Magazine article Issues in Science and Technology

A Technology-Based Growth Policy: Monetary and Fiscal Policies to Stimulate the Economy Are No Substitute for the National Research and Development Investment Needed to Spur Productivity Growth and Create High-Paying, High-Skill Jobs

Magazine article Issues in Science and Technology

A Technology-Based Growth Policy: Monetary and Fiscal Policies to Stimulate the Economy Are No Substitute for the National Research and Development Investment Needed to Spur Productivity Growth and Create High-Paying, High-Skill Jobs

Article excerpt

Talk to people in industry, academia, or government who are connected in some way with the advancement of science and technology and they will be able to connect specific advances in science to the emergence of new technologies and subsequent product or service innovations. And, among most economists who study the technology-based economy, no doubt exists as to the critical importance of this phenomenon.

However, making the extension from general anecdotes and descriptions to a broader and policy-specific economic growth strategy that would extend such benefits to the entire economy and, hence, have substantial impact on the standard of living has been a struggle. That is, the case for sufficient investment to meet the challenges of an expanding global technology-based economy has not been effectively articulated. As a result, the potential economic benefits for workers and the population as a whole are not being realized.

Similar policy failures have appeared in other industrialized nations. However, the problem of skewed economic growth and the resulting increase in income inequality have been particularly severe in the United States.

Goals of economic growth policy

Economic analysis demonstrates that the only path to long-term growth in incomes is to steadily increase productivity growth. This is because greater efficiency enables higher salaries and wages. In contrast, without adequate productivity growth, the resulting inefficient economy will suffer inflation, trade deficits (i.e., offshoring of jobs) and, as a consequence, little or no real (inflation-adjusted) income growth.

Responding to this mandate requires enlightened investment policies focused on the development and use of technology. The reason is straightforward--technology is the long-term driver of productivity growth.

Unfortunately, neither economists nor the broader economic growth policy arena has focused sufficiently on this investment mandate. The main reason is that, on the one hand, most economists do not understand and, hence, do not appreciate the nature of the central role of technology in economic growth, while, on the other hand, the science and technology policy community, while understanding technology's central role, is not equipped to translate its understanding into the growth policy prescriptions needed to leverage productivity growth.

Achieving sustained growth in productivity requires an investment-driven economic growth strategy, centered on investment in four major categories of economic assets:

* Technology: The core driver of long-term productivity growth.

* "Fixed" capital: Hardware and software that embody most new technology and, thereby, enable its productive use.

* Human capital: Skilled labor capable of using the new hardware and software and associated techniques.

* Technical and institutional infrastructure: Public-private infrastructure to leverage the development and use modern complex technology systems.

Success then and now

In the most summary way, US economic growth history has consisted of a series of "revolutions," which were worldwide in scope, but manifested themselves to a greater degree within the American economy. The first of these occurred from the late 1700s through the middle 1800s and was characterized by a transition from hand to mechanized manufacturing using water and steam power. The second revolution began in the late 1800s and extended into the first part of the twentieth century. It was dominated by mass production, powered by electricity. The specification and control of the multiple steps in production led to reduced costs (economies of scale). The third revolution began in the late 1900s has been characterized by automation, based on the widespread use of computers, which has led to more diversified and higher quality products and services (economies of scope).

The critical point for economic growth policy is the fact that in all three revolutions, the driver of the resulting massive change in the character of economic activity was technology. …

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