America’s current economic problems have been years, even decades, in the making. Developments over the last 20 years have created a perfect storm that has undermined our economy’s resiliency to cyclical downturns, let alone against near-catastrophes such as we experienced in late 2008. The hard truth yet to be accepted by the public and elected officials is that there is no one blanket solution or quick fix. Huge federal injections of cash over the past several years failed to create sustainable job growth.
Clearly, America needs a comprehensive economic recovery plan, benefitting all Americans. The plan must be immediately actionable, with measurable results for continuous job creation and economic growth. With bold implementation, confidence will be restored at the level of both small and large business, as well as among consumers, catalyzing economic recovery. Any true recovery plan must contain these essential building blocks: Investments to foster innovation, entrepreneurship and expansion of businesses in areas of national priority, e.g., health care, defense and homeland security, renewable energy, aging urban infrastructure and public transportation; improved K-12 education and work-force training; and reform of onerous litigation and regulations.
In the 1970s, Americans readily bought the argument made by futurists that manufacturing was doomed, with the service sector pointing the way to a “labor-free” future. No surprise, then, that manufacturing began a downward spiral from its high-water mark of 30 percent of GDP to its current, meager 12.2 percent. The service sector has not, and never will, come to the rescue. Rather than be forced to innovate, US companies have been encouraged to outsource manufacturing, further weakening America’s economic base. Today, America faces fierce competition. Nations like Japan, Korea, Taiwan and Singapore, as well as European countries such as Sweden and Switzerland, have developed policies and invested heavily to grow manufacturing above 20 percent of GDP, with a deliberate focus on high tech, rather than commodity products.
Moreover, while America is slashing its defense budget, China, with its highly centralized economy based in command-control Communism, has become an economic power house, building a world-class defense system. Congress and the White House continue to embrace the naïve view that American capitalism will always prevail. But unless structural changes are made to unleash high-growth capitalism, the US will face a precipitous decline that is neither organic to its history, nor inevitable. Our competitors have developed strong educational systems where students receive excellent training in math, science and reading. Public K-12 education in the US has improved in wealthy suburban districts where graduates go on to the most selective colleges and universities. But urban and rural districts continue to suffer from Third World-style ills, including teachers who are poorly trained in mathematics, science and technology. And there is no relief in sight: Local and state budgets are in deficit and unable to cope with the needs of K-12 education.
The generation of patents by US residents has fallen to fourth-place behind Korea, Japan, and Taiwan. The number of patents issued to US research universities has been stagnant for more than a decade. Apart from a few well-known institutions, US colleges do not graduate innovators and entrepreneurs. US college students are choosing law, banking and investment-management over engineering and science. In 2007, US law schools awarded 43,518 degrees. In the same year, US graduate schools awarded only 20,000 Ph.D.’s in engineering and science to permanent residents. By a ratio of 2 to 1 ratio, we produced more J.D.’s than Ph.D.’s. In Taiwan, where the practice of law involves bachelors, master’s and doctoral degrees, the combined number of degrees granted in 2007 for all three levels was 3,598. However the combined number of degrees awarded at all levels in engineering alone in Taiwan was 81,699. That is, Taiwan produces more engineers than lawyers by a ratio of 22 to 1. No wonder that Taiwan is way ahead in patents-per-resident!
Law firms need litigation to prosper, but at whose expense? US firms spent $29 billion in 2007 for governance and risk management, which was up 8.7 percent from 2006. The US business sector spent $6 billion in 2007 to comply with the Sarbanes-Oxley Act, hurriedly passed by Congress to protect investors. Imagine if such sums were spent instead on R&D, new factories and work-force training! Medical malpractice litigation reached nearly $30 billion in 2008. Doctors are increasingly forced to recommend numerous tests as defensive measures thereby increasing health care costs.
Begun in January 2008, the Oregon-Wyoming liquefied natural gas Ruby Pipeline illustrates how onerous environmental regulations have amaged free commerce. Excessive regulatory policies were largely responsible for the project going 23-percent over its $3.65 billion budget by its completion in 2011. Construction was halted for three months to allow the greater sage-grouse, not an endangered species, to complete its mating season. The pipeline contractor had to place more than 200 archeologists in the field to comply with the 1966 National Historic Preservation Act. Political contributions from attorneys in the 2008 cycle exceed $230 million. No wonder malpractice litigation is not an issue in DC!
Congress must immediately create bipartisan committees to overhaul medical malpractice litigation and streamline regulations, while sensibly safeguarding the environment. The Departments of Defense, Homeland Security, Energy and Transportation must establish competitive proposal processes for university research and corporate-university joint research supported by large multi-million dollar, multi-year contracts, with milestones and expected deliverables. These must be large enough (at least $25 million annually for five years) to support faculty, doctoral students, qualified undergraduates, purchase of special equipment and external partnerships. K-12 education is a local issue needing large federal support based on solid initiatives that are designed to create qualified teachers and an environment where students learn. Measurable outcomes must be part of every school district’s request for federal support. In-service teacher training can jump-start the process, but districts need to provide time for training in math and science. Such a comprehensive strategy must be implemented now by the White House and Congress. It will immediately transform America’s economic outlook.