Reviving Economic Growth

Policy Proposals from 51 Leading Experts

Brink Lindsey

• Publisher: Cato Institute
• Year: 2015
• Print ISBN: 9781939709806
• eBook ISBN: 9781939709806
• Topic: Negocios y empresa
• Subtopic: Negocios en general

If you could wave a magic wand and make one or two policy or institutional changes to brighten the U.S. economy's long-term growth prospects, what would you change and why? That was the question asked to the 51 contributors to this volume. These essays originally appeared in conjunction with a conference on the future of U.S. economic growth held at the Cato Institute in December 20014. Brink Lindsey, Vice President for Research at the Cato Institute and editor of this volume, is pleased to share this insightful and provocative collection with a new audience.

The motivation for asking that question should be clear enough to anyone who has been following the dreary economic news of the past few years. Since the Great Recession of 2008–2009, the U.S. economy has experienced the most stubbornly disappointing expansion since World War II.

Reviving Economic Growth offers a wide-ranging exploration of policy options from an eclectic group of contributors. Think of this collection as a brainstorming session, not a blueprint for political action. By bringing together thinkers one doesn't often see in the same publication, the editor's hope is to encourage fresh thinking about the daunting challenges facing the U.S. economy—and, with luck, to uncover surprising areas of agreement that can pave the way to constructive change.

1. Entrepreneurship Is the Key to Growth

David B. Audretsch*

Americans typically assume that their country leads the world in entrepreneurship. Even in the depths of the Great Recession, The Economist gushed, “For all its current economic woes, America remains a beacon of entrepreneurialism.”¹ However, the facts suggest something else.² America is losing its entrepreneurial edge. What might have seemed unimaginable as recently as 15 years ago has now, in fact, occurred—a number of other countries, such as Taiwan in Asia and Denmark in Europe, have surpassed the United States in entrepreneurial vigor.³

Reinvigorating American entrepreneurship provides an opportunity to revive American economic growth and prosperity as well as to restore the role of the United States as the undisputed economic leader in the world. There are three important ways that American entrepreneurship needs to be reinvigorated. The first is as a conduit for knowledge spillovers. The second involves what we will term Main Street entrepreneurship. The third way is through the identification and commercialization of opportunities across the globe.

A minor army of scholars has provided compelling evidence showing that those cities, states, and entire countries with vibrant entrepreneurship generally exhibit a superior economic performance, typically measured in terms of economic growth, productivity, or unemployment.⁴ The reason why entrepreneurship drives economic growth is because it serves as one of the most important conduits for facilitating knowledge created in one organizational context to spill over and become commercialized through innovative activity in a new startup. Where would the country be had Steve Jobs not taken the ideas and inventions created at Xerox PARC, which the company itself did not think were actually worth pursuing, to launch his new startup? It is not just Apple, but also Microsoft, Google, Facebook, and thousands of other entrepreneurial startups that ensure that ideas and inventions that are costly to create actually end up being commercialized and transformed into innovations that not only revolutionize their industries but also fuel economic growth, job creation, and competitiveness in global markets.

To spur more knowledge-spillover entrepreneurship, America needs to remain vigilant so that people with important ideas, independent of their current occupational status, have access to the key entrepreneurial resources required to launch a new business: money, talent, and know-how. We have to make it as easy as possible for talented and creative people to take the leap into entrepreneurship.

The second aspect of entrepreneurship involves the seemingly mundane world of Main Street entrepreneurship. This type of entrepreneurship consists of small and medium-size enterprises that typically exhibit considerably less volatility and more stability than their high-profile, headline-grabbing, knowledge-spillover counterparts.⁵ But they matter. And they could matter a lot more. Main Street entrepreneurship provides the bulk of jobs in this country. But it remains underutilized and performs way below its potential. The reason is that small business has become the forgotten man of entrepreneurship. The high-technology counterparts grab not just the headlines but also the policy priority, with their initial public offerings, venture capital backing, and spectacular new product introductions.

