The U.S. Needs Innovation, but Government Molds the Economy That Works for It

These paragraphs from an Edward Fitzpatrick column back on December 11, “Keys to reversing economic slide,” have continued to come to mind as Rhode Island continues to struggle under the weight of a lumbering economy:

[New York Times financial journalist Andrew Ross] Sorkin said he derives faith from history. “When you think about the economy, every time it looked like we were all going to hell in a hand basket — when it looked like there was no light at the end of the tunnel — someone did something interesting,” he said. “They discovered the Internet. They found gold.” So, he has faith that “we as a society will find a way to do something that is actually going to change the game one more time.”

I’m not sure what that game-changer will be. But I am sure our economic salvation won’t come from gambling (excuse me, gaming). As budgets grow tighter, it seems every state is looking for the answer in slot machines, and while I don’t know what the CEO who spoke with Sorkin is building in India and Brazil, I bet it’s not craps tables.
The CEO that Fitzpatrick mentions in the second paragraph is one who told Sorkin (in an anecdote that the journalist related to his audience) that out of 5,000 new jobs his company had created 4,000 were overseas. The CEO’s explanation for that decision was that “the growth” is in foreign markets, including a growth in educated workforces.  One can infer that “growth” is a way of saying that the nations have First World capacity with a Third World sense of pay rates, and Sorkin notes that technology has accelerated the rate at which the profit from new innovations (America’s strong suit) shift to profit from production of innovative products.  He also observes that turnover is quick both in executives and in a particular company’s collection of investors.
Apparently, the mood of the room in which Sorkin was speaking was somber, but one can begin to see the vague shapes of a solution.  What the United States needs to do is to foster an economy built on the business of innovation, giving investors reason to search for innovators, rather than to chase the products that they create.  The real source of hopelessness is buried within Fitzpatrick’s quip about gambling facilities, because of what the prominence of gambling as an economic panacea indicates:  That government will seek to develop the kind of economy that benefits it.
Because it has the air of a distasteful industry and, like other sin tax targets, is susceptible to demands for close public scrutiny, gambling is a high-yield business when it comes to taxes. By contrast, innovators just move too quickly for politicians and bureaucrats to invoice, and besides, it’s more difficult to sell taxes on economically creative activities than socially destructive ones.  This dynamic also helps to explain Rhode Island’s obsessive focus on green technology (including wind farms) and the biotech businesses with which we’re hoping to fill a “knowledge district” on the land that I195 used to occupy.
Government likes to privilege energy, environment, and healthcare because they all have an aura of being cutting edge, but at the same time, they are all heavily regulated industries.  They are also intertwined tightly with other areas (such as education) with which government is deeply involved.  Unfortunately, regulation tends to suppress innovation and to increase the risks of investing in it.  (Who believes that a miracle drug will long retain high profitability?)
The nation’s vital conundrum does not lie, as Sorkin avers, in finding a way to compete with high growth regions, but in finding a way to build an economy on creativity when a key economic player is a ravenous government with the powers to tax and to police, whose main claim to a value add is looking over shoulder and reviewing every plan to ensure that it is not dangerous, or even unfair.

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