The country’s post-war history offers a blueprint for a more equitable economic future
Cambridge, Mass., April 9, 2019—The American engine of progress and prosperity is in serious trouble. Job-creating innovation has stalled, resulting in a slow hollowing out of the middle class. Meanwhile, wealth and economic opportunity are increasingly concentrated in a few coastal megacities. How did we get here? And, perhaps more importantly, how do we turn this tide?
A new book by two MIT economists, Jonathan Gruber and Simon Johnson, provides answers. The book, Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, (Public Affairs) presents an ambitious plan to boost public funding in scientific research and development in dozens of communities around the country.
“There's a great deal of frustration in America today—people are worried about the future for their kids and they feel that the number of good jobs that are available to them are dwindling,” says Prof. Johnson. “It doesn't have to be this way. We think that embarking on a plan that will create the industries of the future—and the good jobs that go with them—is the best way to do that.”
The authors call for an additional investment of $100 billion per year—an amount they say will generate four million new jobs. The authors also propose the creation of a national endowment fund, similar to the Alaska Permanent Fund, which distributes revenues from the state’s oil and gas, so that the public can share in the returns of its investment. “People rarely talk about the economic benefits of science,” says Prof. Gruber. “Science is a pro-jobs policy. And it’s a big reason why the U.S. was so successful after the Second World War.”
Government support for R&D rose steadily from 1940 until the mid-1960s. At its peak, this funding amounted to roughly 2% of the nation’s annual total gross domestic product, or about $400 billion a year in today’s money. The investment not only allowed for many important breakthroughs in science and technology—including advancements such as radar, digital computers, jet engines, and eventually the internet—it also helped expand the middle class. Median family income doubled from 1947 to 1970. And GDP grew nearly 4% per year through the early 1970s.
Today, however, federal spending on R&D stands at 0.7% of GDP, or the equivalent of about $240 billion per year less than its peak. Since the 1970s, median family income has increased only 20%, and the bulk of that growth has been concentrated in large cities on the East and West Coasts.
The authors advocate for locating new research and technology hubs in places with the potential to promote growth. “There are dozens of cities in the U.S. that have the preconditions for success: a large pool of educated workers, high-quality universities, and a low cost of living,” says Prof. Johnson. “But they are losing out today because they lack the scientific infrastructure to become new centers of innovation, and because the private sector is ignoring them. What these places need is a jump start.”
In that spirit, the authors have developed their own rankings of 102 potential new technology hubs based on statistical data about American cities. The Appendix to Jump-Starting America provides more detail on their ranking system and data sources. Rochester, N.Y. ranks first; Pittsburgh, P.A. is second, and Syracuse/Utica-Rome, N.Y. is third. In addition, they have created an interactive map that allows users to explore cities in greater detail, combine cities to define their own custom region, or give different priority to different statistics.
The authors recommend that the government select the best places through an Amazon HQ2-style competition. “This competition should serve the interest of the nation,” says Prof. Gruber. “Places would compete not on the basis of tax breaks but on the basis of their qualifications. They would have to show that they’ve made strides in science education with the goal of producing many more highly skilled university graduates. They’d have to show they have sustainable development plans. And they’d need to demonstrate their abilities embark on fruitful private/public partnerships.”
The authors point to a number of examples that demonstrate how a bigger public-sector role in the research and development process leads to higher productivity. The government’s $3 billion investment in the Human Genome Project in the 1990s is a prime illustration. “The Human Genome Project has changed the face of biomedicine. It has led to the creation of an industry that generates nearly $6 billion in federal, state, and local taxes per year and helped create hundreds of thousands of good jobs,” says Prof. Gruber.
“This is the kind of success story we can have in America if we take a leadership role.”
Prof. Gruber is the Ford Professor of Economics at MIT. He is also director of the Health Care Program at the National Bureau of Economic Research and president of the American Society of Health Economists. In 2009-2010 he served as a technical consultant to the Obama Administration and worked with both the Administration and Congress to help craft the Patient Protection and Affordable Care Act.
Prof. Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management. He is also the Former Chief Economist of the International Monetary Fund. His book, 13 Bankers: the Wall Street Takeover and the Next Financial Meltdown, (with James Kwak), was an immediate bestseller and has become one of the most highly regarded books on the financial crisis.