Innovation, With A Little Government Help

The legacy of the financial crisis for many countries is an enlarged fiscal burden that will be difficult to unwind. But doing just that without triggering another global downturn is the key to future growth. How that can be accomplished was the starting point for this debate, moderated by Bruce Stokes of the National Journal.

US Congressman Darrell Issa (R-California) expressed concern about the growth of government before and during the crisis. "During the boom years, leading up to the financial crisis, governments grew on both sides of the Atlantic. They grew with the justification partially based on this growing economy, but it was a false economy," he said. "Our legacy is bigger government on both sides of the pond."

Issa also criticized growing government debt as a result of misguided spending. "The problem with all governments is that very little investment is where their portfolio of debt really is. Debt is simply accumulated, sprung-forward spending," he noted. Citing the US stimulus package as an example, the Congressman claimed that the recent extra spending from Washington failed to create sustainable employment. Issa called for "real cutbacks, today" as the only solution to reining in government.

Ronald B. Richard, president and CEO of the Cleveland Foundation, addressed the need for innovation for a strong economic future, noting that this comes from individuals, not governments. He stressed the need for immigration policies that attract the best and brightest, and called for an end to policies that force foreign graduates back home. "We don't have an innovation mentality in our immigration, our employment, or even in our federal aid and scholarship programs," he said.

Steve Case, chairman and CEO of Revolution and AOL co-founder of AOL, spoke of the need to promote new, cutting-edge industries. He cited Washington's laissez-faire approach to regulation during the high-tech boom as a precursor to the market's ability to develop competing technologies and companies effectively and efficiently. "I think there is a role for the government to play in getting the ball started. but we have to be very careful not to regulate things too early because often the decisions that are made are premature and end up stifling growth and innovations," Case said. Innovation is also key to growing businesses and lowering unemployment, he added.
Deutsche Bank Vice Chairman Caio Koch-Weser provided a European perspective to the discussion, focusing on the opportunities for growth afforded by green technologies. Nevertheless, he predicted subdued growth rates globally while governments wrestle with fiscal challenges that will have an impact on their ability to subsidize research and development. At the same time, the world faces a new paradigm in which emerging markets are gaining power and influence.

"We now have the green technologies that enable us to introduce this new paradigm.. competition between emerging markets and industrialized countries will be re-defined by technology ownership and how we advance a green agenda."

Huan Chen, deputy director general of China's Clean Development Mechanism Fund, echoed the need to focus on green technologies and urged a change in energy-consumption habits. Beijing's efforts to educate the Chinese public about the need reduce greenhouse-gas emissions, he claimed, allowed the government there to launch green-technology projects that would have otherwise been viewed as egregious subsidies.

Former Congressman and Alliance of Automobile Manufacturers president and CEO Dave McCurdy returned the discussion to the limited but necessary government role in fostering growth. He admitted the need for government assistance with overcoming barriers to innovation, for instance by establishing a smart grid or researching new battery technologies, but cautioned against too much government participation and unwanted interference. "The key is to find a balance," said McCurdy, referring to government's proper role.

Richard called for a greater role for the non-profit sector in shaping all areas of public policy that can spur economic growth. To this end, the Cleveland Foundation has hired a lobbyist to help turn around a catastrophic public-education system in the city of Cleveland that has a 70 percent dropout rate among African-American males. Drawing on Chen's call for new approaches to energy consumption, Richard urged other non-profits to become engaged in lobbying on the federal and state levels, especially in energy policy.