In February, the nonpartisan Washington-based Information Technology and Innovation Foundation released a study which, if not the worst economic news of the moment, wasnt exactly cause to cheer, either. The study compared the United States and thirty-nine other countries on their “innovation-based global competitiveness” things like the number of new business start-ups, availability of venture capital, high-speed broadband access, and corporate and government R&D spending. In the overall rankings, the U.S. came in a respectable sixth, behind countries like Sweden and South Korea. But in terms of progress on these indicators since 1999, we scored dead last.

The financial crisis and the relative decline in our capacity for innovation may seem like separate problems, but they are connected in ways that bear examining. Both have their roots in the end of the last decade. The U.S. experienced astonishingly healthy economic growth in the 1990s, driven primarily by the diffusion of ever-cheaper computing power and the expansion of the Internet. When that boom ended, with the bursting of the dot-com bubble in the spring of 2000, it was a warning sign: there was too much capital chasing too few good investment opportunities. For healthy growth to resume, new frontiers of enterprise needed to be opened up, new technologies and markets made available for investors and entrepreneurs.

If you were in the venture capital business back then, or read Wired magazine, or listened to then presidential candidate Al Gore, you had a pretty good sense of what those next frontiers were. They included renewable energy, high-speed broadband, and the extension of the IT revolution into hitherto-untapped sectors of the economy, like health care and the electric grid. These were the new “platforms,” as the tech gurus called them, on which entrepreneurs and investors would build new companies, jobs, and wealth.

Yet to open up these new opportunities would have required substantial government investment and guidance. And that ran counter to the instinct and ideology of the newly established Bush administration. The president wasnt a tech guy. He was an oilman, as was his vice president. The first two Bush treasury secretaries hailed from, respectively, the aluminum and railroad industrieshardly the vanguard of the twenty-first-century economy. Moreover, Bush and his advisers preferred to trust the markets to find new investment opportunities on their own, unaided by governmentsave for the provision of tax cuts for the wealthy and regulatory favors for established industries.

To the extent that anyone in Washington provided guidance to the markets during the Bush years, it was Alan Greenspan. As Fed chairman he kept interest rates low, urged the public to buy or refinance homes with adjustable-rate mortgages, and refused to exercise his statutory power to regulate complex new debt instruments, for fear of dampening “innovation” on Wall Street. We know where all that led.

It is painful to consider how different the world would be today if the trillions of dollars that Washington helped direct into real estate and its attendant Wall Street exotica had instead been invested in the new platforms that technologists were talking about eight years ago. What if, instead of constructing more exurban tract homes that now sit empty, wed connected existing homes and businesses by fiber-optic cable to the Internet, the way they have been in countries like South Korea and Japan, where download speeds are orders of magnitude faster than they are here? What if, instead of pouring our pension fund money into collateralized mortgage obligations, wed invested in digitizing the electric grid, so that our entire electric system could be made greener and more efficient and entrepreneurs could get rich creating devices and software to help homeowners save money on their electric bills?

Had we done this, we might have avoided at least some of the catastrophic consequences of the real estate bubble. We might also have enjoyed more robust job growth and real income gains over the last eight years, and found ourselves in a more competitive economic position with the rest of the world.

The good news is that were not that far behind our strongest competitors, and the next-stage-of-capitalism opportunities are still out thereas we explain this month in a special report on entrepreneurship sponsored by the Ewing Marion Kauffman Foundation. We also have a new president who actively embraces the idea that government must play a lead role in seizing new economic opportunities, and a Congress that largely agrees with him.

Ironically, the economic downturn itself presents an opportunity presidents have the most political leeway to make bold moves when the skies are darkest. Lincoln built the transcontinental railroad during the Civil War. FDR extended electric power throughout the nation in the midst of the Great Depression. These projects transformed American life, making possible huge gains in productivity and the creation of whole new industries. They were the platforms of growth in their day. Its time we built the platforms that are right for ours.

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Paul Glastris

Paul Glastris is the editor in chief of the Washington Monthly. A former speechwriter for President Bill Clinton, he is writing a book on America’s involvement in the Greek War of Independence.