tragic accidents have demonstrated. (Yes, Mr. President, approve the TransCanada Keystone XL pipeline that will allow oil from Alberta to get to Texas. Canadian oil is better than oil from Saudi Arabia. And right now much of this Canadian oil gets to the US via rail cars).
Expedite environmental reviews
And, finally, there is environmental protection. While we should all be mindful of our duty to protect the environment, says Summers, getting a permit from the competent environmental protection authorities should not take years. By delaying review and approval for this and that, the government slows the economy down.
Companies have to spend larger and larger amounts of time, resources and money to get new projects off the ground. This is a business disincentive. And unjustified delays are often a way to kills projects by bureaucratic suffocation.
Facing “The Great Stagnation”
Yes, we may be indeed in the new era that economist Tyler Cowen appropriately named “The Great Stagnation”, (this is the title of his seminal book). We are indeed going through a long period characterized by little innovation.
Indeed, with the exception of IT, electronics and biotech, we are still using the basic technologies that were developed 50 or 60 years ago. We have had very few economic breakthroughs. And this is no fun. But we can still bet on the future by investing now in people and in new ideas that may take us somewhere new.
Let’s do something
And, yes, even though this is not glamorous, we should also build a new Terminal at jFK Airport in NYC, and we should finally approve the Keystone XL pipeline that will get us more oil from Canada. No, this is not as exciting as the perfect $ 15,000 electric car that goes a thousand miles on one battery charge, or knee replacement surgery performed by a robot for $ 100.
But it is a lot better than doing nothing.