James Pethokoukis writes: US productivity growth, at least as measured, has been in low gear for a decade. And especially so since the Great Recession, averaging just 0.6% annually from 2010 through 2014. We’re aren’t going to consistently hit 3% GDP growth, much less 4%, like that.
Then again, productivity growth has slowed in most OECD countries over the past decade. A new OECD research note doesn’t think the problem is a lack of innovation, so much as an inability to spread innovation broadly throughout advanced economies. “A breakdown of the diffusion machine” is what the OECD calls it.
The gap between high productivity firms and low productivity firms is increasing. (Maybe also helping to explain rising inequality.) So why aren’t innovations spreading as fast as they used to? The WSJ’s analysis of the paper sums it up nicely:
One key reason appears to be that the process of “creative destruction” identified by Austrian economist Joseph Schumpeter as essential to capitalism’s dynamism appears to have lost some of its ferocity. In the OECD’s words, “market selection is weak.” One reason for that is government policy, which the OECD said favors incumbents across a whole range of areas, from regulations designed to protect the environment, to taxation. As a result, older firms that suffer from low productivity growth endure, often “trapping” workers in jobs for which they are over qualified. Read the rest of this entry »
For The American Conservative, Derek Khanna writes: In 200 years the United States went from being a colonial backwater to being the world’s dominant economic and military power. How did our nation arise from obscurity, break free from the grip of the most powerful empire on earth, and skyrocket to global leadership? With a government focused on innovation—not control.
“…If Republicans understand this and thereby embrace the mantle of innovation, not only will they be expediting a new wave of ingenuity, but they will also share credit with entrepreneurs for the next tech boom.”
Historically, the Republican Party has led on technological innovation. President Abraham Lincoln earned a patent and facilitated the first transcontinental railroad system. President Hoover played a key role in the early development of radio broadcasting, and President Coolidge created our national airways system. Dwight D. Eisenhower inaugurated NASA and DARPA, while Richard Nixon launched the cable television industry through deregulation. President Ronald Reagan made GPS available for civilian use and greatly expanded science research.
But today policymakers and the regulatory state are smothering the force that allowed us to become the world’s economic superpower. Incumbent industries have co-opted the legal and regulatory systems to go after their competitors, and both political parties have been complicit in this cronyism. Acceptance of these regulatory and legal barriers is a root cause of our abysmal “new normal” of 2 percent annual GDP growth. Read the rest of this entry »