Jump-starting America by Jonathan Gruber and Simon Johnson

It has become well known that the United States is a divided nation: politically with an increasing polarization, economically with more and more inequalities between poor and rich individuals, and geographically with production concentrated in a few major cities. Starting from this observation, two MIT economists, Jonathan Gruber and Simon Johnson, come up with an interesting solution. They propose a revitalization of the driver of large productivity gains during the thirties: a huge investment in scientific research from the public finances on the long-term, combined with a diffusion of these investments across the territory to promote cities with unexploited potential.

In their book, published in April 2019, both authors attempt to show how the fast thirties in America were the results of huge State investments in R&D. Later, these investments were mainly to defeat Germany and Japan, and to face the Soviet threat. These public R&D investments helped the emergence of several discoveries leading to f copyrights. Because they had many applications in the private sector as well, the latter saw its productivity gains increase dramatically in the United States and abroad. This allowed the burgeoning of a healthy middle class which included both low and high skilled workers. .

History and Failures of American Scientific Policy

The three first chapters of the book summarize public R&D investments in the United States. Indeed, it is surprising to notice that this country did not make any budgetary effort in this sense until 1940. Moreover, the big innovations which were the reason for the considerable increase in wealth during the 19th century and the first half of the 20th century originated predominantly in Europe. For instance, in the transportation sector the first American locomotives were improvements of imported English locomotives to adapt to more rugged American terrain. In the energy industry, the studies in fundamental physics which permitted the mastery of electrical energy were conducted in Europe.

This American gap in fundamental research is illustrated in the book with other examples such as the fact that by the time the first American, Theodore Richard,  was awarded the Nobel Prize in 1914, Europe already had 14 Nobel laureates. The inventors who helped the United States to become the main industrial power during the second half of the 19th century are for a majority independent engineers, employees or even self-taught individuals. The same goes for the American universities at the time. They trained engineers and the only research done was application works.

A policy shift was made in 1940, under the pressure of German and Japanese external threats. Vannevar Bush, a distinguished American engineer and entrepreneur, met with president Roosevelt to explain the urgency of a State intervention to palliate the American gap compared to the Axis power (but also compared to the Allies) in important military sectors like radars.

These meetings were at the origin of the creation of the Office of Scientific Research and Development, which Bush originally presided over. Many successful collaborations between the federal government and several universities followed, a model which remains intact nowadays.

After the defeat of the Axis power, Vannevar Bush laid the foundations of what became the indispensable architect of public support in scientific research in the following decades. It emerged as a “Growth Engine” which brought an unprecedented prosperity to the first industrial power at the time.

In a 1945 report named “Science: the Endless Frontier”, Vannevar Bush defended a State intervention in the fundamental research similar to the one conducted during World War II, despite the fact that he was against Roosevelt’s administration interventionism during the New Deal, as both authors recall. The idea is that the State has to support this “everlasting frontier” passing in a similar way as the conquest of the West.  

Unfortunately, after he supported this type of policy, both the public opinion and the political leaders went against this idea of important public investments in research. It was the answer to many controversies such as DDT insecticides, and the result of a divergence between scientific and political opinions.

Reagan’s administration and its fiscal revolution ended these policies, despite the positive impacts they had.

A State’s Role Irreplaceable by the Private Sector

It is public investments in R&D which explain how so much American high-tech companies are in a dominant position today compared to their foreign counterparts. For instance, IBM launched its first big calculators for a simulation program of the Navy. Once the investment costs were absorbed by the sale at high prices of these machines to the Navy, the public benefited from more accessible solutions on this innovation. There are many more examples of this type.

Another objective of the authors is to show that a public investment in scientific research benefits the whole of society, and that private sectors cannot or do not want to bear their cost. Indeed, in chapter 3 “The limits of private research & development” Gruber and Johnson list many case studies which show the different problems explaining why a firm would not invest in a research project with gains for the society and even itself.

For Gruber and Johnson, it is imperative for the American State to reinvest enough money in research, especially fundamental research, because we cannot expect the private sector to invest optimally in it. Indeed, the return on investment is too low and uncertain, even though the social return is really high. Then, they argue that firms’ investments in R&D are in most cases below the social optimum.

It is not an argument against private companies, nor a plea to evict private investments in R&D to the benefit of the State’s. The authors want to prove it is not reasonable to expect technological breakthroughs from private companies, which will allow them to boost growth at a level equivalent to the one during the thirties and to bring an overall prosperity to the American society as the one after World War II.

A Way to Reduce Geographic Inequalities

Another topic addressed in the book is geographic inequalities in the United States. The authors mention the competition Amazon initiated for its new headquarters implementation in 2017. Many proposals (238 exactly) resulted from different cities in the American continent, mostly in the United States. It was mainly cities far from the big dynamic areas which could only offer tax-breaks in order to promote themselves. Fiscal advantages are often used by declining towns and states to attract investors.

Gruber and Johnson discuss this phenomena and what was proposed by the government to address it. Then, they suggest a list of 101 towns where it would be interesting to target public R&D investments.

These are mainly large or medium-sized towns in the American interior. According to the authors, it would decrease the huge inequalities across the territory between coastal and inland areas. 

Conclusion

Due to the length of the book, this summary does not have the ambition to cover all the topics mentioned by the authors. They develop many more propositions and analyses.

Therefore, if you are interested, I invite you to read it, as you could learn about much more: how the more the discovery in one sector (particularly in the medical sector), the higher the costs for new research projects, which is a barrier for disruptive technology; how the GI bill that allowed many soldiers to pursue their studies in higher education by being financed by the State, was extremely beneficial to the American economy… If you want to find out more, you know what to do!

By Antoine Fontanille

Reference

Gruber, Jonathan, and Simon Johnson. Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream. London: Hachette UK, 2019.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s