The problem confronting America’s underperforming small-business sector begins with image. The glamour is in the adrenaline-fueled high-technology startups, with their boom-and-bust mentality and performance. By contrast, small business seems boring and staid. But one of the reasons that the German economy has performed better than the American economy over the past decade is not just the bedrock stability it gets from its Mittelstand, or small and medium-size businesses, but also the compelling source of global competitive advantage in key product niches. It is the German Mittelstand that are the key to the unique apprentice system that provides young workers with high levels of training, resulting in an unrivaled level of job skills, which in turn fuels productivity. America needs to rediscover its long-standing love affair with small business as the bedrock of both local communities and national economic vitality. As the Frenchman Alexis de Tocqueville reflected in 1835, “What astonishes me in the United States is not so much the marvelous grandeur of some undertakings as the innumerable multitude of small ones.”⁶

The third role involves the fundamental feature of entrepreneurial thinking—discovering opportunities and then acting upon those opportunities. Given the American predominance and preeminence following World War II, along with its historical isolationist tendencies, it is perhaps not surprising that Americans have developed the habit of looking for those opportunities predominantly at home, in the United States. After all, estimates placed half of the world’s wealth and two-thirds of the physical capital in the United States as World War II came to an end.

Thus, it is perhaps understandable that, when confronted by the recent economic crisis, the drop in aggregate demand triggered calls for stimulating the economy from political parties of all persuasion, albeit one side advocated increases in government spending while the other side argued for tax cuts.⁷ The perception was a lack of opportunities for American businesses to sell their products, so that spending had to be increased, one way or another, to restore those opportunities.

The entrepreneurial view, however, suggests scanning not just the domestic economy for opportunities. In a globalized economy, it makes sense to search for and discover opportunities not only at home but also throughout the world. That is exactly what Germany has done in its astonishing economic resilience, even while its European neighbors and other leading developed countries have struggled. The unemployment rate fell below 6 percent and in several Bundesländer, such as Bavaria and Baden-Württemberg, was at negligible levels. By equipping its citizens and businesses with an orientation and the skills to comprehend, interact, and ultimately thrive in other cultural and national contexts, Germany looks for, and finds, opportunities not just at home but throughout the world. Through a careful development of a global orientation, Germany has equipped its citizens and companies with the skills required to go out into the world to discover and reap global opportunities. This global entrepreneurial orientation has paid dividends in terms of growth, jobs, and competitiveness. Through a global entrepreneurial orientation, Germany has been able to fend off the Great Recession with its strong export performance.

America needs to develop a similar entrepreneurial spirit and attitude. It is not enough just to be comfortable and proficient in the context at home in the United States. Americans need to be equipped with the attitudes, orientation, skills, and competencies to go out into the world to discover, create, and act upon those opportunities. That involves acquiring the so-called soft skills of cultural and language competencies and feeling at home not just at home but also in other countries and cultures.

2. Home (Health Care) Economics

Philip Auerswald*

Of the 10 job classifications that experienced growth following the recession, 3 were in home, outpatient, and senior health services. Every indication suggests that this fact represents a secular trend. In particular, assuming that legislators and regulators act to enable rather than obstruct the advance of distributed health services, demand for home health care focused on seniors is likely to experience continued growth, both because of the projected growth in demand for health services as a consequence of the aging population and because of the cost-reducing and service-improving potential of health care in the home. An entrepreneur- and innovation-led pathway toward distributed health service delivery in the United States thus has the potential to improve quality, reduce costs, and expand access to health services. The widespread deployment of distributed health service delivery, in turn, has the potential to increase economic growth both directly (via increased transactions required to meet the growing service demands of an aging population) and indirectly (via an increase in the effective size of the workforce enabled by improved population health).

