Summary of Conference:
Jobs, Inequality, and the Role of Government: Improving the Economic Competitiveness and Innovative Capacity of the United States
On October 11, 2011, the Communications Workers of America, Georgetown’s Kalmanovitz Initiative for Labor and the Working Poor, and the Center for Economic and Policy Research came together to host: Jobs, Inequality, and the Role of Government: Improving the Economic Competitiveness and Innovative Capacity of the United States.
This half-day conference was one of several events held around the country to inform the deliberations of the U.S. Department of Commerce Innovation Advisory Board (IAB). The Innovation Advisory Board, a committee of business and labor representatives and policy experts, was established under the America COMPETES Act to support the development of the Department of Commerce’s comprehensive study of the economic competitiveness and innovative capacity of the United States.
The work of the Innovation Advisory Board and the goals for the Department of Commerce’s report are rooted in President Obama’s vision for a competitive economy. In his State of the Union speech, the President made a compelling case for government investment in innovation as an engine for economic growth. Like the push to put a man on the moon, the President argued we need a new kind of space race to trigger innovation and lay the tracks for the next iteration of our economy.
“The first step in winning the future is encouraging American innovation. None of us can predict with certainty what the next big industry will be or where the new jobs will come from. Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution. What we can do -- what America does better than anyone else -- is spark the creativity and imagination of our people … In America, innovation doesn’t just change our lives. It is how we make our living.”1
Of course, this last part of the equation – translating investments in science and technology into a good living for the American people – is as critical as evaluating the science behind clean energy or constructing the infrastructure for future broadband networks. Innovation is crucial for the long-term prosperity of the United States, but even if it generates rapid economic growth, innovation will not translate automatically to broadly-shared prosperity. For example, over the last three decades, productivity has grown substantially in the United States, but the wages of the typical worker have fallen far behind. This recent pattern contrasts sharply with the postwar period, when wage increases for the typical worker matched productivity increases almost one-for-one.
The lead speakers at the conference all touched on the theme of income distribution. Larry Cohen, President of the Communications Workers of America and member of the Innovation Advisory Board, pointed to wage stagnation’s relationship to the decline of collective bargaining. Cohen pointed out in the decade before the financial crisis, median household income, adjusted for inflation, fell about four percent. For blue-collar jobs, the decline was sharper. The financial crisis exacerbated problems that were already there; even before the recession, “something was amiss.” He suggested we consider greater investments in education, research & development, and infrastructure.2 Abby Cohen, Senior Investment Strategist at Goldman Sachs and also a member of the Advisory Board, looked at the decades-long decline of household income as part of her research on economic growth, jobs, and competitiveness. Topically, she noted that the last tax holiday for the repatriation of foreign-earned profits did not provide an economic stimulus and that 40 percent of foreign profits were earned in Europe. Jason Furman, Deputy Director of the White House’s National Economic Council, noted that income inequality can undermine growth and democracy. He proposed a trio of policy responses: promoting job creation, including through the American Jobs Act; using proven tools such as the minimum wage, increasing college enrollment and unionization, and controlling health care costs; and investment in innovation to expand economic opportunity for business and workers.
The deterioration over the last thirty years in workers' economic and social institutions is the single most important reason that productivity growth no longer raises workers' living standards. The share of workers covered by collective bargaining agreements has fallen from just over twenty percent of private-sector workers at the end of the 1970s to about six percent today. The inflation-adjusted value of the minimum wage is also lower today than it was thirty years ago.
As Professor Richard Freeman of Harvard University made clear, we know how to reduce inequality. “When economic and social institutions help determine wages and benefits, inequality is less than when we rely solely on firms and markets. Unions and collective bargaining reduce inequality, especially when wages are set with strong employer associations," he explained. "Government and non-profit sector enterprises have less inequality in wages and benefits. Progressive taxes reduce inequality. [And] the form of pay – stock options and other capital-related modes of compensation – affects inequality.”
The government has an important role to play, both in creating institutions that can reconnect living standards to innovation and in spurring innovation itself. Historically, the government has made crucial direct and indirect investments in research and development in aerospace, the Internet, medical research, alternative energy, and other industries. Federal support for university research built the foundation of the innovation infrastructure. Professor Keller of Southern Methodist University neatly summarized the history of the government’s investment in technology and offered more recent examples of investments in advanced battery technology and renewable energy.3
In recent decades, however, the government's contribution to R&D has fallen off, and the United States has fallen behind in access to broadband and other technologies on which future innovation and growth depend. Mark Doms, chief economist at the Department of Commerce, noted that total R&D spending has been relatively constant since the 1980s but the overall federal investment in R&D has declined. Erik Garr, a key architect of the Federal Communication Commission’s National Broadband Plan, spoke to the payoff of investing in broadband infrastructure in everything from job creation to economic competiveness4. And Kate Gordon of the Center for American Progress made a compelling case for a comprehensive clean energy strategy that would invest from the R&D stage all the way through to manufacturing. Gordon argued this would put America in a stronger position to out-compete China.5
Yet despite this promise, over the last three decades there has been an enormous increase in the share of national income going to the financial sector rather than to the production of final goods and services. Professor Margaret Blair’s presentation provided in-depth background on the relationship between income inequality and the growth of the unregulated shadow banking industry.
As the President argued in January, public investment in innovation – especially strategic investments in clean energy, broadband, and university-based scientific research – holds promise for economic growth and job creation. But, the policies driving innovation should run alongside social and economic policies such as collective bargaining and financial reform to ensure that all Americans see a return on the investment. Both tracks are necessary for economic growth and shared prosperity.
NOTES
[1] Remarks by President Obama in the State of the Union Address, January 25, 2011.
[2] See also The New Geography of Innovation, Douglas Gilman, Global Markets Institute, Goldman Sachs, September 2010, available at http://www.commerce.gov/Competes/Committee.
[3] See State of Innovation: The U.S. Government’s Role in Technology Development, edited by Fred Block and Mathew Keller, 2010.
[4] See National Broadband Plan: Connecting America, Federal Communications Commission, 2010, available at http://www.broadband.gov/plan.
[5] See Rising to the Challenge: A Progressive U.S. Approach to China’s Innovation and Competitiveness Policies, Kate Gordon, Susan Lyon, Ed Paisley, and Sean Pool, Center for American Progress, January 2011, available at http://www.americanprogress.org/issues/2011/01/china_innovation.html.