SD Free Press - Innovation Economy Symposium Highlights Role of Government Investment in Economic Growth
Andy Cohen -
Congress is a mess right now. There are many, many problems that this iteration of the federal government of the United States is being called upon to solve with very little hope of actually solving them. This Congress is so dysfunctional that they can’t even pass legislation to pay the government’s already agreed upon financial obligations, let alone fund new projects or provide basic services. Major legislation would seem to be out of the question entirely.
Whether conservatives like to admit it or not, the American economy is dependent in many ways on government investment; on government’s willingness to invest. It was with this in mind that Congressman Scott Peters brought together an “innovation economy symposium” yesterday at UCSD.
The symposium featured leaders from the local business community, including former mayor Jerry Sanders, currently the President/CEO of the San Diego Chamber of Commerce; Mark Cafferty, the head of the San Diego Regional Economic Development Corporation; Holly Smithson, the President and COO of CleanTECH San Diego; Magda Marquet, the board chair of BIOCOM; John Dunn, a member of the Board of Directors at CONNECT; and Steny Hoyer, the House Minority Whip and second ranked Democrat in the House of Representatives behind Nancy Pelosi. The event was hosted by UCSD Chancellor Pradeep Khosla.
Dr. Khosla began the program by reminding the over 250 attendees how the innovation economy actually began, and how the United States became the preeminent world leader in technological development. During World War II the U.S., he said, effectively created the research university, which in return created the high tech economy. Government investment made it possible for higher education to become a priority in the U.S., as soldiers were able to take advantage of the G.I. Bill and go to college when they otherwise would not have been able to do so.
This fueled university masters and PhD programs, which further advanced basic research which in turn advanced technology advancements and new business and economic opportunities.
Case in point: Right here in San Diego, Dr. Irwin Jacobs was able to found Qualcomm using technology that was developed for the military and turn it into quite possibly the most important tech advancement since the personal computer—another outgrowth of government investment and use—where now cell phone communications are a vital part of our everyday lives. Satellite GPS technology was developed for the military in order to accurately track the positions of soldiers on the battlefield. That kind of precision provides a huge advantage for soldiers and saves many lives, much like radar did for U.S. squadrons during WWII when it was initially developed.
GPS—global positioning systems—are now commonplace in for all manner of civilian uses, and it was initially developed from government investment in basic research starting at the university level.
The examples are endless, but the overarching point of the symposium was to highlight the role of government and government investment in the economy’s growth. But, since the 1980’s, government investment has become more and more antithetical to a certain portion of our political spectrum, to the point where now all government spending is viewed as wasteful regardless of the overall and long term benefits. There is a faction of our government that believes that government should play no role whatsoever in our economic development; that austerity measures (such as those brought on by sequestration) are the only sure way to growth; that the free market and the free market alone is responsible for our future prosperity, and that if the free market is not interested in investing in something, then it must not be worth investing in.
The trouble is that the free market is never actually free, and is completely vulnerable to manipulation without adequate rules and oversight. The other problem is that free market investment is dictated by return on investment—and quick return at that. There is little tolerance in the private sector for long term research and development projects that may not bear fruit for 10-20 years or more, if ever. Without the promise of immediate returns, there is no private investment.
However, applied research—where the private sector takes the results of basic research and further develops it for commercial use—carries big promise, and often big returns. See: Qualcomm. But without basic research, there cannot be applied research, which leaves us with a rather stymieing dilemma.
The National Science Foundation was formed in the post WWII era as a conduit for public investment in basic research and development. But where nearly one third of all projects that applied for funding would receive it, now that ratio has fallen to below ten percent. And because of that shortage in funding, products of our own university systems are leaving the country to continue their work; work that was once the driving force behind U.S. economic success.
There are other ways that the federal government could spur economic growth and investment. Tax reform was brought up as a major issue, and a way that could encourage more businesses to bring their manufacturing facilities back to the U.S.
Dunn, the CONNECT board member, lamented that the United States has the highest tax rates in the developed world at 35%, hindering investment at home, which is complete and utter nonsense. It should be noted that any company who pays the full 35% rate should immediately fire their accountants.
According to a GAO study, the effective average tax rate paid by U.S. businesses after deductions, tax credits, exemptions, and offshore tax havens was 12.6% in 2010, hardly an undue burden given the billions of dollars in revenue generated by some companies. Hoyer acknowledged that the tax burden on manufacturing facilities tends to be more onerous and is something that needs to be corrected, but he pointed to other industries such as pharmaceuticals that enjoys the benefits of enormous tax breaks and exemptions.
Still, reforming the tax code by lowering the marginal rate (to 25% for example) while at the same time closing tax loopholes is widely viewed as a viable way to encourage investment and growth at home. It is a measure that has been proposed by congressional Democrats and President Obama, but has been rejected out of hand by Republicans.
In short, both Peters and Hoyer acknowledged, given the current political environment in Congress, the prospects for comprehensive tax reform are grim.
Finally, an issue that affects the San Diego region directly is immigration reform and border infrastructure. According to Sanders, locally San Diego loses nearly $7 billion per year due to an inability to move goods back and forth across the border with Mexico effectively and efficiently.
It is also widely agreed that reforming our immigration system, making it easier and more efficient for people to come to America legally, is good for our economy. The United States Senate has already passed a comprehensive immigration bill that would reform our immigration system, increase border security (although the necessity for the measures called for in the bill is questionable at best), and provide a path to citizenship for the nearly 11 million undocumented immigrants already here, which is also considered good economic policy. That bill was declared dead on arrival in the House of Representatives.
Bottom line, and the point of the symposium: Our economy cannot grow and thrive without a willingness on the part of the government to invest in its own people and its own economic interests. Continued government investment is the key to reestablishing America’s previous economic prowess globally. Locally, where San Diego ranks as the second most innovative city in the world, continued government investment in basic research and development is the key to our own growth and stability.