How to Make America Grow Again
(Bloomberg Opinion) -- From World War II through the early 1970s, the U.S. economy grew at an average rate of 4 percent per year. Since then it has slipped steadily, falling below 2 percent on average since 2000. Now, all plausible medium-term forecasts — including from the White House — suggest it will struggle to reach even that level in the 2020s.
Meanwhile, a few very large cities, primarily on the east and west coasts, are experiencing more growth than they can handle. This is reflected in high housing costs, congested traffic, overcrowded schools — and in New Yorkers’ recent rejection of Amazon.com’s plans to build a new headquarters in their city, even as much of the rest of the country yearns for more good jobs.
The contrast between superstar cities and the broader economy illustrates a fundamental challenge: America desperately needs more hubs of growth, where talent and money can converge to create new industries. It’s a problem that the government can and should address, by identifying and investing in the technologies of the future – and ensuring that the American people as a whole share in the gains.
The private sector systematically underinvests in basic knowledge — the kind of breakthroughs that bring enormous benefits, but not necessarily to the investors who take the risks. Hence, governments tend to step in. The U.S. did so with satellites in the 1950s and 1960s, engendering a sector in which it still has most of the good jobs. It did it again with the human genome project in the 1990s and 2000s: A public investment of about $3 billion in basic science laid the foundation for companies that today employ nearly 300,000 people and pay at least $6 billion in taxes every year.
Lately, though, America’s commitment to basic research has waned, even as its competitors in Europe and Asia have kept investing heavily. U.S. public support for science and its applications stands at about 0.7 percent of gross domestic product, down from nearly 2 percent in the mid-1960s. This is unfortunate, as there are plenty of places on the scientific frontier where the U.S. should be vying for leadership. Consider synthetic biology, hydrogen-powered cars and improved nuclear power, all areas where the U.S. has made foundational investments but since scaled back as other countries move forward.
What to do? How can the U.S. revive public investment a way most likely to fund the right technologies in the right places and generate broad-based, long-lasting growth? Here’s what we propose:
- Increase government spending on basic science enough to encourage private capital to follow through with longer-term investments in applications. We estimate the right level at about $100 billion a year — less than the cost of Trump’s recent tax reform.
- Hold competitions, similar to Amazon’s contest for its second headquarters, in which cities would vie for federal investment. In this case, the winners would be those with the best ideas and infrastructure, not the biggest tax breaks.
- Ensure that the public shares in the financial upside of successful technologies. This could be achieved, for example, through public ownership of real estate in the new hubs — property that could pay cash dividends to all Americans, much as Alaska shares oil revenue with its residents.
The U.S. has ample candidates to become new hubs. We’ve actually identified more than a hundred across 36 states that have strong science potential, inexpensive housing and easy commutes. Consider Rochester, New York, with a deep talent pool around photonics. Or Pittsburgh, already regaining technical prominence on the back of investments in artificial intelligence. Or Huntsville, Alabama, with its aerospace expertise.
Will there be failures? Absolutely. Otherwise the government wouldn’t be taking enough risk to achieve the desired reward (ask venture capitalists how they get rich). The U.S. is a big country, with deep technical talent spread far and wide. Any dedicated and consistent effort to find and exploit it is bound to turn up some winners, too.
As contenders for the U.S. presidency develop their platforms, what’s lacking is a strategy for generating prosperity, rather than merely redistributing the wealth that already exists. We do not need to live in a country with such deep anxieties, based on ever widening economic and geographic inequalities. Investment in basic science is the answer. America has been a leader, and it can be again.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Jonathan Gruber is a professor of economics at the Massachusetts Institute of Technology. He is co-author of "Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream."
Simon Johnson is a professor of entrepreneurship at the Massachusetts Institute of Technology's Sloan School of Management. He is co-author of "Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream."
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