Globalization of technology-based growth: the policy imperative

Abstract

The United States became the dominant technology-based economy after World War II and held that position for decades by accumulating a huge base of superior technical, physical, organizational, and marketing assets. However, the world is witnessing the rapid globalization of technology-based competition, which is the result of major commitments by many nations to investment in technology and its effective utilization. The changing dynamics of such competition requires revisions to the centuries’ old law of comparative advantage and the Schumpeterian process of creative destruction. However, U.S. technology-based growth policies have at best stood still for most of this period. The R&D intensity of the U.S. economy is below its peak in the 1960s and its vaunted “high-tech sector” is too small and increasingly challenged to carry the remaining sectors, as was the case before globalization began in earnest. A major reason for inadequate adaptation is the “installed base effect,” which results from the accumulation of the above types of economic assets and in turn creates both complacency and resistance to the need for adaptation. Weak recoveries from the most recent recessions and the sluggish growth in real incomes are major indicators of structural problems that are not being addressed. Catch-up will require adoption of more comprehensive growth policies, implemented with considerably more resources and based on substantive policy analysis capabilities.