‘Growth Through Innovation’: Toward a Competitiveness Consensus

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ImageIn geometry, three points define a plane. In journalism, three events establish a trend. In public policy, three strategy forums might not conclusively confirm a consensus – but a recent think-tank trifecta suggests that a dramatic change is taking shape in the policy community’s thinking about economic competitiveness.

Thrice in recent weeks, activist strategies to inspire innovation and growth have been the front-and-center topic in major policy conferences – suggesting that an energetic new Competitiveness Consensus, applicable to developing and developed countries alike, is emerging among economic thought-leaders.

Judging by the three forums, not just academic scholars, but policymakers and lawmakers, now seem eager to apply the lessons from a slew of analyses  advocating industry-focused and productivity-driven growth strategies, taking pragmatic steps to invest in stronger competitiveness. In a global economy starved for growth  and desperate for job creation, the focus on activist policies – including targeted interventions at the industry level – is relevant to countries large and small, developed and developing.

Coordinated action by business and government must seek transformative approaches – with supportive public-sector strategies carefully reinforcing private-sector planning. That was the critical takeaway from recent symposia in Washington at the International Monetary Fund, the Brookings Institution, and the Information Technology and Innovation Foundation. The forums explored public-private collaboration on such priorities as identifying economies’  potential comparative advantage in the global value chain; promoting innovation through cluster development; supporting entrepreneurship and maximizing the “spillover effects” that can inspire startup firms; and channeling  public investments into advanced technologies, energy innovation, R&D.

The International Monetary Fund’s conference – on “Diversification and Structural Transformation for Growth and Stability in Low-Income Countries” – seemed remarkable from the very start, simply because the IMF, a bastion of free-market thought, was now welcoming ideas about hands-on policy interventions. The pragmatic approach to public-private cooperation was summarized by Harvard University’s Dani Rodrik, who underscored that market-sensitive yet activist techniques can help promote stronger competitiveness. Policymakers should envision competitiveness-building in a way that “goes beyond the traditional concept of ‘industrial policy,’ ” he said – embracing instead a process that relies on “institutions where government officials are continuously interacting with the private sector.”

The process should not rely on a fixed toolbox of pre-designed interventions – a rigid approach that was arguably one of the shortcomings of long-ago efforts to tinker with industrial planning. Instead, a market-attuned approach should envision “a collaboration process” between policymakers and business, said Rodrik. Public officials should ask: “Do I have a healthy dialogue? Do I have the right set of institutions” that elicit robust information about marketplace trends, “and do I have the ability to respond?” That approach takes competitiveness-building beyond the realm of “picking winners and losers,” he said: A test of effectiveness is whether competitiveness programs “can actually let ‘losers’ go” by withdrawing support for faltering efforts.

Another voice advocating activist approaches came from Harvard’s Ricardo Hausmann, the former Planning Minister of Venezuela; former Chief Economist of the Inter-American Development Bank; and former chairman of the IMF-World Bank Development Committee. Development practitioners should support “processes and organizations that can dynamically solve problems” and that can help economies diversify – because the key overall goal of development is “increasing the variety and complexity of a country's output.” The great challenge, he said, is “coordinating intermediate public inputs.”

Although active policy interventions were at the center of the dialogue, some remained skeptical. Richard Rogerson of Princeton University expressed doubts about the overall notion of industrial policy through directed structural changes because, he said, empirical data cannot establish whether they are creating positive outcomes. William Maloney of the World Bank’s Development Economics team said that there is little useful data about “what goods are good” for development – asserting that he is "agnostic about giving governments policy advice" and generally favors promoting “horizontal-ish” policies that cut across economic sectors. Yet it was the prospect of a more active role for policy that seemed to animate the IMF audience.

Specific hands-on policies, with government as a pro-growth partner with business, were detailed at a Brookings Institution forum on “Fostering Growth Through Innovation,” the latest event in its series on job-generating strategies. Timed to coincide with Inauguration in Washington, and aiming for “government policies that would help to unleash private-sector innovation,” financier Glenn Hutchins said that the Brookings organizers “weren’t under any illusions that government actually creates jobs or creates innovation . . . but it can create the conditions under which the economy grows – or create the burdens under which an economy struggles.” The activist tone at Brookings – like the IMF, a pillar of the policy Establishment – suggested that even the city that once lent its name to the so-called “Washington Consensus” is ready for more vigorous public-sector action.

