What is the role of government in fostering a productive and innovative economy? Participants aimed to answer this question during a Members Weekend working group discussion on October 10. 

Members agreed: without bipartisan cooperation, Washington will be unable to drive global investment abroad and at home. 

“If you want to explain the sourness of the national mood, we have to be candid and say that we’ve had a collapse of any rational governance in Washington,” said Edward Kleinbard, a professor of law and business at USC. “That does have long-term repercussions: The United States is viewed as an unreliable, disorganized actor. Political discord has impacted the ability of the United States to lead in global commerce and trade.” 

“We have to step up to the plate to set the agenda and create the rules in trade, finance, and microeconomic issues. I worry that we are no longer willing to do that,” remarked Kati Suominen, Visiting Assistant Adjunct Professor in the Anderson School of Management at UCLA.

So what does the U.S. government need to do to foster a productive and innovative economy, able to lead the rest of the world? The answer: human capital, infrastructure, and immigration.

Human capital: education first

Human capital was a major theme in the discussion. As the United States slips further down in OECD rankings of public education quality, discussants highlighted the necessity for major reforms and public investment in education. Education is a tool for reducing income and social inequality; it is an investment in human capital and global competitiveness.

“Public education is just another kind of investment,” explained Kleinbard. “It’s an investment in human capital, which is the driver of 70 percent of our economy.” He added: “What we need is a better class of legislator and a committed electorate that understand that there are things that the government can do better than the private sector.” 

America lags behind when it comes to STEM education: OECD's 2015 rankings placed the United States behind countries like Latvia and Slovenia.

Washington also needs to start prioritizing investments in STEM learning. OECD's 2015 rankings placed the United States 28 out of 76 in math and science, behind countries like Latvia and Slovenia. “We can do so much better for public education – and for Los Angeles public schools,” said Suominen. “STEM indicators show that we’re not doing well and miss the mark.”

Reducing inequality through financial reform is another key element to spark growth and improve education. Kleinbard lamented: “Across the country, we systematically spend more on the education of rich kids than that of poor kids, due to our tying of education funds to local property taxes. It is a perverse policy.” Until every child is afforded the resources and tools necessary to be competitive, the United States will struggle to keep pace with its peers around the world.

Infrastructure

Washington also needs to reinvigorate public sector investment to create more jobs and bolster U.S. infrastructure, discussants agreed. “What we really need is positive investment in [infrastructure],” said Kleinbard. “That’s how you create good quality jobs in construction and civil engineering. Right now, the public sector is making investments at a net rate of approximately zero percent.”

The World Economic Forum’s Global Competitiveness Report for 2014-2015 ranks the United States 16th in “quality of overall infrastructure.” The country ranks 15th in quality of its rail system and 16th in quality of its roads. Quality infrastructure supports strong economic growth. In many cities around the United States, deteriorating infrastructure is the greatest economic challenge.

Immigration

Participants agreed that a robust, overhauled immigration policy will enhance U.S. global competitiveness. “We should definitely have better policies for high-skilled immigration to enable our companies to have the best and brightest, and enable [immigrants] to come here to the United States,” said Suominen.

The United States needs to attract high-skilled entrepreneurs and innovators to attend U.S. universities and join U.S. companies. Research has shown that an increase in immigration, and specifically the immigration of skilled workers, earns a country more tax revenue, enhances consumer buying power, and creates more jobs.

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This article was created based on comments made during a working group discussion at the Pacific Council's annual Members Weekend conference on October 10.