Forget for the moment the $15 billion jobs bill moving through Congress — even its supporters admit that it’s far too paltry to make even a tiny dent in the unemployment rolls. And ignore the economic commentators who tell you that the labor market is recovering just because job loss has slowed.
No, the U.S. is having a genuine long-term jobs crisis, one which stems from a deeper problem: The Great Innovation Machine of the American economy seems to have broken down. With a few notable exceptions (think Apple and Google), this has been a period when companies have found it remarkably hard to turn promising breakthrough innovations into commercial breakthrough products. The list of “big-idea” innovations that seem tantalizingly close to market, but not quite there, just keeps getting longer and longer. Some examples: After 20 years of research, no human gene therapy has yet been approved for sale by the Food and Drug Administration; electricity generated from solar cells is still far from price-competitive with electricity from coal or natural gas; and biotech has not yet fulfilled its promise of speeding the discovery of new drugs.
The jobs crisis, in my view, is the direct result of the innovation shortfall. Since the 1990s, both Democrats and Republicans have expected the “jobs of the future” to come from the innovative, technologically advanced industries. Computers, semiconductors, internet companies, pharma, biotech, communications: all seemed to have enormous potential to create new jobs. What’s more, innovation seemed to be the only way that the U.S. could compete against low-cost producers abroad.
Many regions designed their economic development strategies around attracting biotech and infotech jobs to replace the “old-line” factory positions that had fled overseas (do a Google search for ‘biotech initiative’ and see how many hits you get). The desire to bring in pharma jobs is the reason why New London tore down homes and businesses to make room for a Pfizer research facility in 2001.
But the sad truth is that the innovative sector of the economy hasn’t generated many jobs recently. Let’s be very specific here. From the bottom of the job market in 2003 to the so-called peak in 2007, technologically advanced industries such as semiconductors, communications equipment manufacturing, and telecommunications lost thousands of jobs. Across the same period, the industry that the Bureau of Labor Statistics calls “Internet publishing and broadcasting and web search portals” — a catch-all category that includes Google, Yahoo! and all the high-profile Internet firms — added only 6,000 jobs.
Life sciences didn’t do much better. From 2003-2007, employment in pharma was stagnant, and biotech added only 16,000 jobs. Indeed, Pfizer recently pulled out of New London, leaving behind a lot of hard feelings. (For more on the jobs shortfall in the innovative sector, see my blog at www.southmountaineconomics.com.)
Turning Innovation into Jobs
So what has happened here? A big part of the jobs crisis stems from a simple fact: Commercializing innovation has taken a lot longer than people expected. Across multiple areas, from biotech to alternative energy to advanced materials to the private uses of space, both large and small companies have faced fundamental scientific and engineering problems. The best example is the sequencing of the human genome, which was announced to great fanfare in 2003. But turning that initial breakthrough into commercial products has turned out to be far more complicated and difficult than many thought. (For more on the innovation shortfall, see my June 2009 cover story, “The Failed Promise of Innovation in the U.S.,” for BusinessWeek.)
In today’s global economy, innovation makes up the main comparative advantage for the U.S. If we are not generating jobs in the innovative industries, it’s no surprise that we have a jobs crisis.
Addressing the innovation shortfall has to be a cooperative project between business and government. How? Here are three low-cost ways to foster a better climate for innovation and jobs:
- Elevate innovation to the top of the policy agenda. President Obama needs to publicly give higher priority to innovation. In the latest Economic Report of the President, innovation is relegated to the very end of the report, and does not even get a whole chapter to itself (the chapter is called “Fostering Productivity Growth through Innovation and Trade”).
Why is a public emphasis on innovation important? Government is much better at stopping breakthrough products and services than creating them. New ideas, by definition, are threatening to the status quo. That’s why the president has to give a clear signal to the entire government bureaucracy that innovation is important.
On the one hand, this shift in public priorities can be done right now, without any additional funding, so Obama wouldn’t have to fight Congress. On the other hand, Obama might have a big struggle to get support from his own economic advisors, some of whom don’t seem to place such high value on innovation.
- Broaden out government funding for R&D beyond healthcare. To maximize the chances for innovation-related job growth, we want a broad and diverse program of federal support. However, in recent years, federal funding for R&D has increasingly focused on healthcare. Obama’s proposed FY 2011 budget continues that trend, with federal spending on health R&D projected to exceed spending on nonhealth civilian R&D by more than 30 percent. The result: Other areas of R&D are being starved for funds.
- Improve measurement of the innovative sectors of the economy. Innovation is not as tangible as, say, a new building or a new truck. We are great at counting construction and vehicle production, but horrible at keeping track of innovative activities.
And as management consultants say, you get what you measure. For example, we know virtually nothing on business spending on R&D in the U.S. during the downturn — a key piece of information for understanding where the economy is going. The good news is that the Bureau of Economic Analysis and the National Science Foundation have made some progress in this direction. However, a relatively small amount of money could accelerate the upgrading of the statistics, with a big impact on policy.
These proposals will not guarantee that the U.S. will suddenly experience a surge of innovation-related job growth. There’s nothing that anyone can do to ensure that commercially viable innovation will arrive on a particular schedule. But to raise the odds of good jobs in the future, we need to make innovation a priority today.
