Yesterday, the House Science and Technology Committee held a hearing on The Globalization of R&D and Innovation. The hearing was shortened because of votes on the House floor. The witnesses' testimonies were basic summarizations of what they have said in the past. Alan Blinder described his ideas about the importance of face-to-face contact in determining whether a job is subject to trade and his breakdown of jobs as "personal" versus "impersonal" services. “Personal” services have to be done physically or the quality deteriorates markedly when not done at a distance. Workers will migrate to these “personal” occupations since these are non-tradable. The policies needed under this situation are an improved safety net, education system (current system for industrial era, not to new shift), innovation agenda (TV as industrial success – started manufacturing then innovated into new areas). He did later on mention an entrepreneurship agenda as well. Unfortunately, he did not confront the problem of how to earn foreign income -- see my earlier posting. But there were hints of some thinking on the subject.
Martin Baily talked about the benefits of globalization – inflow of capital and goods. He did admit that exchange rate problem. He also discussed the lack of retraining system, including the need to learn lessons from the Danish model of flexibility security. One point he raised I thought was of special interest was the discussion about how the US needs to embrace that science and technology as a global endeavor and be open to absorbing innovation and technology from wherever. Unfortunately, this was just mentioned in passing – but it deserves much greater attention.
Ralph Gomory talked about the divergence of company and country goals. He stress that the end output of R&D that creates wealth – not the R&D itself. Even if R&D stays here, the wealth creation part of the value chain has moved. – and the R&D will eventually follow. He went on to discuss his notion of shifts in comparative advantage due to changing productivity. He also made another point I think doesn’t get enough attention: education and R&D are not enough – they are good steps in increasing productivity, but not enough. His solutions center around aligned company and country interests by rewarding companies to produce high-value jobs through tax incentives, such as scale corporate tax rate to value-added per employee in the US.
Tom Duesterberg spoke about the manufacturing paradox that US manufacturing continuing to hold on to share of GDP with far less employment. He argued that manufacturing has benefited from globalization and that more R&D is insourced to the US than outsourced. Nevertheless, he argued that funding for basic R&D is key to maintaining innovation here in the US.
All in all, not much was new to those who have been following these issues. But it was a good session for raising their profile on Capitol Hill.
(See also the story in the Wall Street Journal - House Committee Explores Effect Of Outsourcing on the Economy)