Innovation and the Productivity Crisis

Innovation and the Productivity Crisis

Innovation and the Productivity Crisis

Innovation and the Productivity Crisis


The collapse of U.S. productivity growth since the late 1960s has been the most severe and persistent of recent economic problems. This volume reviews the extent of the growth slowdown, evaluates several contributing factors, and suggests strategies for improvement. The authors find that inflation, recessions, oil price fluctuations, and other economic disruptions in the 1970s had an averse effect on economic performance, but, they suggest, a slowing in the pace of innovation and a failure toexploit the benefits of innovation also contributed to the weakness in productivity.Baily and Chakrabarti provide a comprehensive assessment of U.S. technology policy and its importance to growth. They argue for continued support of basic science, even though strength in this area does not give the U.S. economy an immediate competitive advantage, and advocate increased support for middle ground" and commercial research. They conclude that this support must be structured to preserve the advantages of the market. "


The slow growth of productivity in the U.S. economy over the past fifteen years has presented a puzzle for analysts and a challenge for economic policy. American living standards have improved somewhat during this period, but largely because of an increase in employment and the resort to foreign borrowing. If living standards are to continue to rise, however, productivity growth must contribute more in the future.

In this book, Martin Neil Baily and Alok K. Chakrabarti present a profile of the slowdown in productivity growth and review the many contributory elements. They find the standard explanations leave a large gap that strongly suggests productivity growth may have been pulled down by the slow pace of innovation. Evidence from several case studies reveals that, although opportunities for technological advance were available, U.S. industry either missed them or was unable to use new technologies in ways that raised productivity. To encourage innovation, the authors propose enactment of an enhanced tax credit for research and development. They also advocate encouraging coalitions of private companies to perform middle-ground research--research oriented to commercial applications but too general to justify investment by individual companies. They recommend both easing government obstacles to joint ventures and providing some public cofunding if the projects promise social returns.

This book continues the tradition of productivity studies at Brookings pioneered by Edward Denison's analyses of the determinants of productivity growth both here and overseas. Financial support was provided by the Chase Manhattan Foundation and by the Division of Science Resource Studies of the National Science Foundation through grants to Drexel University.

Martin Neil Baily is a senior fellow in the Economic Studies program at the Brookings Institution and Alok K. Chakrabarti is associate vice president for research and William A. Mackie Professor of Commerce and Engineering at Drexel University. They would like to thank Barry P. Bosworth, Robert W. Crandall, Michael F. Mohr, Richard R. Nelson, and . . .

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