Tags: Apple, biotechnology, Business, BusinessWeek, Economy, Google, Innovation, Jobs, Yahoo!
Michael
The jobs numbers in the “innovation sectors” was very enlightening. Innovation is the key to getting out economy growing again. Unfortunately, since 2000 we have passed a number of laws and regulations that are killing innovation in the US. (see http://www.hallingblog.com) The incredible innovation of the 90s was based on technology start-up companies built on intellectual capital, financial capital, and human capital. All three of the pillars have been under attack since 2000. Our patent laws have been weakened reducing the value of intellectual capital. Sarbanes Oxley has made it impossible to go public reducing financial capital for start-ups and the FASB rules on stock options have made it harder to attract human capital to start-ups. The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation http://www.amazon.com/Decline-Fall-American-Entrepreneur-Regulations/dp/1439261369/ref=sr_1_1?ie=UTF8&s=books&qid=1262124667&sr=8-1, explains these problems in more detail.
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Monopolies have become a HUGE problem for small business interests as well. I live in a small town, my parents and I have owned a small business for about 25 years now.
You may not realize it if you’re not from a smaller town, but places like Wal-Mart have a MONOPOLY on the entire city. People have NO CHOICE.
I get the feeling that people have the idea that monopolies are a part of Capitalism. They shouldn’t be able to happen, and exempting corporations from anti-trust laws while giving them the same rights as citizens (thanks Citizens United) has served to form superpowers in the tucked-away small towns in the corners of the states…
Forget about local grocery stores, local banks, local video stores, and even specialty stores are being crushed and run out of town in a matter of a couple MONTHS.
I own a screenprint/embroidery shop (we only have 1 competitor) and we’ve been pretty lucky, as we established our selves a long time ago. My trade is pretty focused, which is good for me.
Innovation has been lost because the individual has NO power. Corporations basically OWN any idea their employees may innovate. And if they don’t already own it by providing them with the resources to create it, they will simply buy it, putting a stop to any sort of small business that may arise from the idea.
People need choice, and monopolies need to be stopped.
Capitalism and Democracy just don’t work together. People like to believe we live in an “equal opportunity” society, but they don’t even realize they’re being controlled by 3 bosses as soon as they get to work…
In Germany, factories and businesses are run DEMOCRATICALLY. Each person has a say in every action the company takes. Nobody has anymore power than the next guy, and all layoffs are voted upon. Germany has 1/3 of the people in the US, but still remains around the #1 or #2 highest in exports in the world….this is why.
Productivity, in America, has devolved into completing the most amount of work in the smallest amount of time. Regardless of quality or risk.
Productivity in Germany has actually Evolved into the most QUALITY work in the smallest amount of time. This lowers risk and improves moral. People are treated as humans instead of machines. The higher-ups realize that they wouldn’t be on top if it weren’t for the people below them.
Job turnover in the US is laughable. It wouldn’t matter if you’ve been employed at a Wal-Mart for 20 years, if you mess up one time, you’re on the street and your pension may be compromised as well. Loyalty means NOTHING to big employers in the US.
We’re NEVER going to have equal opportunity employment when half our country doesn’t even understand what a Social Democracy is. Instead, they’re crying “socialist” in reference to 1940’s and 50’s Nazi Germany and Russia….
People always talk about the “good ‘ol days.” They were the good ‘ol days because the US had NO COMPETITION! Japan was desecrated, Europe, China, England…we had NO worldwide competition, and it’s easy to be #1 when nobody challenges you.
Americans have a huge ego problem, myself included, in believing that we are better or more important than other countries. People CONSTANTLY repeat “we have the best health care in the world,” when we CLEARLY DON’T! It’s this sense of pride that doesn’t allow us to direct our attention to the problems we truly have. In addition to this, it seems the right-wing has a problem with “looking to the past.” So, we’re doomed to repeat the past.
The fact that we still have NO new banking regulations a year and half after a huge economic crash REALLY tells me a lot about where this country is headed…
The gap between the educated ‘elite’ and the uneducated poor is growing larger and larger. I don’t doubt that in the next 20 years, the average middle-class family will NOT be able to send their children to college due to tuition prices.
The US is devolving into third-world country by ditching our poor and sick. The Republicans of the US believe poverty is a contagious disease and that everybody who is unemployed chooses to be….while the left continues to engage in the horrible practices set up by the Bush administration and Obama abandons many of his core principles that got him elected in the first place.
The current form of capitalism serves to keep the rich in power and the poor in the gutters.
The internet is the only thing left that allows basic equal opportunity for innovators…and I see a major tax or laws challenging net-neutrality coming in the imminent future…
I apologize for getting kind of opinionated and off-topic. but there are so many factors that contribute to the difficulty of individual innovation.
The very idea that people fear “socialism” (never stating what type of socialism) instead of fearing a corrupt capitalism shows ME that people just don’t even know what they’re talking about anymore. Has our public really become this uneducated and feeble-minded, to fear half-century old communist scare tactics (a rouge) over REALITY?!
I never thought I’d see the day when millions of US Citizens would be rooting for insurance corporation profits and big bank bailouts, while opposing health care reform and consumer protections….
[...] our students are falling behind their peers in other countries. In a recent post, Michael Mandel put these two concerns together, saying our jobs crisis is simultaneously an innovation [...]