Tuesday Talk speaker SImon Johnson

Reinvesting in 21st Century America

By Jim Arvantes

MIT Economist Explains How Greater Federal R&D
Investments Can Jump-Start the American Economy

An annual federal investment of at least $50 billion in research and development, R&D, over the next 10 years would revitalize the American economy and create tens of thousands of high paying tech jobs while allowing the federal government to spread the ensuing wealth throughout the country.

That was one of the main messages delivered by renowned economics professor and writer Simon Johnson, Ph.D., a Cleveland Park resident who spoke at the latest Tuesday Talk at the Cleveland Park Library on Jan. 21.

Johnson, the Ronald A. Kurtz Professor of Entrepreneurship at the MIT Sloan School of Management in Cambridge, Mass., is co-author of the critically acclaimed book, Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream.

In that book, Johnson and co-author Jonathan Gruber, Ph.D. call on the United States government to spend at least 1% of its gross domestic product, GDP, on R&D each year for the next 10 years. (The U.S. government currently spends .7% of its GDP on R&D, much less than the 2% the government spent on R&D in the mid-1960s.)

“You listen in stunned silence because how do you propose to pay this kind of money in the modern environment?” asked Johnson, who has advised the International Monetary Fund, the Congressional Budget Office and the U.S. Treasury for the Financial Research Office on economic matters.

Johnson alluded to Amazon’s quest for a second headquarters as a possible answer, pointing out that the new site will probably create about 50,000 high paying jobs. When Amazon issued calls for proposals for perspective sites, it received an “overwhelming response,” said Johnson.

“Basically, every community in the United States – even some that did not qualify based on the published criteria – said, ‘Yes, we want these jobs,’” Johnson said. “‘Yes, we will provide you with all of these subsidies in order for you, Amazon, to come to our community.’”

Amazon chose New York City and DC-suburb Arlington, Va. as its dual second headquarters.

“Of course, New York being New York said, ‘No, thank you,’” recounted Johnson as the audience laughed.

“There are many parts of the United States that have enormous potential and they want the jobs,” said Johnson, winner of the 2017 Jamieson Prize for Excellence in Teaching.

In their book, Johnson and Gruber identify more than 100 places and cities in 35 states that could potentially serve as successful “next generation tech hubs.”

“We used to lead the world in innovation,” Johnson said. “We don’t lead the world in any way to the same degree as we used to. Other countries have figured this out. If you look at their commitments, their public statements, and where they are putting their money, China wants to be number one in innovation for good reason because that is where the jobs are.”

In the United States, the federal government played a key role in creating high productivity, high-wage industries such as microelectronics, computers, and the modern pharmaceutical industry.

“Our proposal is to increase research and development and reemphasize science as a national priority,” said Johnson who has written articles for the New York Times, Bloomberg, The Washington Post, The Wall Street Journal, and The Atlantic, among other publications.

High-Tech Hubs

In calling on the federal government to redouble its R&D investments, Johnson said it should promote and fund high-tech hubs, using “highly transparent competitions” to choose sites throughout the country.

“The idea is to generate revenue that can come to all Americans as an innovation dividend,” explained Johnson. “Alaska does this with oil revenue. Every Alaskan gets between $1,000 and $2,000 a year as a royalty on the oil extracted in Alaska.”

That added income lifts about 20,000 Alaskans out of poverty every year, he said.

Before making investments, the federal government needs to determine where to spend the money to achieve the best possible return on the federal dollar.

“Some people think it should be spent developing greener and cleaner energy,” Johnson said. “Other people would rather put their money elsewhere.”

That discussion and debate should be part of the presidential campaign, which would establish national priorities, according to Johnson.

“Out of that would come leadership committed to a particular vision of the technology needed to be developed and how that technology would be deployed,” he said.

Economic Affairs

“We are not growing very fast as a country,” said Johnson. “Our productivity has declined consistently in the recent decades. “We still do invention, research and innovation, but we do it in relatively few but extremely expensive places.”

Not surprisingly, many parts of the country “are extremely anxious about the future of work,” according to Johnson.

“They have seen manufacturing jobs disappear,” Johnson said. “They experienced globalization in it is various forms and are very worried about international competition.”

Although various regions of the country have tried to break into the high-tech business, their efforts have been stymied because nearly all of the high-tech jobs go to metropolitan areas on either coast, including Los Angeles, San Francisco, Seattle, New York City, Boston, and Washington. D.C.

“The private sector, left to its own devices, is going to reinforce and further invest in these places,” he said.

Johnson said a renewed commitment to R&D should complement and not replace private sector funding and initiatives. Unlike the federal government, private companies do not generally share wealth or promote social responsibility such as providing affordable housing.

Johnson cited the Human Genome Project — the quest to map the Human Genome — as an example, explaining that in the 1980s several award-winning scientists sought funding for the project from venture capitalists. The venture capitalists turned them down because they did not believe the initiative would result in tangible profits.

The federal government eventually stepped in, providing about $3 billion in taxpayer money to fund the project over 13 years. In the process, the federal government created an enormous and successful industry, which now employs 270,000 people with an average annual salary of roughly $100,000 per employee.

 “And it was all driven by the federal government’s investment in R&D,” he said.

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