New CAP study on economic growth

The Center for American Progress (CAP) has issued a new comprehensive study on restoring U.S. economic growth: 300 Million Engines of Growth. The report is a good compilation of ideas for previous CAP studies and reports. I agree with much that is in the report. My critiques are mostly about what is missing.
The plan focuses on long term growth and the importance of the middle class, rather than short term stimulus. Having said that, they give nod to the role of demand by pointing out that a strong middle class is important to sustaining demand. And they outline six areas for spending that they estimate will create 2.5 million jobs: housing, infrastructure, energy efficiency, work-based training and skills development, pre-K education, and rehiring state & local workers.
The long term recommendations in report take two tracks: people (the “300 million engines”) and the economic ecosystem/environment. On the people side, there is the now standard discussions of education and immigration. [Side note: it is interesting to see how immigration has become a routine part of any discussion of U.S. policies on human capital.] I was disappointed to see the education pat of the report cover only “formal” education and subsume worker training into that formal (i.e. certification-driven and class room based) system. The training section was focused on the need to help worker obtain the skills they need to get jobs — not on the skills they need to keep and improve their jobs. Much more attention needs to be paid to on-the-job training and the continual upgrading of skills and knowledge (what we used to call lifelong learning).
More controversial (and possibly more important) are the report’s recommendations on raising workplace standards: “Weak wage and benefit policies and low workplace safeguards threaten the quality of U.S. jobs.”

To make more jobs good jobs and to strengthen and grow the middle class while substantially reducing poverty, we propose guaranteed paid leave and sick days, better protection in the event of layoffs, a higher minimum wage, better forms of retirement savings, and protection of workers’ right to join a union. Such policies improve productivity, reduce turnover, and provide the middle class with the stability needed for risk taking and increased growth.

I was glad to see this broader view of labor policy included in the report. However, the discussion fell short of how to improve the jobs themselves. There was a nod to the “high road” strategy in government contracting. But, again, more attention needs to be focused on how policy can foster the adoption of high-performance work systems that take seriously the notion that people really are the company’s most important asset. [For more, see my earlier paper Time to Get Serious About Workplace Change.]
The second track of the report is on “strengthening the economic environment.” As one can guess, for CAP this does not mean cutting taxed and getting rid of regulations. Rather, it means a number of proactive government actions that are need to harness that improved human capital:

even a car with a superior engine needs good roads to drive on. What we haven’t addressed yet is the market environment in which our 300 million engines of growth operate. After all, we can educate and train ourselves to be the most productive workers in the world but still underperform as an economy if our tax system creates incentives to move jobs overseas; if our country neglects the basic research that underpins innovation; if the playing field for international trade is tilted against us; if we cede the industries of the future to other countries; if existing industries fall behind because we ignore market failures; if our transportation system is crumbling; and if our energy is dirty and expensive and the supply unsustainable.

Recommendations fall into the following areas:
 •  Create the mechanisms for an adaptive national economic strategy
 •  Lead in clean and efficient energy
 •  Promote science and technology research and development
 •  Balance trade
 •  Rebuild our infrastructure
 •  Restore the housing cornerstone
 •  Ensure capital is available for growth
 •  Construct a responsible, pro-growth tax and budget policy
I won’t go into all of the recommendations in these areas. There are a number of standard ideas (e.g. doubling the Federal R&D budget and creating a National Infrastructure Bank) interwoven with a number of controversial ones (e.g. imposing a carbon tax, creating a currency misalignment trigger, and curbing high-frequency stock trading with a financial transactions tax). I was disappointed to see the report raises the issue of the transfer of intangible assets to low-tax countries but punts on any solutions to the problem.
I would like to comment, however, on the first item: Create the mechanisms for an adaptive national economic strategy. Like most of the recommendations in the report, this is an item CAP has raised before. The recommendation is 1) to reorganize the federal trade and business agencies into a single department focused on business and competitiveness and 2) conduct regular strategic economic assessments based on improved industry and sector data. [The report also lays out the circumstances where government intervention at the industry or company level is justified.]
As I commented before on these proposals, I strongly support the idea of a National Economic Strategic Assessment and improving our statistical system. Concerning re-organization, I am wary of this idea. As a scarred veteran of the last attempt to reorganize Commerce during the 1980’s, I can attest that such a action will not be easy. There are many permutation to the new structure — although some are better than others. There is no way to completely pull all the competitiveness related programs into one Department (e.g. should worker training programs be in Labor or Education). And there is a lot of vested interests in keeping the familiar structures in place.
On the merits of the proposal itself, my sense is that such consolidations aren’t necessarily that helpful. I would support a re-look at the structure of the Commerce Department and the statistical agencies. But there will always be programs and policies that are important to economic competitiveness that will be part of other policy arena’s (such as defense or housing). Thus, I don’t believe a single overarching competitiveness agency is possible. Coordination – rather than consolidation – seems to be the better course of action.
I would suggest another organizational idea: the creation of “competitiveness” agency outside the government. Specifically, we should establishment of National Foundation for Science, Technology, and Creativity patterned after the United Kingdom’s National Endowment for Science, Technology and the Arts (NESTA). As I’ve noted before, NESTA takes a broad view of innovation unlike many other technology and innovation programs. Its portfolio of programs covers a variety of areas, including science awareness, early stage investments in technology companies, open innovation projects, design, and arts and cultural fellowships. NESTA is an independent organization; it complements but does not replace government funding of science, technology, and innovation. A United States version of the endowment could be seeded as a public-private partnership, with initial funding from both sources. It would then use income from the endowment and returns from strategic investments to support most of its activities. Creating a US version of NESTA would complement the assessment process outlined in the CAP proposal.
In sum, the report is a good starting point for a whole series of debate about fostering long term growth in the U.S. economy. Let us hope that we can have that debate – and not either continue to ignore the issue or focus on non-consequential parts of the issue.

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