Defining Distributed Health Service Delivery

Not too long ago, of course, most health care services were provided in the home.¹ The capital requirements of the medical profession were minimal, so there was little reason for an office. Since it cost little (if anything) to certify as a physician, barriers to entry into medical practice and the relative wage paid to physicians were both lower than they are today. The advent of modern medicine over the past century changed that. In 1930, house calls constituted 40 percent of physician encounters; by 1950, that number had dropped to 10 percent; by 1980, it was just 1 percent.

However, in the past two to three decades, the advantages of hospital-based care have started to erode. Part of this erosion has been due to a reversal of the advantages of hospital-based health care² because of high cost, hospital-acquired infections, and injury or death directly induced by hospital care.

At the same time, technologies and organizational innovations enabling health care provision both in the home and at a distance have improved radically in terms of both performance and cost. I employ the term “distributed health service delivery” to refer to four distinct categories of innovations in health service provision that, jointly, are creating lower-cost options of equal or greater effectiveness:

• Telehealth/remote medicine and mobile health (m-health)

• Medical house calls/home-based primary care

• Health agency care/peer-to-peer health service delivery

• Big data

Together, those four elements combine to create a very real, but as yet unrealized, potential for distributed health service delivery on a large scale.

Overall, what fraction of the services currently provided within hospitals can be offered within the home? We don’t know the answer to that question. But we do know that it is a far greater fraction than is reflected by current practice.

Recent studies of home health care provision using existing technologies have shown reductions of 15–30 percent compared with hospital-based care for similar patient populations, with savings that may potentially be realized from a full embrace of existing telehealth and home health care services over the next 25 years projected at $200 billion. Considerably greater cost reductions may be attainable using powerful, distributed technologies currently under development, and benefiting from ubiquitous broadband that is a proximate reality. By allowing a competitive environment to evolve in which entry by distributed health service providers occurs at scale, government at various jurisdictional levels can accelerate economic growth while simultaneously addressing first-order national concerns related to the budget and the quality of life of citizens.

Enabling Distributed Health Service Delivery³

Federal policy toward home health care has undergone a steady progression, focusing first on post–acute care, gradually incorporating “housekeeping services” as part of post–acute care, envisioning home health as a substitute for nursing home care, and ultimately extending that vision to include a range of individuals above a minimum threshold of medically demonstrated need. Constants over this lengthy interval have been concerns over costs and access, all driven by the parallel growth of populations of people over 65 years of age and of people suffering from chronic illness and disabilities.

The core challenge for health care policy at present is not in increasing the uptake of one or another existing model of health service provision in the home, but rather in enabling the creation of entirely new business models aimed at helping people become and remain healthy outside of institutional settings. The key to enabling new, viable business models is a great deal of experimentation. That experimentation must be legal, it must be feasible, and it must be compensated.

Action in three specific policy domains is required, with the objective in each case being the reduction of barriers to entry that favor incumbents to the detriment of beneficial change:

• Technical/regulatory (e.g., regulatory approvals, standards for interoperability)

• Financial/regulatory (e.g., methodologies for determining eligibility for reimbursements)

• Labor market/regulatory (e.g., certification requirements)

Technical/Regulatory Barriers to Entry

Lack of regulatory clarity is currently a significant impediment to realizing the full benefits of distributed health service delivery. Representative Mike Honda (D-CA), who in 2013 proposed legislation to create an Office of Wireless Health within the Food and Drug Administration (FDA),⁴ offers this perspective: “The tech community needs confidence in a consistent, reliable framework for wireless health. The FDA has a critical role to play. Today, there is no confidence [among people in the] industry. It’s nonexistent.”

The fundamental problem lies in the mismatched timescales in which the digital economy and the regulatory structure operate. As with the case of methodologies for determining eligibility for Medicare reimbursements, the standard operating procedures for device approvals at the FDA are as much as an order of magnitude slower than the rate of innovation in distributed health service provision. Institutional innovations to reduce this gap are an urgent priority for federal action.

