I recently read an interview with economist Paul Romer by Peter Robinson in a back issue of Forbes ASAP, the high-tech supplement to the authoritative business magazine.
You may have heard of Romer already. He is a 39-year-old economics professor at the University of California at Berkeley and a disciple of New Growth Theory. Romer and other devout followers of New Growth Theory want to know more about what, besides capital and labor, drives production.
Romer thinks he knows: technology, as in the ideas and discoveries that give birth to and lead to the commercialization of advancements such as cellular mobile telephony, personal communications services, enhanced specialized mobile radio, digital spectrum techniques like CDMA, TDMA, FDMA and FHMA and low-earth-orbit satellites. And, oh yeah, Windows 95.
As such, New Growth Theory says ideas are more important than objects insofar as driving growth. Put another way, anyone can build a cellular, PCS or ESMR system or manufacture a floppy disk if you give them instructions.
New technologies create jobs and wealth, and the economy is made stronger.
But such breakthroughs are not a dime a dozen; it can take years and huge sums of money in research and development before such labors bear fruit. But if an idea triumphs, the rewards are great because the inventor has a monopoly on it via patent.
In that sense, Romer believes monopoly power is not necessarily bad. Others, envious of the massive wealth accumulated by the Bill Gates and Craig McCaws of the world, will be encouraged to build a better mouse trap. Perhaps greed is good.
The implications of New Growth Theory for public policy are mixed. Romer believes government should promote technology but not rescue of companies in trouble. Let them fail, be patient; the process of discovery takes time. Romer would have policymakers shift their fixation away from short-term business cycles to long-term gains of innovation.
Which leads me to ponder the insanity of it all. Here, we have Romer who’s on to something big, real big if you consider United States leadership in information and telecommunications technology. This is what we’re good at: ideas. Moreover, we have a highly productive work force.
On Capitol Hill, the GOP-led Congress wants to cut R&D funding by government because Republicans believe it amounts to corporate welfare. The Clinton administration thinks government investment in high technology and high-wage job training will yield big returns, but lacks the GOP’s resolve to reduce the crippling budget deficit.
The American Association for the Advancement of Science projects R&D spending cuts could total $5.7 billion by 2002, the year by which Republicans want to balance the budget. No doubt some government programs could be trimmed or eliminated. A fiscal mentality that knows only subtraction might easily miss Romer’s point, though.
“You can’t break off a branch of scientific research and expect it to grow back,” said Albert Teich, director for Science and Policy Programs at AAAS. “There will be serious ramifications for the entire nation if these cuts are approved, and we have no way of determining exactly what those ramifications might be,” he added.