A 21st Century Growth Agenda

A 21st Century Growth Agenda

By Andrei Cherny

(Published in Blueprint, December 1, 1998)

The primary building block in making the New Economy work for ordinary Americans must be strong economic growth. As Professor Paul Romer points out in his incisive analysis, this economic growth depends on encouraging innovation. For ideas build upon one another -- and each new invention, development, or discovery leads to new avenues of exploration. Innovation is about much more than new technologies and computer start-ups, it must be a way of life for every sector of our economy if we are to have the rates of growth needed to lift the standard-of-living for average Americans in the 21st century.

To help foster the economic growth that would boost the prospects of ordinary citizens in the New Economy, we need an Information Age growth agenda. This agenda should include these three ideas:

First, maintain a sound fiscal policy. The primary purpose of fiscal policy must be to lay the foundation of economic growth. In the 21st century, this means a proactive agenda that builds on our present success.

For six years, America has done the hard work of tightening its belt and balancing its books after decades of runaway spending. Now that we are enjoying the fruits of that achievement -- in the form of the economic success produced by lower interest rates -- we cannot succumb to the temptation to go back to the bad old days. We must continue to rein in the Right's wild-eyed promises of massive, budget-busting tax cuts as well as the Left's attempt to start spending money like drunken sailors. The present surplus should be primarily used for three purposes: (1) to reform our outdated entitlement systems before they throw our budget back into the red, (2) to pay down our national debt, and (3) to reinvest the "profits" America's economic boom into the ingredients that created it in the first place: the skills of the American people and the forces of innovation.

Second, de-subsidize the old economy and use the proceeds to invest in the New Economy -- spurring economic growth by curtailing the subsidies that inhibit competitiveness and innovation and freeing resources for the investments that foster them. The first part of this growth agenda could be called a budgetary Hippocratic Oath: first, do no harm. This second part could be called a Hypocritical Oath: practice what you preach. For Democrats it means taking on -- in a serious way -- the rich and powerful interests that use public funds for their private gain. For Republicans, it means untying the "invisible hand" they extol -- and letting market forces do their work.

As Robert Shapiro, former Vice President of the Progressive Policy Institute and current Under Secretary of Commerce, has pointed out, our budget is saturated with scores of tax and spending subsidies that have been placed there by powerful old-line industries. These giveaways take hard-earned tax dollars which should go to public investment and use them for the private benefit of big corporations.

The special tax breaks clog up our tax code and make it a complicated nightmare for too many citizens and small business owners. They not only force middle class Americans to pay higher taxes, they undermine the already tenuous faith of citizens in the fairness of the tax system.

These tax and spending boondoggles are more than unfair, they slow down economic growth in two major ways. First, they create an unfair advantage for certain firms and sectors by insulating them from the forces of competition and the need to innovate. Second, they prevent America from having the funds necessary to invest in the future. Writer Jonathan Rauch calls this problem "demosclerosis" -- the lining of the arteries of our democracy with special-interest subsidies that inhibit the flow of public action.

Unfortunately and sadly, our political process has proven itself incapable of taking meaningful steps to eliminate these handouts. To break the stranglehold of the special interests, a Commission on Special Subsidies and National Growth -- modeled on the Military Base Closing Commission -- is needed to systematically evaluate all industry-specific programs and recommend the repeal or reform of those tax breaks and subsidies that serve no overriding social or national purpose. Congress would then have to take the Commission's recommendations and vote them up or down -- with no amendments.

This would help unleash the tethers holding back economic growth. But, to help give impetus to that growth, the savings that Congress finds through the Commission should then be used to fund research, development, exploration, and innovation -- the investment needed to power the New Economy.

Each dollar of federal basic research leverages an estimated $3 of private investment in the elements of economic growth. Yet, today civilian research is half -- as a percentage of the gross domestic product -- of what it was in the 1960's, the golden age of federal research that gave birth to the entire field of computer science. In the New Economy, it should be the goal of the United States to, at the very least, return to that level of funding in basic research -- a doubling of the present levels of investment.

This is especially true at a time when the budget for military research and development is in a period of decline. If civilian R&D does not pick up the slack, then it is the American people who will suffer in the form of the slower growth rates and dimmer economic prospects.

Third, modernize our patent system for the 21st century so that it is streamlined, effective, and fair. In this age of innovation, imitation is no longer the sincerest form of flattery -- it is a dagger pointed at the very heart of America's economic growth and dynamism. Inventors and researchers, upon whose shoulders so much of our economic future rests, will be much less likely to do their important work if the fruits of their labor are not protected.

The number of patents issued per year has almost doubled since 1983. But America is still burdened by a machine-age patent office that simply can't keep up with the New Economy. At a time when successive generations of technology overtake each other almost continually, the snail-paced system of patent processing sometimes takes 15 years or more. If economic growth is to continue, the Patent and Trademark Office should be reinvented to work more efficiently, more openly, and in a way that rewards inventors -- not patent speculators. Legislation to this effect has been languishing in Congress for two years. It should be passed now.

Economic growth is not an end in and of itself. It is, however, a prerequisite in giving Americans a shot at a brighter future. In the New Economy, the old means of pumping up economic expansions through government spending no longer work. But standing by idly as wages, productivity, and innovation remain stagnant is a ticket to failure. Instead, we must be willing to be as innovative as the economy we seek to promote. That is the entry price for the next American economic boom.