Wednesday, August 10, 2011

A thought about innovation and development

I quote again from "Can the Middle Class be Saved" by Don Peck, The Atlantic, September 2011: 
In 2010, the McKinsey Global Institute released a report detailing just how mighty America’s multinational companies are—and how essential they have become to the U.S. economy. Multinationals headquartered in the U.S. employed 19 percent of all private-sector workers in 2007, earned 25 percent of gross private-sector profits, and paid out 25 percent of all private-sector wages. They also accounted for nearly three-quarters of the nation’s private-sector R&D spending. Since 1990, they’ve been responsible for 31 percent of the growth in real GDP. 
Yet for all their outsize presence, multinationals have been puny as engines of job creation. Over the past 20 years, they have accounted for 41 percent of all gains in U.S. labor productivity—but just 11 percent of private-sector job gains. And in the latter half of that period, the picture grew uglier: according to the economist Martin Sullivan, from 1999 through 2008, U.S. multinationals actually shrank their domestic workforce by about 1.9 million people, while increasing foreign employment by about 2.4 million.
He goes on to say that the United States has a shorter period than in the past to gain competitive advantage from the innovations that come from our heavy investment in R&D:
Knowledge, R&D, and business know-how depreciate more quickly now than they did even 15 years ago, because global communication is faster, connections are more seamless, and human capital is more broadly diffused than in the past...... 
America has huge advantages as an innovator. Places like Silicon Valley, North Carolina’s Research Triangle, and the Massachusetts high-tech corridor are difficult to replicate, and the United States has many of them...... 
But we need to better harness those advantages to speed the pace of innovation, in part by putting a much higher national priority on investment—rather than consumption—in the coming years. That means, among other things, substantially raising and broadening both national and private investment in basic scientific progress and in later-stage R&D—through a combination of more federal investment in scientific research, perhaps bigger tax breaks for private R&D spending, and a much lower corporate tax rate (and a simpler corporate tax code) overall.
This is counter-intuitive, that as we have more difficulty in appropriating financial (and employment) benefits of our innovation, we should invest more in innovation. Yet I see no alternative if the United States is to continue or return to high levels of economic growth in an increasingly globalized economy with increasingly competent competitor nations.

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