Opinion

The Great Debate

Can America innovate its way to growth?

America is banking on economic growth. Its ability to pay debts, lower unemployment, and provide better living standards all depend on growth returning to its pre-recession levels and staying there. But what if it doesn’t?

Several economists are worried it won’t. Growth can come from three sources: more labor, more capital, or more innovation. The 20th century was remarkable because each of these factors grew. America’s final push to manufacturing, and away from agriculture, increased the use of capital. The volume and quality of labor also increased. More people than ever finished high school and went on to college, and many women joined the labor force. But we can’t repeat these events. Not only that, future demographic trends are not favorable. American education isn’t giving many young people the skills they need to be competitive in the global economy. An aging citizenry means a smaller share of the population will be working to support everyone else. Lower rates of economic growth will make it harder to repay America’s debt — both entitlements and outstanding treasury bonds. Servicing debt will take more resources from the economy, creating a vicious cycle of high rates and low growth.

But not all hope is lost; there’s still innovation. Innovations make existing resources more productive. Productivity is measured by calculating how much output (GDP) increased or decreased given the inputs (capital and labor) used. If you get more output for the same amount of inputs, productivity has increased. That means if western economies innovate more, and thereby constantly increase productivity, they will still grow. If productivity outpaces the economic headwinds, America can still grow at the pace it used to. But that’s easier said than done.

In his new book, Nobel Prize winner Edmund Phelps frets that the culture of dynamism that leads to innovation has dwindled. He recently hosted a conference on the future of innovation where Robert Gordon of Northwestern argued, using results from a paper he wrote last year, that the pace of innovation has slowed because all the big and important things (electricity, indoor plumbing, cars) have already been discovered. Tyler Cowen argued a similar idea, with his book The Great Stagnation. He also believes all the low-hanging fruit has been picked; there isn’t much left to innovate that will have a notable increase in living standards. That suggests we’ve not only run out of new labor and capital but ideas, too.

This view seems to be confirmed by recent productivity estimates. Productivity increased by 2.3 percent, on average, each year between 1891 and 1972, but only by 1.33 percent from 1972 to 1996 and 1.33 percent between 2004 and 2012. Gordon believes the heady days of full integer growth are behind us. Between 1871 and 2007 GDP per capita grew 2 percent a year, on average; this meant living standards doubled every 35 years. But between the slower pace of innovation, changing demographics, debt and the environment he anticipates the American economy will only grow at 0.2 percent a year in the future.

The militarization of U.S. police forces

This month, more Mine-Resistant Ambush-Protected vehicles (MRAPs) have found their way from the wars in Afghanistan and Iraq to the Main Streets of America. These are just the latest acquisitions in a growing practice by Pentagon that’s militarizing America’s municipal police forces.

Police departments in Boise and Nampa, Idaho, each acquired an MRAP, as did the force in High Springs, Florida. The offer of war-ready machinery, at practically no cost, has proven hard to resist for local police departments. Increasingly, they are looking like soldiers equipped for battle.

The growing similarity between our domestic police forces and the U.S. military is a result of the Pentagon’s 1033 Program. This allows the Defense Department to donate surplus military equipment and weapons to law enforcement agencies. In addition to the frightening presence of paramilitary weapons in American towns, the program has led to rampant fraud and abuse.

Let Pakistan’s Taliban talks fail without us

Adding to an unenviable list of challenges that already includes earthquakes, sectarian violence and an economy teetering near collapse, Pakistan’s leaders are attempting to open a new round of high-stakes peace negotiations with homegrown insurgents, the Tehrik-i-Taliban Pakistan (TTP).

The United States cannot do much to help these talks succeed, but President Barack Obama should use his October 23 summit with Prime Minister Nawaz Sharif to ensure that if Pakistan’s Taliban talks fail, they fail in ways that unite mainstream Pakistanis in the fight against violent extremism rather than creating new rifts between Washington and Islamabad.

Unlike the Afghan Taliban groups that have had a live-and-let-live arrangement with Pakistani authorities, directing their violence beyond Pakistan’s borders, the TTP has conducted attacks with devastating effect on the Pakistani military and government, as well as innocent civilians. Pakistan’s army chief, General Ashfaq Parvez Kayani, describes the group as the state’s top security threat. And because Pakistan is a nuclear-armed, fast-growing state of nearly 200 million citizens that borders India, China, Iran and the Arabian Sea, the TTP’s disruptive potential also threatens U.S. security.

The next generation demands sustainable, innovative business

Christina Marule owns a spaza shop — the equivalent of a corner store — in rural South Africa. Five years ago she was forced to keep her young son out of school while she traveled to the nearest market, a half day’s trip away, to purchase products to sell in her store. Today, she manages inventory via text message from a mobile device. Her son is back in the classroom.

Her story is one of personal determination, but also of real progress.

Fueled by innovation and the determined ambition of a whole new generation, stories like this are transforming business models and entire value chains. To the world’s future leaders, sustainable behavior is as much about educating Christina’s son as it is about protecting the world’s supply of drinkable water. It’s up to today’s leaders to connect those dots.

