America’s ability to build is now a matter of survival and recovery. It is a question of building not only factories in the Midwest or whole cities out of the wilderness, but also basic infrastructure in the aftermath of Hurricane Milton. The problem is construction remains an arduously slow task — and even in the least regulated states, suggesting the deeper technological causes of this paralysis. It seems that the pace and scale of American innovation have simply ground to a halt.
Joseph Schumpeter, who famously recognised that capitalism and innovation are intimately linked, wrote in 1942 that capitalism “never can be stationary”. It has to take risks and fund the most radical ideas because “creative destruction” is the driver of economic change. At the time of Schumpeter’s writing, America’s mid-century golden age, technologies were both the cause and consequence of the country’s massive industrial expansion. Everything from automobiles to consumer appliances to commercial air travel became part of everyday life. Through a technological feedback loop, prosperity was sustained for years.
But, with the exception of the brief computer and internet-fuelled boom at the turn of the millennium, US productivity has been in decline since the Seventies. This downward trend has occurred in spite of consistent increases in spending on research and development, the numbers of patents and PhDs conferred, and scientific articles published. For some economists, such as Robert Gordon, this is because our current technological developments are just inherently less conducive to growth and innovation than those that powered the last once-in-history boom of the second industrial revolution. The implications of Gordon’s analysis are that the days of Schumpeterian “creative destruction” are over: the technology of the future will be just more diversionary apps on marginally improved iPhones.
The potentially revolutionary technological breakthroughs, though, the stuff of the next great boom, are here for anyone who cares to look. Quite apart from the hype around Artificial General Intelligence, existing breakthroughs in modular construction, energy extraction, and nanotechnology could help realise the visions of futurist thinkers and presidential candidates alike. Even the clichéd trope of flying cars, invoked by Peter Thiel to lament the flailing state of American innovation, has found expression in prototypes of eVTOLs or “electrical vertical take-off and landing vehicles” that could bring us closer to Jetsons-like skylines. Many of the “nice things” of the future are already here. The problem is that they are not reaching Americans at an everyday level.
What explains this gap? Well, novelty and innovation are not the same thing. Unlike the former, the latter doesn’t simply happen once an invention is unveiled. As Schumpeter observed, it requires diffusion of breakthroughs across the economy, which is in turn reshaped by it. Research, development, and commercialisation phases were closely integrated in mid-century America. It was the heyday of the fabled corporate research lab, such as Bell Labs, RCA Laboratories and General Electric Research (GE), which helped to convert innovations for consumer markets. Corporations were willing to devote considerable resources to creating improved products which would bring greater profits, even if it meant waiting longer.
But the wave of financialisation that swept American business starting in the Seventies and Eighties scrambled this system. Capital responded to heightened international competition, not by doubling down on technical investments to out-compete ascendant rivals in East Asia and Europe, but by selling off the very material and scientific infrastructure that formed the basis of an industrial economy. The new economic model prioritised financial returns over pioneering innovations: thus America was transformed into a “capital-light” entity of the neoliberal era. Corporate labs were closed and vertically integrated firms like GE were hollowed out. And though America still generated scientific research, particularly at universities, producing and harnessing innovations domestically became increasingly difficult.
And so began the process by which finance subsumed industry. While there had previously been a complementary relationship, a perverse dynamic of “uncreative destruction” now ensued. The drive toward material innovation that had once underpinned the industrial economy metastasised into a craze for noxious innovations in finance itself. Ever more complex financial products were created, and as a result the economy crashed in 2008.
As America divested its industries, Deng Xiaoping opened up China and provided a convenient market for low-end manufacturing. Indeed, “invent in California, make in China” was the new motto. Hoping to move from mere imitation to true innovation, China adopted precisely those principles which had gone out of fashion in the US. And its authoritarian leadership was able to execute a far more disciplined form of industrial capitalism, with hyper-focused, decades-long investment strategies that wouldn’t be possible in today’s Western economies. Even as Beijing joined the World Trade Organization in 1999 and formally accepted free trade principles, it continued to use a range of methods, such as subsidies, forced tech transfers, and manufacturing funds, for strategically important innovations like 5G and electric vehicles and batteries.
In America, capital became more averse to risky long-term investments. Businesses racked up short-term profits and hoarded the capital that should have been injecting back into the real economy. As a result, the US now has a “capital inertia” problem — it has abundant stores of accumulated capital (or a “savings glut”) that it can’t, or won’t, invest in large-scale projects such as re-industrialisation, automation, infrastructure, and energy development. This is the contradiction in American capitalism that holds back the next great wave of technological growth. It is the problem the next administration must attempt to solve: how to transition from capital inertia toward the capital intensity that characterised America’s industrial zenith.
The US is only now stumbling toward a proper industrial policy in which innovations can theoretically be diffused en masse, but policymakers still have not rediscovered how to do it.
America’s efforts are hamstrung by the expectation that it should be the US government writing the checks, spending taxpayer dollars (or issuing endless tax credits), and by and large assuming the bulk of the fiscal burden, which can’t be sustained either fiscally or politically.
The federal government, then, has to devise bold new ways of restarting capital intensity. Public development and infrastructure banks, for example, could lighten the burden of risk for the financial sector: by directing and de-risking investments, these public-private institutions can be used to forcefully restimulate the financial industry out of its current atrophied condition. Such concentrations of capital could directly fund economic development, just like Alexander Hamilton’s creation of a national bank did in 1791. State contracts can employ firms to build the promised new cities or manufacturing facilities, restarting the virtuous circle of technological development. As the federal government facilitated the construction of canals, railroads, and highways in previous centuries, so too could it build the vertiports needed to host tomorrow’s flying cars, or at least the expanded energy grid needed to power electric vehicles.
In this scenario, through a reformed and revitalised capitalism that takes innovation seriously, Americans could begin to not just have “nice things” again, but also resilient infrastructure and industrial base. And in a century when both geopolitical competition with China and extreme weather events like Milton are set to intensify, the ability to build will be more than a necessity.
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Source: UnHerd Read the original article here: https://unherd.com/