Creating new jobs is a good way to get the US economy moving again. That’s not the controversial part of US president-elect Barack Obama’s economic stimulus plans. As usual, the devil is in the details. And innovation advocates fear that if the devil runs amok, a short-sighted emphasis on jobs over long-term productivity may bog down the economic recovery.
The problem, as they see it, is a centuries-old misconception that innovation is synonymous with automation, which in turn leads to the elimination of jobs.
“If you invest in a technology that makes something more efficient, the fear is that people will be put out of work,” says Kevin Efrusy, the venture capitalist whose firm Accel Partners is the lead funder of several important Silicon Valley start-ups, including Facebook.
“But it’s just the opposite. When anything becomes cheaper, we consume a lot more of it. The overall economic effect is, you create and expand entire new industries and employment goes up,” Efrusy said.
A 1995 study by the Organization for Economic Cooperation and Development showed that periods of high productivity — often achieved through automation — were correlated with periods of high job growth throughout the last half of the 20th century.
“Innovation leads to job growth directly and clearly,” says Robert Atkinson, president of the Information Technology and Innovation Foundation.
The data collected since that study was published continue to prove the point, he says, adding that even with the trend toward offshoring earlier this decade, unemployment rates in the US remained quite low until the recent economic downturn began.
While creating jobs by upgrading the nation’s physical infrastructure may help in the short term, Atkinson says, “there’s another category of stimulus you could call innovation or digital stimulus — ‘stimovation,’ as a colleague has referred to it.”
Although many economists believe that a stimulus package must be timely, targeted and temporary, Atkinson’s organization argues that a fourth adjective — transformative — may be the most important. Transformative stimulus investments, he said, lead to economic growth that wouldn’t be there otherwise.
A new report by the Information Technology and Innovation Foundation presents the case for investing US$30 billion in the nation’s digital infrastructure, including health information technology, broadband Internet access and the so-called smart grid, an effort to infuse detailed digital intelligence into the electricity distribution grid.
The stimulus money is “a wonderful opportunity” to integrate innovative technologies at a far faster pace than would otherwise be possible, he said.
“You’d have an economy and society within three to four years that would be a lot better than we have today, and you’d create a lot of jobs,” Atkinson said.
Beyond direct stimulus investments, he supports an initiative being circulated in Silicon Valley that seeks an information technology investment tax credit to foster innovation through the downturn.
Citing an op-ed essay on Nov. 30 in the New York Times by the economist Joseph Stiglitz, the Silicon Valley petition calls for a tax credit for companies that spend more than 80 percent of what they had been spending annually on information technology like computers and software.
The petition’s creator is David Thompson, the chief executive of Genius.com.
“I think it’s great that they want to build more highways and bridges,” Thompson said. “But if you really want to invest in long-term job viability, you need to invest in the innovation economy.”
Various organizations have previously backed such a tax credit specifically for clean technologies, biotech and broadband development. But TechNet, an advocacy group for the technology industry, is pushing for a tax credit that would underwrite innovation more broadly.
“Innovation is the lifeblood of the American economy,” says Jim Hock, a spokesman for TechNet. “We’re only as good as our next innovation. TechNet believes we shouldn’t be picking and choosing technologies to back with a tax credit. We should be technology-neutral and create an atmosphere of innovation that will let a thousand flowers bloom.”
Stiglitz, who was chairman of the Council of Economic Advisers from 1995 to 1997, said in an interview that there has been a slow divergence between traditional economics and what may be called innovation economics.
“I’ve been a bit astonished that all the discussion around the private-sector stimulus has centered on infrastructure,” he said.
“Bailouts, too, are aimed at correcting mistakes of the past, so they are backward-looking. We would be much better off spending our money forward-looking. If we spend US$700 billion on new technology and innovation, we’d have a stronger, new, real economy. Up to now, the discussion has focused on the sectors that have been mismanaged rather than the sectors that are creating our future,” he said.
Geoffrey Moore, a partner with Mohr Davidow Ventures and author of five bestselling business books, says that whatever form the government stimulus takes, it must focus on the nation’s greatest strength.
“America is probably the best culture in the world at failing,” he said. “We’re willing to navigate in a fog and keep moving forward. Our competitive advantage tends to be at the fuzzy front end of things when you’re still finding your way. Once the way has been found, we’re back at a disadvantage. So, yes, investing in innovation is critical.”
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