The Good That Government Can Do

By Derek Thompson

If you're wondering whether the U.S. government can help private enterprise, consider the 20th century. This report from the Breakthrough Institute (via Economix) breaks down Uncle Sam's helping hand in America's most famous technological achievements in the last 100 years. A sampling of synergy:

-- Defense spending helped develop and popularize (and make affordable) the Internet and the personal computer.

-- The second World War and federal research contracts helped to establish our edge in aviation, a key export that has (mostly) survived the recession.

-- Government demand for microchips helped to pull down the cost of electronics for consumers.

-- Public investment dating back to the Tennessee Valley Authority spawned the country's first nuclear power plant.

Industrial policy -- that is, the government picking "winners and losers" with direct financial support -- might not be the only way, or the ideal way, to establish our edge in advanced manufacturing or clean energy technology.*  Indeed, cleaning up the corporate tax code, reducing export control barriers and establishing a national carbon tax might be the most cost-effective ways to promote a new age of "Made in America." But while Americans like to think of ourselves as independent garage-based innovators, it's clear that Washington money has played a key role in building America's Silicon Valleys.

We're at an interesting crossroads for American economic policy. One major party is convinced that the proper role for the U.S. government is to cut taxes, stop spending and let the private sector lead the recovery. Another major party is convinced that we need to raise taxes to pay for new spending to improve education, research, and infrastructure and support (or guide?) the private sector. I don't know whether Democrats or Republicans are right, but it's useful to remember that government spending has powered U.S. competitiveness in the past, and it should continue to play a role in the future.

The question is: how should the government protect and nurture our competitive edge in an age of deficit reduction? We hear answers from both parties tomorrow.

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* Government investments aren't exactly fool-proof. Look at ethanol. Look at Fannie and Freddie. Read this story. Investments are bets, and some bets fail, by definition.

This article available online at:

http://www.theatlantic.com/business/archive/2011/01/the-good-that-government-can-do/70112/