Back away, dear reader, from the edge of the roof: All is not lost. The U.S. economy, it is true, has shown signs of spinning apart, but solutions to many of its problems remain in sight—perhaps, within reach. In the following pages, we examine eight of the predicaments America faces in trying to regain its economic strength. Some of the problems seem fixable, even in this era of political discord. Some—well, miracles do happen.
By Don Peck
Deep recessions aren’t without silver linings. One, typically, is a subsequent burst of entrepreneurial activity and new-product innovation. Laid-off employees start new ventures, based on ideas their former employers might have ignored; sclerotic companies fail, making room for nimbler enterprises.
Needless to say, the United States could use such a burst today. Breakthrough innovation is what propels an economy quickly forward, creating new jobs as old ones obsolesce and disappear. For a variety of reasons, the rate of innovation was slow throughout much of the past dozen years. We have a lot of catching up to do.
Breakthroughs of the sort that create new products or even new industries—and with them, large numbers of new, good jobs—are, to some extent, unpredictable. The government can do only so much to foster them, especially in the short term. But following are four steps we can take right now that, collectively, could make a real difference sooner rather than later.
Import entrepreneurs. In the wake of the presidential election, an overhaul of immigration laws looks newly possible, and a more flexible regime could be an economic boon. Almost axiomatically, immigrants tend to be more driven, adventuresome, and risk-tolerant than the neighbors they’ve left behind; they have always been a rich source of entrepreneurship in the United States, and we should welcome more of them, particularly newcomers who are well-educated and highly skilled.
But here’s a specific proposal that could create new products, new businesses, and new jobs almost immediately and need not await comprehensive immigration reform: The bipartisan Startup Visa Act, first introduced in the Senate in 2011, would essentially grant entry to anyone with a business idea that American venture capitalists are ready to finance. Venture capitalists came up with the plan themselves, having seen a queue of foreigners with fully formed business ideas ripe for funding, if only the entrepreneurs could move here. We should let them.
Fund more start-ups, more cheaply. Angel investors, venture capitalists, and other U.S. financiers are always looking for the next great entrepreneurial venture. Even so, there’s a case to be made that new-business financing is stingier than it should be. Columbia University professors Edmund Phelps and Leo Tilman have noted that innovation creates so many ambient benefits—from jobs to the experience gained even by failed entrepreneurs and the people around them—that as a society, we should be willing to fund new ventures more generously (and accept a higher failure rate) than individual financiers would be willing to do. They have proposed a National Innovation Bank that would lend to or invest in innovative start-ups. Such a bank could bring more money to bear than private investors could, and at a lower cost of capital, promoting more investment and enabling the funding of somewhat riskier ventures.
Make math and science majors cheaper. A highly skilled workforce is essential to innovation; if the U.S. is serious about keeping its place at the frontier of science, technology, and innovation of all sorts, it must improve schooling from pre-K through college and beyond. For the most part, school reform would take years to reap benefits. But some novel measures could pay off sooner. In particular, we could encourage college-bound students to major in math, computer science, and hard sciences—fields that are essential to innovation and carry important spillover benefits to the economy as a whole.
Florida’s public universities are already thinking of lowering tuition for students who major in fields that the state’s economy needs, as a way to eliminate bottlenecks to economic growth. Similar programs could focus on academic majors deemed critical to innovation and technological progress, to create faster advances in science and a more bountiful climate for tech start-ups of all kinds.
Ease regulation on new industries. As Wall Street proved in 2008, not every industry is overregulated. Still, recent years have seen an accretion of well-intentioned regulations (the Sarbanes-Oxley accounting rules, homeland-security regulations) that may have chilled the climate for investment. Regulatory balance—how much is too much?—is always difficult in practice. But economist Michael Mandel has suggested a rule of thumb: For fledgling industries that could bring explosions of economic growth, the government should apply a lighter regulatory touch to encourage experimentation and expansion. Think of the Internet, which flourished in the 1990s without government’s heavy hand. Green technologies, wireless platforms, and social-networking technologies might benefit from similar treatment today.