In a recent survey 84 percent of Millennials (the generation born between 1980 and 1993) said they care more about making a positive difference than workplace recognition. These young professionals are the very same consumers who care more about purpose than packaging or price. They are concerned, creative and impatient for opportunities to make a difference. Their terms are crystal clear: innovate business models around making the world run better and improving people’s lives — or be left behind by those that do.

Counterterrorism: Where are Obama’s policy changes?

It is now roughly five months since President Barack Obama announced a new direction for U.S. counterterrorism strategy.

“America is at a crossroads,” Obama said at the National Defense University in May. “We must define the nature and scope of this struggle, or else it will define us.”

The president proceeded to set out his post-war vision for the nation — the peace dividend earned for the last 12 years of a complicated, costly and at times tragically misguided counterterrorism policy. The president, as usual, gave a good speech. Where he’s weak is on the follow-through, however.

Apple: ‘Early adopter’ as fashionista

To much fanfare, Apple announced Tuesday that Angela Ahrendts is resigning as chief executive officer of Burberry and joining the inner circle in Cupertino, California. “Apple-polishing” has become the headline du jour. Picturing the soignée Ahrendts surrounded by geeks in jeans and hoodies, we might be forgiven for wondering why Apple feels in need of a fashionista buff-up. After all, there is hardly a product line more shiny-bright than Apple’s — or one with less affinity to the cold exclusivity of the world’s great fashion houses.

But the extraordinary affection that iPhones inspire is different from the anxious ostentation surrounding high fashion.

However sublime couture may be, it is neither lovable nor practical. Nor does using it feel like participating in a major human advance. There is something wondrous about Apple products in the ease and pleasure they afford their users, connecting us in unprecedented ways to other people, to our surroundings and to the world of ideas.

Post-shutdown: Time for recriminations

Recriminations!

It’s a familiar ritual in Washington every time a party loses a battle or a candidate loses an election. Only this time, it could lead to something more serious: A split in the Republican Party.

The most severe recriminations are aimed at the Tea Party. Why did they take on a fight they were certain to lose? And without any endgame or exit strategy? Don’t they understand how politics works?

Here’s the answer: No.

Or rather, they do understand how politics works — and they reject it. The United States has a Constitution that divides power. The only way anything gets done is through deal-making and compromise. It’s been that way for 225 years. (See the movie Lincoln for a good example).

The Omidyar way

People talk about billionaires the way bird-watchers point out rare sightings — wide-eyed and in hushed, anxious tones.

Speculation in media circles has been similarly breathless since the news broke Tuesday that billionaire eBay founder Pierre Omidyar is launching a major news organization with Glenn Greenwald, Laura Poitras, and Jeremy Scahill, some of the world’s leading investigative journalists responsible for exposing the reach of the U.S.’s military and surveillance complex.

According to Jay Rosen, who says Omidyar consulted with him last month, Omidyar is prepared to back the new venture with at least $250 million. Omidyar posted a statement about his plans Wednesday, saying the plan for the digital news organization came together after he considered buying the Washington Post, which Amazon founder Jeff Bezos bought in a move that shocked the news industry. That deal, set to close this month, is also worth $250 million.

Foreign investment in France thrives despite gripes — for now

In France these days, every new industrial investment is welcomed with open arms, so when the Japanese machine-tools manufacturer Amada announced in mid-September that it was putting an additional $50 million into its existing production facilities, no fewer than two government ministers showed up for the signing ceremony. Much to their embarrassment, however, the chief executive officer of Amada, Mitsuo Okamoto, gave an interview that morning to a national French daily in which he castigated the national business climate, and said that if the company hadn’t already been in France for 40 years, “we would think twice about investing here for the first time.”

Chalk it up, one more time, to France’s investment paradox. Okamoto is just the latest example of a foreign CEO who moans and groans about the difficulties of doing business in France, even as he pours in money, in the form of fresh investment.

There’s certainly a lot to complain about. The law reducing the official workweek to 35 hours, passed in 2000, is still on the books. The outsized labor code that governs hiring, firing and everything in between is regularly cited by organizations from the World Bank to the World Economic Forum as a significant impediment to doing business; its printed version runs to 3,371 pages, or more than three times the size of the German equivalent. Unions are famously feisty, and labor costs, already high, have continued to rise at a faster rate than productivity, even after the 2007-08 financial crisis.

Are there still ‘millionaires next door’?

It’s time to write the elegy for The Millionaire Next Door.

When Thomas Stanley and William Danko published their best-selling book in 1996, they made much of the statistic that “80 percent of America’s millionaires are first-generation rich.” The majority, they pointed out, were entrepreneurs, many working in blue-collar professions.

Anyone could make it big, the two authors all but proclaimed; all you need is frugality and a few tax breaks. Don’t live in a pricey home. Put a cork in the Cabernet, and pop a Coors instead. But most important, open your own business. When it came to the secret sauce for scoring a million bucks, “a very big factor is self-employment,” Stanley said.

The ensuing years have not been kind to the working-class millionaire.

A little-noticed marketing report released last month by U.S. Trust contained the disturbing statistic that while almost a third of Baby Boomers worth more than $3 million claimed to have grown up in lower-middle-class homes, the number fell precipitously for younger cohorts, with 18 percent of Gen Xers and a mere 6 percent of such Millennials saying they came from working-class stock.

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