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Model Initiatives | June 30, 2008
Policy Brief: Promoting Growth, Entrepreneurship, and High Quality Jobs in Today's Global Economy
America has been the world's leading economic power for a century: the largest and most innovative economy and at once the world's laboratory, workshop, and market. So long has the United States been on top that many Americans take economic preeminence for granted. They should not--because the country is now facing a challenge to its leadership as profound as any in its history.
Four powerful global-economy events have brought the world closer together than ever before: the end of the Cold War and the reintegration of Russia, China, Vietnam and other old Cold War foes into global trade and investment; the launch of the World Wide Web and the deployment of high-performance communications satellites and fiber-optic cable; agreements to lower tariffs and other trade barriers; and logistical revolutions in container shipping and air cargo. The combination means Americans have remarkable new opportunities for growth through exports, as well as for higher living standards and a choice of the world's goods and services. These events have also, however, brought more Americans into competition with foreign rivals--not only in traditional farming, manufacturing and mining industries, but in services businesses suddenly linked to the world through the global telecom network. India and China in particular are potential rivals for global leadership by virtue of their size, and pose complex competitive challenges by virtue of their low costs.
Opinion surveys such as one done recently for the DLC find Americans, as workers and as entrepreneurs, both optimistic and anxious about this phenomenon. They look to government and political leaders--at the state and local as well as national level--for innovative public services that help businesses create high-quality jobs, foster an entrepreneurial economy, keep America in the lead as an innovator, and help give workers the skills and adjustment services to succeed as the economy changes.
The nation needs to rise to the challenge--and American businesses and workers are already doing so. State and local governments are also moving ahead with innovative policies that help businesses create high-quality jobs, promote research and innovation, ease transition for workers, promote exports and high-quality foreign investment, and improve competitiveness. States' innovations are important in their own right today, and can be models not only for other states but for a new progressive administration tomorrow, as we craft the policy mix that helps America invent the new industries and technologies that will define the 21st century, sustain the entrepreneurial economy that makes business and job creation easy and cheap, and develop the education and safety nets that allow workers to bounce back from job dislocations and find new opportunities.
In a global economy, we believe:
- The United States has a vital interest in an open world economy with strictly enforced rules that allow us to take advantage of our strengths, encourage development and reduction of poverty in poor countries, and help preserve peace and stability worldwide;
- The private sector will remain the principal engine of job creation and economic growth;
- Wise public policies can help to create an entrepreneurial business environment, encourage research and scientific progress, and create the highly skilled and educated workforce and high-quality jobs that will keep the United States the world's economic leader in the 21st century;
- Government cannot stop the evolution of the United States' economy and ensure that no one ever loses their job, but it can make sure that risk is broadly shared, through national health, pension, adjustment, and job training and placement policies that ease the transition.
Whether you call it globalization, the Information Age, the post-industrial economy, or a "flat world," the new realities we face are radically changing the terms of economic competition. This new world brings increased competition as hundreds of millions of new workers from low-cost developing countries like China and India enter the job market, but it is also opening up new opportunities as these same countries produce hundreds of millions of new middle-class consumers as potential customers.
The world has fundamentally changed in recent years, but our policies have not caught up. America's education system was developed at a time when a high-school diploma and a strong work ethic were enough to achieve a middle-class lifestyle, and the Cold War combined with deep poverty abroad to limit business competition largely to Europe and Japan. America's safety net was created at a time when companies provided health insurance and pensions and most people stayed with one company for much of their working lives, while government stepped in mainly to help the very poor, elderly, and disabled. The challenges faced by Americans today are entirely different, but rather than stepping up to help people meet those challenges, our policies have let the risk and burden fall on the shoulders of individual workers and their families.
The main burden of meeting this competitive challenge will fall on America's firms and workers, but wise public policies can strengthen our comparative advantage in high-skill, high-wage industries while easing transitions for workers. The United States needs fundamentally improved national science, skills, adjustment and other policies, defined and measured against a comprehensive National Competition Strategy. Whatever the deficiencies of current national policy, however, state, county, and city governments can help meet the challenge of globalization and take advantage of its opportunities through measures like the following:
- Put innovation first by refocusing tax, regulatory, and investment policies to encourage research, innovation, investment, productivity, and enhanced education and skill development. Innovation is a prime source of America's comparative advantage in today's global economy, yet we are losing ground in technological innovation and scientific research and have been playing catch-up in the deployment of "fat" broadband technologies. If we want to regain our lead, state governments must step forward to partner with the private sector in making investments that the economy needs but the private sector cannot afford on its own. States can create powerful tax incentives to encourage new scientific and technological breakthroughs through their R&D tax credits, individual business incentives, or strategic growth initiatives. They can also bring together industry and academia so that new developments can be readily commercialized through university venture funds. In addition, if America wants to regain our lead in innovation, state governments must also step forward to increase the skills of the current workforce as well as those of future generations of workers. States should put a special emphasis on increasing the number of students and skilled teachers in the critical areas of high-level science, technology, engineering, and mathematics, which are a driving force for every state's economy. Above all, we must make life-long education a political and cultural priority second to none.
- Help to create an entrepreneurial economy that promotes business and high-quality job creation. Instead of demonizing companies, states should recognize that companies face new global competitive realities and focus their efforts on creating the incentives and support for businesses to grow high-paying jobs here at home. This includes reforming regulations and taxes to make it easier to create new businesses and drive growth; creating a universal health insurance system that doesn't hinder business development; creating a universal pension system; and opening new markets to businesses overseas as well as bringing in foreign investment to states. In today's global economy, businesses are drawn to states and cities that allow them to be entrepreneurial and drive growth and innovation. Governments must recognize and support this by creating an entrepreneurial environment through proper incentives and supports.
- Offer new tools to manage economic risk, to sustain public support for a dynamic, entrepreneurial economy. Globalization, technological change, and shifting career patterns are challenging old arrangements between government, unions, and companies for promoting economic security for working families. This unraveling of the old, industrial-era "safety net" has resulted in a massive shift of economic risk to individual workers, to which government must respond. America needs to replace it with a new "social contract" for worker security--a set of policies aimed at enabling workers to enhance their skills and social mobility; rebound from job and financial losses; control health care, pensions, and other critical sources of economic security; and acquire capital assets.
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