Here’s a realistic plan to jumpstart US growth

Two MIT economists have come out with a big, bold plan for reviving US economic growth. Done right, it just might work.
Slowing growth creates a lot of problems. It engenders despair by making people less likely to be richer than their parents. It might exacerbate wealth inequality. It creates a zero-sum world where people must fight over a smaller pie. But speeding it up is hard to do in a sustained way. Improving regulation or trade policy can produce at best a one-time, short-lived bump. In the long run, growth has to come from technological progress, and relatively little is known about how to accelerate innovation.
But Jonathan Gruber and Simon Johnson don’t believe the government is powerless. In their new book, “Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream,” they lay out a bold program to boost federal spending on science and technology, focusing on regions where growth is lagging.
Gruber and Johnson start by laying out the history of US science policy since World War II, and how the discoveries financed by defense-related research spurred the creation of private technology industries. They explain why private industry won’t, on its own, invest sufficiently in breakthrough science and innovation.
Gruber and Johnson note that the US government has been spending less and less:
Conservative budget-cutting has driven much of the decline, but liberals’ suspicion of spending money on technologies with military applications might have played a role as well. Private research spending has risen to fill the gap, but the money tends to go to much more short-term, easily commercialised stuff.
Gruber and Johnson worry that these nations could end up surpassing the US in cutting-edge science. China’s shares of patents, publications, and citations are all either catching up to the US or have already overtaken it. And it’s noteworthy that living standards in both Korea and Singapore have improved much more than in the US over the last two decades:
Of course, excuses can be made for America’s lagging performance. Singapore is a small city-state, while Korea is still less rich than the US, and both have economies closely tied to the Chinese growth juggernaut. Meanwhile, although Chinese research output has boomed, it’s of lower quality than what gets done in the US. Like the panic about Sputnik in the 1950s, worries about the nations of East Asia overtaking the US in science are a bit overblown. But that doesn’t mean these nations have nothing to teach the US — the research parks that Gruber and Johnson highlight could make an important addition to the US model.
Gruber and Johnson envision a string of new federally funded research parks, located in lagging regions of the US. They identify a number of economically underperforming cities that are rich in high-quality university programs and graduates — and that have short commutes, cheap houses and low levels of violent crime.
This is an excellent idea that could boost broad-based US growth while reducing regional inequality. But the implementation will be tricky. For one, to sustain funding over decades, the federal government will have to see some sort of return on its investments. Gruber and Johnson suggest having the government own the land on which the new research parks are constructed. This is an interesting idea, but it could lead to perverse incentives — a government that’s also a landlord might want to force businesses to locate on or near the properties it owns, even if dispersion to new regions makes more economic sense.
One alternative is to have the government own a share of the intellectual property that its spending helps create. But reversing the Bayh-Dole Act, which assigns the intellectual property to universities rather than the government, could undermine universities’ interest in the program.
The research parks face other challenges. They shouldn’t compete too much with each other, or with existing institutions, and they should focus on under-served areas of research, exploration. They risk turning into expensive white-elephant projects, rendering regions addicted to federal largesse without boosting actual innovation.
To address these problems, the federal research spending should fall under the jurisdiction of a new government agency, which would integrate the spending with local development policy. A National Development Foundation with a fixed ten-year budget could coordinate with the National Science Foundation, the National Institutes of Health, and other research funding agencies to pursue the kind of objectives Gruber and Johnson propose.
The US government needs to step up its spending on basic science and pioneering innovation. Whether or not a string of new research parks is the best way to accomplish that, the US must remain at the forefront of science in order to keep living standards on the rise.

—Bloomberg

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion