To Spur Long-Term Growth, Trump Infrastructure Plan Should Focus More on “Innovation Infrastructure” Than Concrete and Steel


WASHINGTON—A traditional infrastructure plan that invests in roads and bridges could increase employment in the short term, but the incoming Trump administration and new Congress also should focus on “innovation infrastructure” to spur long-term economic growth, according to a new report from the Information Technology and Innovation Foundation (ITIF). ITIF, the leading U.S. science and tech policy think tank, urges policymakers to invest in the building blocks of innovation—such as R&D and tech-enabled “smart” infrastructure—because they can serve as the foundation of a more robust economy in the long run.

“Just as physical infrastructure undergirded the U.S. economy in the industrial era, scientific and technological innovation is an essential building block for sustained growth now and as we look to the future,” said ITIF President Robert D. Atkinson. “The U.S. economy is saddled with stagnant productivity and chronic underinvestment, which are slowing growth and preventing us from raising people’s living standards. Filling potholes and repairing sewers would certainly create jobs in the short term, but we also need investment that will address these structural issues for the long run. Increased productivity is the only path to better standards of living, and traditional infrastructure stimulus won’t be enough to get us there.”

The new report, authored by Peter Singer, a policy advisor at the MIT Washington Office, argues that traditional infrastructure spending can stimulate short-term job growth, but it won’t address the lack of investment that is holding back sustainable, long-term growth.

To address the structural issues of lagging productivity and underinvestment, Singer urges policymakers to invest in research funding; advanced-technology development; research infrastructure; “smart infrastructure”; and pre-competitive cooperative advanced-manufacturing research institutes. He explains that this will support the kind of innovation needed to get the economy back in high gear for the future.

“President-elect Trump’s campaign focused on getting the United States out of its low-growth rut,” concluded Atkinson. “We hope his infrastructure plan will look beyond easy, short-term answers and also instead invest in what the country needs to have sustainable growth that improves living standards across the board.”

Summary

Recovery from the Great Recession has been painfully slow. Unemployment peaked in October 2009 at 10 percent, and it took until October 2015 to drop to 5 percent, although the labor force participation rate is still below 2000 levels. Productivity growth has been the lowest since the federal government started tracking it in 1947. And annual GDP growth has been averaging less than 2 percent for the past seven quarters. This poor economic performance has befuddled most economists and led to dusting off old theories such as “secular stagnation.”

To address such stagnation, one policy that has gained traction from some economists and President-elect Trump is infrastructure stimulus. When this was first proposed in 2013, the focus was on jobs; since then, employment levels have recovered, but the underlying problems of investment and productivity growth remain. Support for traditional physical infrastructure could help increase employment if it is debt-funded, but we should not expect it to address the underlying structural problems of low investment and productivity stagnation. Nor will it do much to revitalize the manufacturing sector, which suffered unprecedented output and job losses in the 2000s. More broadly, innovation-based growth seems to have stalled except in software. Filling potholes and repairing sewers will do nothing to address these deeper problems.

Instead, restoring an innovation- and investment-led economy depends on spurring growth through investments in America’s “innovation infrastructure,” including scientific and engineering research in the public, academic, and private sectors. This, more than traditional concrete and steel, should be the focus of any stimulus program.

This report reviews the prevailing analysis of “secular stagnation,” including the demand-side perspective of economist Lawrence Summers and the supply-side perspective of economist Robert Gordon. The report assesses the shortcomings of standard monetary and fiscal policy responses, including the limits of traditional infrastructure spending. It then describes the potential benefits associated with increasing investments in “innovation infrastructure,” including:

  • Research funding;
  • Advanced-technology development funding;
  • Research infrastructure;
  • “Smart” infrastructure; and
  • Pre-competitive advanced-manufacturing research institutes.

 

Read report (link)

|Press Release | The Information Technology and Innovation Foundation (ITIF) is an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. Recognized as one of the world’s leading science and technology think tanks, ITIF’s mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress. Learn more at itif.org.

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