Originally published at Project-Syndicate | Aug 2nd, 2024
At least since the 2008 global financial crisis, widespread frustration with stagnant economic prospects and deep regional disparities in developed countries has fueled increasingly dangerous forms of anger. But there are constructive ways forward, as the example of the 2022 US CHIPS and Science Act shows.
WASHINGTON, DC – In many countries, innovation and good jobs have become increasingly concentrated in a few places. Some big cities have done well, but many regions feel left behind. In the United States, the United Kingdom, many countries in Europe, and increasingly in other parts of the world, how to address these disparities has become a crucial question.
At least since the 2008 global financial crisis, widespread frustration with stagnant economic prospects has fueled increasingly dangerous forms of anger in developed countries. All too often, this has led to self-destructive economic policies such as Brexit or Donald Trump’s vow to round up and deport all unauthorized immigrants – a step that would immediately reduce the American workforce by about 5%, and likely cause the overall US economy to contract by a similar amount.
But there is an entirely better way forward, as demonstrated by the 2022 CHIPS and Science Act, which overcame the US Senate’s filibuster rule (the de facto requirement of a three-fifths majority for all legislation) and passed by a vote of 64-33 (including 17 Republicans). The act authorized a boost to federal support for research and science, aiming to support breakthroughs across a broad range of sectors. Crucially, it also proposed to spread this support around the country, aiming to create next-generation tech hubs.
Innovation typically involves technological breakthroughs, and over the past century the biggest – including radar, microelectronics, satellites, the internet, and biotech – have had profound effects throughout the economy. But as Jonathan Gruber and I explained in our 2019 book, Jump-Starting America, precisely because the impact is so widespread, the full benefits (including wide-ranging and often unanticipated spillovers) do not accrue to any individual firm or investor.
breakthroughs is always hard to quantify. Consequently, venture capital and established corporations prefer to avoid the risks inherent in basic science, initial applications, and scaling up in markets of unknown size.
Today, for example, the potentially overriding importance of quantum computing is not disputed, but the hesitancy of the US private sector to invest represents a major constraint – creating a significant risk that other geopolitical players will leapfrog America’s current advantages. Or consider biomanufacturing (using biological materials to make all manner of products), for which the basic concepts are firmly established. Here, too, the private sector is unwilling to support scaling up. And for advanced manufacturing (which generally denotes digital forms of control for machines, applied across many industrial processes), small and medium-size businesses are struggling to find and adopt domestic versions of what they need next.
The US, Britain, France, and any number of other European countries urgently need to make strategic investments in key technologies, to create more good jobs, and to stay ahead of increasingly aggressive geopolitical competitors. To be sure, if other countries are rushing to invent the future, that increases the pressure on any one country to move fast – but this is generally a good thing, particularly in terms of job creation. As long as we are inventing useful things – not socially harmful goods like tobacco, junk food, and digital advertising – more competition to invent is likely to trigger a race to the top.
During the implementation phase of the CHIPS and Science Act, the US Economic Development Administration designated 31 Tech Hubs in 32 states and Puerto Rico. In early July, the EDA announced $504 million in funding for 12 Regional Technology and Innovation Hubs, “to accelerate the growth of innovative industries.”
Will all of these hubs succeed? Perhaps not: pursuing genuine innovation involves real risks, after all. And the funding so far almost certainly is not enough to have a significant impact. But the big news is that almost all parts of the country want to get in on the action – only four states failed to at least win a Strategy Development Grant.
As Senator Maria Cantwell of Washington, chair of the Senate Committee on Commerce, Science, and Transportation, put it with regard to the CHIPS and Science Act,
“We don’t know exactly what innovations will come out of this, but we do know this: America will be more competitive because of it. And … we will be able to grow our economy for the future, because of the investments that we’ve made today.”
If you want more good jobs, invest in science, facilitate the commercialization of the technology that results from it, and make it easy for people to build companies where the product was invented. More funding and further strategic thinking is needed, in part because there will always be new technologies just over the horizon. But the CHIPS and Science Act has provided a major constructive step forward, and other countries should take note.
Simon Johnson: A former chief economist at the International Monetary Fund, is a professor at the MIT Sloan School of Management, Faculty Director of MIT’s Shaping the Future of Work initiative, and Co-Chair of the CFA Institute Systemic Risk Council. He is a co-author (with Daron Acemoglu) of Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity (PublicAffairs, 2023).