Last month Business Week calculated that consumers borrowed and spent about $3 trillion over the last decade, “consumption that was not justified by income growth.” Economic growth in the U.S. over the same period averaged 2.7 percent, the slowest rate since the 1950s. Personal consumption growth continued to grow while the rest of the U.S. economy declined, as the graph shows, which appeared in a 2008 Business Week article shows.
Michael Mandel, the chief economist for Business Week, believes that two things need to happen to “get the economy off the slow-growth track.” First, the private sector must concentrate on generating more productivity gains at home. U.S. multinational corporations moved many of their operations to other countries, which “created an unsustainable situation in which the U.S. had to keep borrowing from overseas to buy the goods made overseas.” Perhaps the old slogan “be American, buy American” needs to be revised to “be American, produce in America.”
The second way to increase economic growth is to create more innovative biotech and energy goods and services in the U.S. Daniel Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California at Berkeley testified before the U.S. House of Representatives’ Committee on Energy Independence and Global Warming in September. Kammen told the Committee the government needs to triple its investment in R&D.
“Innovation is the life-blood of economic growth and renewal,” Kammen said. “In fact, it has been known for decades that the bulk of new economic growth results from the re-invention and invention of new scientific and technological opportunities.”
Tom Davenport, the chair of Information Technology and Management at Babson College, proposes that the U.S. “spend less and produce more goods and services that other economies around the world want to buy.” The way to achieve that goal, according to Davenport, is for the government to identify industries it will “nurture as the potential big exporters of the future.”
Danger and opportunity in crisis
The Chinese word for crisis is made up of the characters for danger and opportunity. According to Sami Mahroum, research director for Britain’s National Endowment for Science, Technology & the Arts, innovation is the “single most important condition” that can transform an economic crisis into an opportunity. “Governments should recognize that innovation systems, with all their academic, industrial, and public components, are strategic national assets that need to be protected, just like the financial and housing sectors.”
Mahroum proposes four things countries can do to create opportunity out of the current economic crisis:
1. Inject capital into “strategic science and technology areas.” The South Korean government increased its investments in R&D during an economic crisis in the 1990s. “Korean businesses didn’t have to play catch up when the economy bounced back”
2. Think global by encouraging international investments in science and technology. “Expensive long-term S&T programs can become new platforms for multilateral collaboration.”
3. Focus on public programs by increasing funding for public science and technology programs. It is equally important that governments maintain funding levels.
4. Support talent by creating funds to support potential entrepreneurs.
Reform the tax system
The tax system needs to be reformed so that it “rewards users and producers of technology and the goods and services they create,” according to Business Week’s managing editor for innovation and design, Bruce Nussbaum. Nussbaum also believes the accounting system needs to be reformed so it recognizes and promotes R&D.
Nussbaum calls for a system that is based on innovation which “produces more than it consumes and exports more than it imports.” In order to get a green tech economy we need to “implement a new kind of economics that rewards and incentivizes innovation.”