Innovation: The Way Forward?

by Mark Muro | September 14, 2009

Brookhaven National LaboratoryWith speeches by White House economic advisor Larry Summers on Friday and President Obama today on Wall Street, the Obama administration is moving from triage as the chief aim of economic policy to recovery. 

Which is good: The job picture remains dismal, and many economists now assume any recovery will feature weak hiring and strong productivity growth as it did from 2001 to 2003. No wonder a lot of people are asking: From where will the next round of high-quality growth come?

Which brings me to my answer: The next round of high-wage growth will come from metropolitan areas.  In good times and bad, metros are where the action is. Because they are where the nation’s productive assets concentrate, they are the hubs from which the growth will flow.  And now, as the economy regains stability, the fundamental drivers of medium- and longer-term renewal come even more into play, with none mattering more than the nation’s innovation inputs--things like R&D flows, the presence of dense clusters of interlinked firms, the availability of venture capital and highly-trained people.

These inputs, it turns out, are especially concentrated in metropolitan areas, the largest 100 of which pack in 70 percent of the nation’s research universities, 77 percent of U.S. knowledge jobs, 78 percent of all patents, 82 percent of federal health and science research funding, and 96 percent of venture capital investment.

But what is really important is that commercial innovation drives productivity growth, which in turn--as my colleagues Rob Atkinson and Howard Wial have argued along with many other economists—tends eventually to improve wages, national competitiveness, and the standard of living. Which is why we will spend quite a bit of time here on The Avenue on the nation’s other economic crisis--its innovation crisis--and ways to break out of it. On innovation, these are the critical questions: 

Along the way we’ll follow debates about the nation’s innovation investments, whether in the American Reinvestment and Recovery Act (ARRA) or the FY 2010 and 2011 budgets; track discussion around  proposals for the creation of a federal industry clusters program; and follow the fortunes of responses like the creation of focused, high-power innovation hubs akin to Metro’s proposed energy discovery-innovation institutes (e-DIIs) in the energy budget and climate bills. In all of this we’ll continue to dwell on the crucial extent to which the economy transpires in places--metropolitan places--and how the nation ought to frame economic policy in light of that.

And here, I should say that a number of us think federal economic policy is in need of some new ideas. We tend to agree, for example, with Noam Schieber at The Stash who suggests that policymakers had probably better not just rely on the business cycle to restore prosperity. Five, six, or seven years of sluggish recovery would be a long slog and we might not like the economy that results from simply leaving it alone. Given that, look for The Avenue to recommend a strong focus on metropolitan policy to unleash the next round of innovation and growth across all sectors of our economy.

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