Business Week has an extract from a new book, “Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better Than You Think” by Michael Mandel, who argues that many economists pay too little attention to tech-driven expansion.
Ultimately, we are faced with the question of whether to be optimistic or pessimistic about our economic destiny. Can the good times of the 1990s — with its low unemployment, fast wage growth, and soaring stock market — be repeated? Or was that era just a flash in the pan, the product of an out-of-control bubble mentality? Will we soar or struggle?
Here’s the straight answer: The ability of Americans to thrive during the next 10, 20, or even 30 years does not depend on the budget deficit or the potential exodus of a few hundred thousand jobs to other countries. Rather, our economic future is inextricably linked to our ability to come up with more technological breakthroughs that equal the Internet in magnitude. Such large-scale innovations drive growth, create new jobs and industries, push up living standards for both rich and poor, and open up whole new vistas of possibilities. This is what I call “exuberant growth.”
How can we be so sure of this? The lessons of history and economic research are very clear. Over the long run, economic progress in a highly developed country such as the U.S. depends mainly on technological advances. It was a succession of innovations — including electricity, telephones, radio, automobiles, and antibiotics — that revolutionized life in the first half of the 20th century. By contrast, the drought of economically significant innovations in the 1970s — including the unanticipated failure of nuclear power as a cheap energy source — helped pull down growth. It is no coincidence that the rise of the Internet in the 1990s coincided with the biggest rise in household incomes, and the biggest drop in poverty, in 30 years.
Going forward, such technology-driven growth is essential if we are not to drown in our problems. The Internet is terrific, but by itself it can’t power long-term growth. Without cost-saving breakthroughs in medical science, it won’t be possible to supply health care to a generation of aging Americans without bankrupting the young. Without new industries created by innovative companies, it won’t be possible to generate enough good new jobs to replace the ones going abroad. Without breakthroughs in energy production and distribution, it won’t be possible to provide inexpensive power for industrialized countries while supplying the energy needed to bring up living standards in the developing world. And without rapid growth, it won’t be possible to simultaneously pay for national defense and the retirement of the baby boomers.
In India, we too need greater adoption of technology across the board if we are going to get rapid, sustained growth. This is one of points I make in my Tech Talk series this week.