Parts of a new economic strategy

Over the weekend, there were a couple of stories on ways to revive the economy. In an op-ed in the New York Times, "The Economy Needs a Bit of Ingenuity", Noble Laureate Edward Phelps talked about the need to renew what he call the "dynamism" of the economy. First, he noted that the economic issues facing the US are structural, not just a cyclical downturn (something I obviously agree with and have been writing about in this blog). Then he outlined some of his ideas:

One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects. Another would be to improve corporate governance by tying executives' compensation to long-term performance rather than one-year profits, and by linking fund managers' pay to skill in picking stocks, not in marketing their funds. Exempting start-ups from corporate income tax for a time would also help.

We also need a program of tax credits for companies for employing low-wage workers. That may seem counterintuitive at a time when the Obama administration is pressing education and high-paying jobs, but we need to create jobs at all levels. Early last year, Singapore began giving such credits -- worth several billion dollars -- and staved off a recession. Unemployment there is around 3 percent.

Some of these ideas have been around for some time. I especially like the twist on the innovation bank, however, in that Phelps calls for a network of merchant banks to fund innovation -- not one centralized institution.

Another piece of the strategy was raised in this story -- "Wind Farm Deal Assures Bigger U.S. Role" -- about a deal cut between the Steelworkers Union and Chinese companies providing equipment to US wind farms:

Without releasing full details, the union said that the steel for the wind towers, enclosures for working parts atop the towers and reinforcing bars for the bases would be sourced in the United States. So will the blades, which are not made of steel but are often made by steelworkers, the union and the two companies said.

The agreement was brokered with the Shenyang Power Group, known as SPG, and a subsidiary that it partly owns, A-Power Energy Generation Systems, which have entered a joint venture with the American investment firm U.S. Renewable Energy Group to build the wind farm in West Texas.

United Steelworkers officials did not say what fraction of the machines' value would be from domestic manufactured parts. The Chinese companies will also work to develop a domestic American supply chain for wind machine manufacture beyond the Texas project, the union said. [emphasis added]

In a previous posting, I talked about a similar deal with high-speed rail. As I said back then, however, the conditions set down in the deal are important: technology transfer to US companies; use of US labor; and use of US suppliers. They need to be looked at very carefully before the deal is signed. Are they really structured in a way to promote the growth of an American-based industry in this field? Or are they structured in a way that simply give the US the low value-added part of the project - with no future benefit?

Clearly we have a way to go in our quest for a new economic strategy. But the idea are out there - and we need to listen carefully.