Sunday, May 01, 2011

Education, Innovation, Infrastructure – The Resurgence: Part III

As described here in last month’s column, a staggeringly critical article bewailing the future status of the United Sates appeared in a March issue of Time magazine. The author, Fareed Zakaria, a highly respected foreign affairs expert, condemned an education system that is failing too large a portion of our children––1/3 rd do not graduate high school––thereby stifling efforts to maintain our past stellar reputation for innovation. He castigated politicians of all stripes for disregarding the most important issues facing the nation, as well as for their displays of extreme partisanship. He also referred to the debilitating effect resulting from an electoral process that depends on fund raising and influence peddling. Last month’s column described Zakaria’s emphatic belief that, as the magazine cover states, “America Is In Decline.” Actually, recent surveys convey serious public disillusionment as well.

U.S.A Inc in Deep Trouble

A somewhat similar article appeared in an early March issue of Bloomberg Business Week asking that readers imagine that instead of a government, the United States is a business corporation, one named USA Inc. After examining a large number of data sources, the article concluded that considering the financial state of that “company,” future prospects were dismal. It cited that the bottom line for USA Inc. revealed, “Cash flow and net worth [is] negative, profits are rare, and off balance-sheet liabilities are enormous. The ‘company’ has underinvested in productive capital, education, and technology, the very tools needed to compete in the global marketplace.” The question was asked, “Would you invest in a company with those characteristics?” The answer should be obvious.

A subject accentuated in Business Week (BW) is the same one emphasized in the Zakaria article, “One of the best ways to ensure that the U.S. has the wherewithal to support its poor and elderly shareholders in the future is to invest now in Research & Development, Infrastructure, and Educational Support.” As if that was not enough, this same theme is repeated once again (by BW) in the following fashion: “[There is] a good argument for putting more energy into the very best way to fix USA Inc.’s finances––namely by getting the economy to grow more rapidly. Instead of bickering about which deck chairs to throw overboard to lighten the load, Congress should focus on getting USA Inc. growing again. The key to growth, in turn, is higher productivity, through investment in technology, infrastructure, and education.”

Interestingly, consistent with the above headline for this article, Business Week quotes Paul Otellini, CEO of Intel as follows: “Innovation accrues to countries in proportion to the quality and rigor of their educational systems…. The future of every nation will be shaped by new ideas and creativity. These are the engines of future prosperity.”

The Counter Arguments

It is strongly implied by these two accounts that the United States is deteriorating into a position of relative irrelevance on the world stage. However, in the same Time magazine issue in which the Zakaria article appeared, a counter argument was offered by David von Drehle, a long time political journalist, and like Zakaria, editor-at-large for the magazine. His defense is based primarily upon our country’s successes in conquering any number of past historical adversities.

He cites what he terms, “Overblown Symptoms,” stating, “These days the doctors diagnosing American decline tend to focus on two types of disease. Some worry about deteriorating ‘social capital’––inadequate education, a demoralized workforce, and dysfunctional politics. Others focus on the physical fitness of our economic edifice: the scale of investments, the level of debt, the fractures in the infrastructure.” In essence he has summed up most of the assertions expressed by Fareed Zakaria in the Time article, supplying no real rebuttal to these points.

He admits that, “The world is changing, and yes, the U.S.––like a lot of countries––has a lot of hard work to do to keep up. It is deeply misleading though, to cherry pick dismal statistics from here and there to create an overall image of decline.” He then, puzzlingly, cites what he terms “flawed statistics,” providing no evidence for that statement. For example he states, “The fact that students in Finland score well on tests is not a threat to us––even as we keep trying to improve our own [educational] performance.” Really? We have been “trying” for some 30 years without much improvement.

Mr. von Drehe claims America today is, “stronger than we were 50 years ago.” Even assuming he is correct, the most pertinent question is whether, the country’s strengths and accomplishments are the results of innovative policies implemented in the past, a presumption suggested by Mr. Zakarias. Are equally innovative, but newer and different strategies required in order to cope with the conspicuous educational deficiencies that currently exist? The answer is obviously, yes, but the budgetary problems facing the nation have exacerbated an already weakened educational system whereby politicians are obsessed with cutting education budgets (sharply in many cases), in an aggressive and determined effort to save money. How will these efforts affect the future of the country?

An Estimable White Paper

In October of last year that question was addressed in a little publicized, yet what could be a seminal “white paper,” "Post-Partisan Power," authored by scholars at the conservative American Enterprise Institute, the liberal Brookings Institution, and the Breakthrough Institute, an independent public policy think tank. The title emphasizes the bipartisan nature of the contents, “The Bipartisan History of American Prosperity.” The paper accentuates the thought that “Throughout American history, federal investments in areas like science and technology have been a long-term driver of national prosperity under presidents both Democrat and Republican.” What follows is an excerpt from the paper that elucidates this extremely important issue, and is well within the purview of the title of this series.

The Role of Government Investments

“Throughout American history, strategic government investments in areas like education, technology, infrastructure, and energy catalyzed the entrepreneurship and innovation that has paved the way for so many of the great American technological and economic successes of the 20th century. In the words of conservative New York Times columnist David Brooks, the American story is one of ‘limited but energetic governments that used aggressive federal power to promote growth.’

Federal investment led to the development of the railroads under Abraham Lincoln and the federal highway system under Dwight D. Eisenhower. Technologies leading to the wide-scale use of nuclear power were developed in government labs and initially deployed under the auspices of the U.S. Navy and Atomic Energy Commission, after active support from Presidents Roosevelt, Truman, and Eisenhower. Early, sustained investments in R&D, education, computer science, and infrastructure through programs like the GI Bill, National Defense Education Act, and Apollo space program laid the foundation for the emergence of the aerospace, computing, and information technology industries. The United States Department of Defense (DOD) has long acted as an initial funder and early adopter of key technologies like radios, semiconductors, computers, software, and the Internet. And federal investments in health research through the National Institutes of Health have enabled scientists to map the entire human genome, making way for path-breaking advances in biotechnology.

In education and technology, federal investments have repaid themselves many times over in the form of greater economic growth, increased tax revenues, and high-paying domestic jobs. Every dollar invested in education by the GI Bill following World War II returned just over $5 in greater economic growth and $1.83 in greater tax revenues over the following 35 years, according to a Congressional report. Likewise, federal investment in R&D is a key driver of productivity gains and economic growth, and studies routinely conclude that there is a significant rate of return on such investments to the national economy and the tax base.

A Nobel Prize Winner Concurs

Economist Robert Solow received a Nobel Prize in economics in part for demonstrating that over 80 percent of economic growth in the first half of the 20th century was driven by advances in technology, and later economists confirmed that technology innovation played a similarly outsized role in economic progress in the later half of the century. Just as federal investment has driven innovation in countless industries over the last century, so too will federal investment in energy technology be central to catalyzing private sector innovation and entrepreneurship in the 21st century energy sector, creating new industries and jobs.”

The White Paper continues: “In an era of fiscal constraint, it is important to distinguish between government spending, some of which is clearly unproductive and wasteful, and dynamic public investments that yield long-term economic returns. Fiscal deficits are an increasing concern, particularly as the federal bureaucracy has grown to record levels in recent years. Certainly, at least some government expansions are unnecessary or duplicative, and discontinuing ineffective and wasteful programs can help restore some fiscal balance. But not all federal programs should be painted with a broad, deficit-cutting brush. Indeed, federal investments in areas like science and technology have been a long-term driver of national prosperity under presidents both Democrat and Republican.”

While contemplating the above consider what John F. Kennedy once said: “Our progress as a nation can be no swifter than our progress in education.” Politicians, take note!