Policymakers and regulators in health care at all levels also must get past the notion that health care is exceptional when it comes to privacy. Other industries—financial services and education, notable among them—also face privacy issues that must be balanced against the considerable gains attainable from the data aggregation. While these issues are well beyond the scope of the current paper, a general takeaway for policymakers is well stated in the 2012 report of the Kauffman Foundation’s Task Force on Cost-Effective Health Care Innovation:

We believe current data-sharing rules within the medical system are more overprotective than they need to be. The consensus of the task force is that health care data, suitably anonymized, should be treated as a “public good”—something that benefits society broadly and whose benefits cannot be restricted to just a few.⁵

Even if, and when, industry and government actors converge on the technical, organizational, and regulatory parameters for open data exchange that will enable genuine interoperability of systems, the actual implementation of such systems is likely to be a slow and laborious process.

Our federal system of government, a source of strength in many respects, creates another set of challenges for innovators who must contend with 50 different state laws related to telehealth licensure⁶ and 50 different state laws concerning privacy. A priority for policy at the state level is to reduce the impediments such laws create for innovators by reducing their complexity and increasing their consistency across municipalities.

Finally, in an era of flat or declining federal government spending on research and development, the federal government’s own procurement spending can represent a significant lever for innovations. Recent controversies over access to care within the Department of Veterans Affairs (VA) health care system highlight endemic shortages that are unlikely to be resolved through modifications to existing procedures within institutional settings. The most promising pathway for i...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Editor's Introduction
• 1. Entrepreneurship Is the Key to Growth
• 2. Home (Health Care) Economics
• 3. How Land-Use Restrictions Block Growth
• 4. Doctors and Drugs: Promoting Growth and Equality through Free Trade
• 5. To Grow Our Economy, Start with Paid Leave
• 6. The Primacy of Foreign Policy
• 7. Steps toward the “Good Economy”
• 8. Three Waves of the Magic Wand
• 9. Incentive Pay for Congress
• 10. Invest in Smarter Government
• 11. Reforming Regulation
• 12. An Urban Agenda for Economic Growth
• 13. Get the Fiscal House in Order
• 14. Toward Faster, More Inclusive Growth
• 15. Land-Use Restrictions and Other Barriers to Growth
• 16. The Specter of “Secular Stagnation” and Appropriate Policy Responses
• 17. Decision Markets as Meta-Policy
• 18. Structural Reforms to Reduce Debt and Restore Growth
• 19. Radically Simplify Law
• 20. Growth and Taxes
• 21. More and Better Foreign Direct Investment
• 22. Forgetting How to Grow
• 23. Preparing Students for the World of Work
• 24. Unleashing Innovation
• 25. Our Guild-Ridden Labor Market
• 26. Sidestep the FCC and the FDA
• 27. Two Relatively Painless Ways to Boost Growth
• 28. Hacking the Regulatory State
• 29. High-Skill Immigration and Visionary Investments
• 30. Bigger, Cleaner, and More Efficient: A Carbon–Corporate Tax Swap
• 31. Rolling Back Regulatory Complexity
• 32. Curtailing Subsidies for Health Insurance
• 33. Tax Cuts for Innovators Are a Good Economic Investment
• 34. Boost Highly Skilled Immigration
• 35. Shoring Up the Middle Class
• 36. Fighting the Crony Capitalist Alliance
• 37. Taxes, Patents, and Money: Three Proposals
• 38. Apprenticeships, and Lots of Them
• 39. End Corporate Debt Bias—and Expand School Choice
• 40. Money, Economic Growth, and the Fed
• 41. Economic Growth in the Age of Diminishing Labor
• 42. Two Ideas to Boost Long-Term Growth
• 43. Getting Back to Work
• 44. More Bang for the Buck: A Surprisingly Cost-Effective Way to Boost Growth
• 45. Restrain Regressive Rent Seeking
• 46. Embracing a Culture of Permissionless Innovation
• 47. Reforming Corporate Taxation
• 48. No Easy Answers
• 49. Move to a Progressive Consumption Tax
• 50. Raise Tuition at State Universities to Boost Long-Term Economic Growth
• 51. Expand Opportunity to Boost Growth
• Notes