Infrastructure for the next American century

China now spends roughly 1.3% of GDP on government-supported science – twice the level of the US, relative to the size of their respective economies. Photo: Reuters

Infrastructure is the name given to shared systems that underpin productivity and make it possible to create good jobs at high wages. In the early American republic, the Erie Canal linked the Hudson River and the Great Lakes, creating new possibilities for trade and migration. In the later nineteenth century, the country was transformed by railroads. Senator Henry Clay called federal government initiatives to procure such infrastructure “the American system.” After World War II, the construction of the interstate highway system continued this effort.

Every era needs its own set of infrastructure investments, based on the available technology and oriented toward productivity growth and job creation. For this reason, US President Joe Biden’s infrastructure plan is right to include a stepped-up commitment to funding science.

Biden’s Republican opponents disagree. In their view, the United States need only renew some of its post-World War II physical infrastructure, with “roads and bridges” most frequently topping the list. Of course, the US does need to fix all its aging bridges and ensure that Americans can move around safely and at reasonable speed. The US population has more than doubled since 1950. There should be no argument that this dimension of infrastructure needs to keep pace.

But America’s post-World War II prosperity was based on more than good roads and bridges; it drew on a much broader push to generate shared scientific knowledge and put it to work productively in the private sector. During World War II and the subsequent Cold War, the US government invested heavily in science because it feared, correctly, that Nazi Germany and the Soviet Union were doing the same. In support of this effort, a bipartisan consensus developed that the federal government should invest more heavily across the board in all forms of math, engineering, physics, chemistry, and biology.

By the mid-1960s, the US government was spending nearly 2% of GDP on public science investments – and the returns were extraordinary. Every tech giant of today stands on the shoulders of federal investments in research and development (R&D). On the health side, the honor roll begins with large-scale production of antibiotics in the 1940s, and stretches to the Human Genome Project in the 1990s and the COVID-19 vaccines of today.

These investments in science did not just change the way we solve problems and save lives; they also created countless good jobs. The genomics sector that arose from the Human Genome Project now employs around 270,000 people at an average annual wage of $70,000. Every dollar invested in the National Institutes of Health creates more than $8 in complementary private investment and yields three dollars of stock-market value to share prices of companies that use the technology developed.

And yet the US has since retreated from its commitment to public funding of basic science. Federal science spending has fallen toward 0.6% of GDP, placing the US 12th in the world. China is doubling down on its science investment. China now spends roughly 1.3% of GDP on government-supported science – twice the level of the US, relative to the size of their respective economies.

If we want to create jobs, save lives, and stay competitive internationally, we need federal investments in science, just as we need the government to pay for roads. And for the same reason: no private company has an interest in building the fundamentals, because that is not generally where the profit is. Just as roads connect one privately owned building to another, public science investments create benefits for society that no individual company fully appreciates.

Likewise, vaccinating the population against COVID-19 does not help only the individuals receiving protection; it allows the economy to restart by making in-person interactions safe again. The COVID-19 vaccination program is literally building the public health infrastructure that will restart the US economy. These vaccines would not exist but for decades of government investment in basic research that is not in the interest of any individual company.

Biden’s American Jobs Plan allocates $180 billion to increase federal R&D spending. It also acknowledges a key limitation of recent science-based economic development – the returns have become incredibly concentrated in geographic terms. Ninety percent of all new jobs in the tech sector over the past dozen years have been in only five coastal “superstar” cities.

A comprehensive plan for rebuilding the infrastructure of public science should include major investments in creating new technology hubs across the US. In our book Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, we showed there are over a hundred cities in the US, in more than 35 states, that have the excellent universities and highly-educated population needed to become next-generation innovation centers. These places will do better with a concentrated investment to compete with the dominant technology hubs – this is the “jump start” that can spread science and good jobs around the country. Biden’s proposal includes $20 billion for these critical investments.

Moreover, the Biden plan recognizes that the broad erosion of the US corporate tax base over several decades has meant that the profits created by private use of this public science have accrued increasingly to these companies’ wealthy owners. Raising taxes on corporations both provides a fair source of financing for this form of infrastructure and helps ensure that the benefits of that investment will be shared broadly.

Copyright: Project Syndicate
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Jonathan Gruber is Professor of Economics at MIT. Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Basel