©2019 by Jonathan Gruber and Simon Johnson

Policy Summary 

In the decades that followed World War II, the U.S. led the world in innovation, creating entirely new sectors such as jet aircraft, life‐saving drugs and vaccines, microelectronics, satellites, and digital computers. Widespread innovation boosted productivity. Household income increased faster than ever before, while inequality declined.

 

Since the 1970s, however, U.S. productivity growth has slowed – reflected in falling total GDP growth from 4 percent in the post‐war years, to under 3 percent from the mid‐1970s, and to under 2 percent since 2000. The CBO projects growth in the mid‐2020s of only 1.7 percent.

 

Moreover, the well‐paying jobs that we do have in the U.S. are now concentrated disproportionately in a small number of superstar cities. People in the rest of the country increasingly – and correctly – feel that they are being left behind. Cities and states attempt to compensate by offering large tax breaks and other subsidies to big companies, but this just enriches corporations while starving local services.

 

What went wrong? Policymakers forgot one of the most important lessons of the post‐1945 period. Modern private enterprise is most effective when government provides strong underlying support for science and for the commercialization of inventions.

 

Firms are interested in innovation only to the extent that it improves their own bottom line – and not if creating new ideas and products leads to benefits for someone else. But spillovers from discovery are incredibly important, creating both the basic scientific knowledge and the more applied ideas that help determine how fast our economy can grow.

 

The innovation that led to rapid growth after World War II was the direct result of a fruitful partnership between the private sector, federal government, and universities that allowed us to generate and benefit from these spillovers as a country. Almost every major innovation in this era relied in an important way on federal government support, provided by both Democratic and Republican administrations. Public spending on research and development peaked at nearly 2% of our entire economy in 1964.

 

Public support for R&D today amounts to no more than 0.7 percent of GDP. This is equivalent to spending at least $250 billion per year LESS than we did during the post‐war boom. Lower public investment in science has contributed to the slowdown in productivity growth.

 

Across almost every dimension of technology today, America faces the imminent prospect of falling behind other nations. Around the world, including in China, government‐supported research initiatives are helping to create the technologies of tomorrow, along with the associated well‐paid jobs. Our competitors have studied post‐1945 American history carefully – and are applying the lessons. We are at risk of falling behind and losing even more good jobs.

 

When Amazon announced its intention to build a HQ2 somewhere in North America, 238 cities submitted bids with generous tax incentives, infrastructure improvements, real estate deals, and other inducements. Yet the winners were two of the most economically successful places in recent decades: New York City, and Northern Virginia/Washington DC. The private sector, left to its own devices, will not close the income and opportunity gaps in America.

 

In contrast, placed appropriately, geographically‐concentrated federal investments can be truly transformative: attracting companies and helping to generate more local private sector employment. We need to jump‐start the American growth engine in a way that benefits the entire country, not just a few large cities. Specifically:

 

  1. Expand federal funding for basic science, as well as for the technology development that creates jobs through commercialization. An investment by the federal government of $100 billion per year in this scientific infrastructure would create four million good new jobs in the near term – while boosting growth and helping to strengthen the middle class.
     

  2. Share the benefits much more broadly across the country. In Jump‐Starting America, we identify 102 urban communities that are plausible next generation tech hubs, all with large populations, highly educated workforces, and a low cost of living. These communities are home to over 80 million Americans in 36 states, across all regions of the country. For example, there are: seven potential new hub locations each in Florida, Michigan and Ohio; six each in Alabama and Indiana; five each in New York, Pennsylvania, Tennessee, and Texas; four in Georgia; and three each in Iowa, South Carolina, and Wisconsin. (See attached materials for a map and list of the relevant Metropolitan Statistical Areas.)
     

  3. Create a national competition for municipalities to become new technology hubs. Areas would bid to show that they can become an effective home for technology development. Potential hubs should also aim to increase the supply of skilled workers, through: making higher education more affordable; providing appropriate practical and technical training, including for people who begin with just a high school‐level education; and linking to locally available employment opportunities that pay good wages.
     

  4. Establish an independent commission with the mandate of selecting 20‐30 places to form new technology hubs, with a broad geographic spread but also sufficiently concentrated investment for a jump‐start. The transparency, accountability, and legal authority of this commission should be based on the successful approach used by the Defense Department’s Base Realignment and Closure Commission.
     

  5. Ensure that the benefits of technology‐led growth accrue to all Americans by creating a cash Innovation Dividend. The capital appreciation (and higher rents) on government-owned real estate in new hubs would flow to all Americans through a flat annual payment – just as the Alaska Permanent Fund redistributes oil royalty revenue.

102 Places for Jump-Starting America