Public Investment For Long Term Growth

Double down on research and development

 
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Think Big
The Mike O'Callaghan–Pat Tillman Memorial Bridge, completed in 2010 as part of the Hoover Dam Bypass project, is the largest single-arch concrete bridge in North America.

 
 

Strategic public investments, whether in the form of major infrastructure projects or grants that push the technological frontier, are essential for long-term economic growth and diversification. Unfortunately, federal infrastructure funding is highly politicized. And when new projects are approved, innumerable veto points drive-up costs and lead to delays.

Inspired by Germany’s successful development bank, the historian Michael Lind proposes the creation of a U.S. federally-chartered development bank, with projects delivered through a decentralized system of mission-driven regional banks. Such banks would issue tax-favored bonds to finance projects, posing minimal costs to taxpayers. Projects funded by such banks could also make use of fast-tracks for federal review and permitting processes. As Andy Winkler notes,

Countries like Germany and Canada regularly approve projects within two years, not because of weaker regulations but because they have coordinated their decision-making processes and established clear lines of authority.

While our gaps in infrastructure investment are well known, federal support for research and development has witnessed a commensurate decline as well. As a fraction of U.S. GDP, federal support for R&D has fallen nearly 35% over the last forty years. The societal benefits of robust R&D investments are large and compounding, yet the fruits from any particular project can take years to materialize.

As a result, lawmakers often look to cut critical research programs to shore up discretionary spending, trading long-term gains for short-term savings.

We’re living the consequences. Multi-factor productivity growth (the type associated with new ideas) has stagnated since the 1970s. Meanwhile, new evidence points to a broad slowdown in rates of scientific discovery.

Doubling down on research and development has the potential to break us out of this stagnation, while creating new commercial opportunities throughout the country. An R&D focused development bank is one option, along with increasing support for research universities. As economists Jaison R. Abel and Richard Deitz note, increasing grants to research colleges and universities “can raise local human capital levels by increasing both the supply of and demand for skill.” Economist Michael Porter concurs:

With a strategic approach, colleges and universities can have a major impact on regional economic revitalization—without massive new funding.

Basic research may seem esoteric, but it has important implications for the future of work. Engineering labs and advanced manufacturing partnerships, like those funded by the National Institute of Standards and Technology, can help translate cutting-edge science into good-paying jobs. Leadership in technology gives the U.S. a competitive edge in the global economy while growing the human potential of all Americans.

A new public purpose finance system as the centerpiece of a new national economic development system can serve as a powerful catalyst for a dynamic American economy.
— Michael Lind

Federal expenditure on R&D as a % of GDP

Soure: American Association for the Advancement of Science