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Larry Summers and America's innovation dilemma

summers.JPG

Larry Summers, Treasury Secretary Timothy Geithner, and OMB Director Peter Orszag look at President Barack Obama during an economic meeting in the Roosevelt Room in March.

(Photo Credit: Official White House Photo by Pete Souza)

By Neil Irwin

Larry Summers has become a deeply polarizing figure in Washington; liberals view President Obama's economic adviser as a Wall Street toadie, and conservatives view him as a closet socialist. But he gave a speech Tuesday that received virtually no media attention, in which he offered some ideas that people of both parties -- even the ones who don't like him very much -- need to grapple with for the U.S. economy to prosper in the decades ahead.

Speaking at an event on American competitiveness organized by the Harvard Business Review and consulting firm McKinsey, Summers offered a compelling description of one of the central problems for the United States: While we remain first-rate as a generator of new ideas and innovation, it is no longer a given that innovation leads to lots of solid jobs for the middle class.

"How do you channel direct innovation so that more of the work takes place near the innovation in the United States?" Summers asked. Referencing the founder of Eastman-Kodak Corp., Summers said that "When George Eastman was a profoundly successful innovator, the city of Rochester lived well for a generation. ... His innovation made him rich and enabled tens of thousands of his neighbors to live well. Is the same true today? How can we make it more the same?"

Let me phrase the same point differently. Think about arguably the most successful U.S. company of the past decade, Apple. Apple's great innovation has made Steve Jobs and a few other top executives insanely rich. It has made a few thousand educated professionals at Apple's corporate headquarters quite well-off: Engineers, finance people and the like. But given that most Apple products are made overseas, Apple's success has created few jobs for Americans with little education. Sure, there are some jobs mowing the grass at its corporate campus, working in the Apple cafeteria and driving the employee shuttle bus from Cupertino to San Francisco. But that handful of jobs pales in comparison to the tens of thousands of blue-collar jobs a company like Apple would have created in the United States in a different era.

International trade is one aspect of this shift, but there's another aspect, too -- technological advances have been better at replacing the work of factory workers than white-collar professionals. Robots are much better at assembling cars than they are at coming up with a marketing plan for those cars.

Summers called for researchers to explore these questions more fully and try to find answers that will ensure the future prosperity of the United States. With him departing the White House for his old professorship at Harvard by the end of the year, perhaps he will be one of those researchers.

By Neil Irwin  | September 29, 2010; 12:25 PM ET
Categories:  U.S. Economy  
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Comments

How about attempting to revive and make manufacturing sector more competitive that may generate some of those "middle class"jobs. But the larger point here is that the U.S economy, especially labor market, are in a deep and painful restructuring road. Either that or we change the rules of the game in international trade where cheap stuff made in China can no longer be shipped and dumped in the U.S. market at the expense of the American blue-collar worker. Given today's political environment, I'd rather bet on the former.

Posted by: Anonymous | September 29, 2010 5:19 PM | Report abuse

Summers is best as a provacateur.

But there are limits to what policy innovation can accomplish.

A certain proportion of the population will always fall into the unskilled/semiskilled labor category, and increasingly even skilled jobs can be outsourced. Much of the routine analysis and reporting can even be automated.

Eventually globalization may equalize labor costs. It "only" took a couple of generations in the North Atlantic economy in the late 19th century - and even then the disparities weren't as large as they are now.

Eventually we'll have to admit that the huge incomes of Jobs et al. are not due only to their leadership, but to their position in an economic structure which is not of their making. They will need to pay enough to support that infrastructure, because the rest of us will be too tapped-out paying the costs of living. Some science fiction utopias/dystopias even argue that if robots do all the work, the displaced should still receive wages as production, after all, proceeds apace. (If they have no income, who will buy the products?)

There is an alternative to solving this problem. Read Harold James', "The Roman Predicament".

Posted by: j3hess | September 29, 2010 5:41 PM | Report abuse

What is wrong with you Neil?
Larry delivering prosperity bromides has nothing to do with what is wrong with him. Good riddance.

America is no longer exploiting international markets. The one party, or call them authoritarian capitalists are exploiting the United States.

Free trade is not free. "channel direct innovation" sheesh.

There is always a trade war going on. Whether against the Barbary pirates, the War of 1812, our Civil War, the Imperial War (WWI), the Cold War...

Brutal exploitation of poor people in other countries used to make Americans rich.

Recently, people who control those places learned how to make themselves rich. Sure the labor is still exploited, but America's "free" traders realized they did not need an American middle class to maximize short term profits. Thanks Larry, now get lost!

Posted by: shrink2 | September 29, 2010 6:03 PM | Report abuse

Excellent questions. Perhaps the answer is to steer more people into innovation, lower taxes, lowering the cost of capital, and so on.

Posted by: wapocensorsbite | September 29, 2010 8:11 PM | Report abuse

All the "research" in the world will have no effect if the institutional structures don't exist to collectivize John Q Public's civic and economic needs. Sadly, those structures are being overwhelmed by the concentration of capital and political power which is being driven by technology and globalization almost wholly
in service to consumers and investors, to the detriment of public, civic goods.
Even so, many of the competitive advantages which the US used to have, esp. post WWII, won't come back.
Some things need to be done to incentivize companies and investors to take a longer view.
Mostly our society is very good at teaching people to consume, and inculcating people with values geared to consumption, but not so good at teaching people other things.
Robert Reich in Aftershock offers some solutions: a reverse income tax, a reemployment system, more public works, taking money out of politics. But how will this happen ? He bets the wealthy in the country will feel threatened by America's declining competitiveness and help change things. Maybe. If it's not too late.

Posted by: Anonymous | September 29, 2010 8:39 PM | Report abuse

Free traitors

Hopefully i live long enough to see them cast in chains and sentenced to life at hard labor for crimes against our great nation.

Posted by: PennyWisetheClown | September 29, 2010 9:16 PM | Report abuse

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