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A few weeks after the re-election of President Obama, discussions are now turning to the next four years and what can be done to improve the economy. Politicians are focused on the fiscal cliff and how reducing the deficit will impact our economy, with many analysts and the Congressional Budget Office itself predicting that if we cut spending and raise taxes in January the US could enter another recession in 2013.
While cutting government spending sounds like a good idea, many do not realize how much both individuals and companies depend on government subsidies and infrastructure. This is especially true for start-up companies who are trying to bring innovative products and services to the public, but may not have the capital to do so by themselves. New companies must convince people to buy their products to be successful, which can only be done in a strong economy. For a country like America to remain innovative we need to work with all types of employee equally in order to ensure that the economy is strong enough at the bottom to support innovation at the top.
In their book Innovation Economics (2012), Robert Atkinson and Stephen Ezell discuss how policy and economic decisions influence innovation in the United Sates. One of their most insightful comments was that “Main Street is almost completely dependent on “manufacturing street” “research park street” and “office complex street” (p. 27), but that none of those sectors can solve a struggling economy by themselves. For innovation to occur we must be able to invest in it for the long-term (another theme that is brought up repeatedly), which means having a strong enough economy that the government can increase R&D funding. While free trade agreements help American companies to sell their products overseas, and have benefits such as protecting intellectual property rights, there are downsides to companies investing outside of the US. There are conflicting views on the benefits of investment in other countries, and American companies need to do some manufacturing overseas in order to remain competitive in the global market. Unfortunately, we will not have a strong economy if millions of people are losing jobs at manufacturing firms who are shipping both low and high end manufacturing projects overseas.
Representative Michael Honda, a democrat from California, agrees with this and has introduced a bill to encourage both US and foreign companies to bring manufacturing back to the US. In a commentary piece in the Washington Times, Honda states that “In the past, policymakers have failed to focus on developing advanced manufacturing capabilities in the United States to capitalize on these technological breakthroughs, and our economy has paid the price” (Honda, 2012) Atkinson and Ezell mention that 51% of patents now issued in the United States are issued to non-US companies, and that even in high-end technology manufacturing the US has been declining. Outsourcing manufacturing boosts other countries’ economies, which is why we have been leading from behind in innovation recently while countries such as China have been excelling. In addition to giving away jobs, shifting to a model where manufacturing is outsourced to other countries can bring up other issues, such as cybersecurity.
It is clear that the United States needs to change some of its innovation policies if it wants to remain competitive globally, and a first step would be to bring manufacturing back to America. Infrastructure and funding problems also need to be addressed, but before structural changes can be made the economy has to be strong, which won’t happen if companies continue to take advantage of cheap labor overseas. President Obama has numerous issues to address in his second term, and has to first fight against Congressional Republicans who are pushing him to cut spending, but government should realize the many benefits of having a strong and highly skilled manufacturing base to promote innovation and grow the economy.
Atkinson, R. D. & Ezell, S. J. (2012). Innovation economics: The race for global advantage. New Haven: Yale University.
Honda, M. M. (November 6, 2012). Strengthening American tech industry. The Washington Times.
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Bottom image by American Enterprise Institute