Investment for the Long-Term

Recently, the American Recovery and Reinvestment Act of 2009, better known as the “stimulus,” “celebrated” its one year anniversary, and many have asked for an accounting of what it has accomplished. The President’s 2011 budget, which realistically forecasts the level of the federal deficit years into the future, has drawn the ire and rebuke of conservatives, who would like to reign in federal spending. Fiscal conservatives believe that we need to control federal spending, while Keynesians believe that the federal government needs to spend to stimulate the economy. The debate is focused on immediate spending control versus short-term economic stimulus.

While the rhetoric is littered with references to the unparalleled financial burden we are handing over to our grandchildren, the key salient point that’s missing from this discussion is the long-term value of government investment. To be frank, the country’s economic growth over the last two decades is primarily the result of the growth and spread of information technologies, i.e. computers and the internet. Today, we are still leveraging the technologies that were produced during a major period of government investment in technological innovations from ~1930s – 1970. A brief recap:

• IBM’s heavy investment in R&D in the early 1930s left the company at risk to bankruptcy, as it carried a large, unused inventory of equipment without a private market to sell it to. It was the Social Security Act of 1935 that allowed IBM to sell this inventory to the federal government.

• As has been frequently repeated, the internet was born out of the research and technology put into creating the Pentagon’s Defense Advanced Research Projects Agency (DARPA) ARPANET project in the 1960s.

• Philip Taubman’s Secret Empire details the way in which the president and other government leaders had private companies compete against one another to develop more innovative technologies during the infancy of our Cold War spy program.

While our Cold War technology investments may be sustaining our economy today, the trends show that we are falling behind in making the necessary investment to ensure that we have an economy that can sustain our population. A recent report from Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation, two nonprofit organizations in Silicon Valley, asserts that the technological innovation in our traditional technological hub is declining, and the World Intellectual Property Organization reports that the U.S. showed an 11.4% decrease in the number of international patent filings while China showed a 29.7% increase in patent applications.

How do we recapture the momentum in investment to ensure that we maintain a strong knowledge base in our economy? A reinvestment in math and science education is one way. But, this will only get us so far. We need to invest in foundational elements that serve as the basis for long-term economic growth, but no private company will make these technology or infrastructure investments alone. The prevailing value structure of Wall Street makes it prohibitive for any company to make long-term R&D or infrastructure investments that don’t show an improvement to the bottom line in THIS fiscal year. In the end, we need to accept that government plays a partnering role with private companies that allow them to invest in long-term R&D. There will be a lot of misses, but somewhere in that research is the seed of our next great economic driver. We may not be able to conceptualize what that driver is right now, but we need to invest in it now.