Wondering why the economic recovery has been so sluggish? We need to shift from the Washington Economic Consensus to the Innovation Economic Consensus. Here is a preview of both of these points of view, as laid out in the forthcoming book Innovation Economics: The Race for Global Advantage:
According to the Washington Economic Consensus, the government merely supplies the right conditions for private sector players to compete. Essentially, the market allocates resources efficiently and profit is ultimately the best motivator for innovation. When government attempts to pick winners and takes an aggressive stance against market distortions, either at home or abroad, it usually gets it wrong. While government can perform a useful role in addressing stark inequalities, blatant violation of global rules for fair competition, and encourage some types of investments over others, it is not seen as necessary to design and implement a national strategy to focus solely on innovation or any specific sector. It’s the common belief that companies, not nations, compete for economic opportunities and innovation is the natural byproduct.
But what we need is the Innovation Economic Consensus. The Washington Economic Consensus fails to understand our new knowledge-based economy and is putting U.S. competitiveness at risk.
What the United States needs is a new set of policy goals based on the principle that innovation is a main driver of economic growth and opportunity and it doesn’t just occur spontaneously. To obtain the innovation needed to address energy needs, food security, transportation and other issues, an innovation strategy is needed. Innovation-based competitiveness requires tax and regulatory policies that encourage and enable the private sector to adopt new technologies, perform R&D, and stay at the cutting edge of emerging sectors. It requires preparing students and workers for today’s fast-paced global competition. We need to support robust government investments in early-stage, high-risk science and R&D to set the stage for private sector breakthroughs and trade policies that maximize opportunities for innovators and entrepreneurs to compete on fair terms.
Find out which consensus you subscribe to, take the quiz.