Far-sighted policies need to mobilize not just national-level governments but state and local leaders, Hutchins said, citing Brookings’  Metropolitan Policy Program: “States are the laboratories of innovation. The hope that we have for important parts of our future is that people at the state and local level continue . . . to create the conditions for economic growth, innovation, and projects like advanced manufacturing that can generate . . . growth that is shared and inclusive.”

One such solution – building an “industrial corridor” that promotes advanced technologies and manufacturing – was described by entrepreneur-turned-Mayor Greg Fischer of Louisville, Kentucky – the 16th-largest U.S. metropolitan area. Fischer is creating an innovation-driven technology and industry zone linking Louisville with the nearby university city of Lexington: “Our universities are collaborating [and] our big companies are collaborating with each other, so we can figure out, on a regional scale: How do we improve workforce readiness? What’s the innovation cluster that we need? How can we increase our exports?”

Agile public-sector decision-making is essential, he said, in making public-private collaboration successful: “As a business guy that now just happens to be Mayor, businesses are busy. If government can’t respond efficiently and quickly in a way where they’ve got their act together, guess what? [Business leaders will] move on and do our own things. . . . Government has to move at the speed of business for it to be relevant.”

Thinking globally, Fischer foresaw even broader policy activism: “If we can get our act together with a federal industrial policy – I mean, just think how America can shine right now. Now, that takes a little humility. We’ve got to say: What can [the United States] learn from Germany? What can we learn from Japan? What can we learn from China?”

Building competitiveness through innovation is vital to success in the global economy, noted Brookings’ Bruce Katz – and a thriving manufacturing sector  sets the pace for innovation. Manufacturing accounts for “9 percent of the jobs [in the United States], 11 percent of the GDP, 35 percent of our engineers, 68 percent of private sector R&D – and 90 percent of our patents,” Katz observed. The United States, however, “may be the only mature economy to somehow decouple production and innovation,” he noted. “Trust me, the Germans aren’t doing it, the Japanese aren’t doing it, and the Chinese aren’t doing it.”
In a series of policy papers, Brookings spelled out ways to “begin to drive collaboration between our major companies, our universities, a series of specialized firms, so we can crack the code on product and process innovation.”

Granted, some are skeptical of placing too heavy a bet on manufacturing, yet Katz saw great promise in emulating Germany’s success through “a series of advanced industry innovation hubs.”

Such innovation hubs, and the clustering of advanced industries that can produce “spillover effects,” were detailed at an ITIF forum on “Making America Competitive Again:  Restoring U.S. Innovation Leadership.”  Panelists focused on a new policy vehicle inspiring the clustering of innovative industries: the new National Network for Manufacturing Innovation (NNMI), led by the National Additive Manufacturing Innovation Institute.

Uniting 80 corporations, universities and startup firms in a technology cluster catalyzed by Defense and Commerce Department investment, the initial NNMI prototype – in Youngstown, Ohio – may herald “an opportunity for a renaissance in manufacturing . . . if we have a national strategy [for] public-private partnerships,” according to its local lawmaker, Rep. Tim Ryan (D-Ohio), who chairs the House Manufacturing Caucus. The NNMI initiative also won praise from Sen. Sherrod Brown (D-Ohio), who saw it as a linchpin of a new high-tech corridor between Cleveland and Pittsburgh, which has knowledge-economy anchors in medicine, robotics and such advanced industries as 3-D printing. “We no longer use the term ‘industrial policy,’”quipped Brown, who has long advocated active pro-manufacturing strategies, “because that makes people think of some kind of insidious Big Government operation of some sort,” but “it really does need the kind of partnership” that inspires spillovers, spinoffs and entrepreneurship.

Building competitiveness is surely easier said than done. Yet the three recent forums, taken together, suggest that a broad-gauge rethinking of activist competitiveness strategies – in which government plays a supportive, market-sensitive role – is now a major factor in the policy mix. Continuing vigilance about such dangers as mismanagement, rent-seeking and regulatory capture is required, as always. Yet as policymakers worldwide seek pro-growth strategies  that go beyond the now-vanished Washington Consensus, an innovation-minded Competitiveness Consensus seems ready to lead the next wave of policy renewal.


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