Across the globe, countries, including in the developing world, look to emulate the success of the US economy. In doing so, they look at the power of ‘market-driven’ mechanisms, versus what might seem like old-style, State-driven mechanisms in places like Europe or the ex– Soviet Union. But the United States is not what it seems. The preacher of the small State, free-market doctrine has for decades been directing large public investment programs in technology and innovation that underlie its past and current economic success. From the Internet to biotech and even shale gas, the US State has been the key driver of innovation-led growth—willing to invest in the most uncertain phase of the innovation cycle and let business hop on for the easier ride down the way.
If the rest of the world wants to emulate the US model they should do as the United States actually did, not as it says it did: more State not less. A key part of this lesson should be to learn how to organize, direct and evaluate State investments, so that they can be strategic, flexible and mission-oriented. Only in this way will top minds find it an ‘honor’ to work for the State.
This is something that needs to be understood not only by the rest of the world, but in the United States itself, where the dominant political narrative is endangering funding for future innovation and economic growth. In 2013, US government spending for basic research fell below what it was a decade earlier—and will most likely continue to fall due to congressional gridlock over the public budget.
Rather than static discussions over the size of the deficit, there must be more debate about its actual composition; how to invest strategically in key areas, such as research and development (R&D), education and human capital formation, that will increase gross domestic product (GDP) in the future (bringing the debt/GDP ratio down as a consequence); and how to engage in a debate about the direction of change so that such investments will lead to growth that is not only ‘smarter’ (innovation-led) but also more ‘inclusive’ and ‘sustainable’.
These issues are urgent with the upcoming 2016 US presidential election, which could, if properly informed, change the parameters of the current static debate. The United States desperately needs politicians with the courage to swim against the tide of popular rhetoric and outline a bolder vision for the State’s dynamic role in fostering the economic growth of the future. In emerging economies such as China, the public sector is indeed investing billions in new green technologies with the expectation that these industries will be the engines of future growth. The United States could take inspiration from its own history. In 1961 an American president set out a bold, ambitious and risky vision to send a man to the moon. Who will have the courage to set out a new vision for America today?
Addressing today’s societal challenges, for example, those around climate change, require a vision, a mission and, most of all, confidence about what the State’s role in the economy is. As eloquently argued by Keynes in The End of Laissez Faire (1926, 46), ‘The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all’. This, however, requires the public sector to have vision and confidence— increasingly missing today. Why?