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The U.S. economy reigned supreme in the 20th century, becoming the largest,
most productive, and most competitive in the world; amazing new technologies
were invented and commercialized; the workforce became the most educated in
the world; and incomes soared while a large middle class emerged and thrived.
As the 21st century approached, however, alarms began to sound about the U.S.
economy’s ability to remain in this preeminent position. Incomes stagnated and
job growth slowed. Other countries became better educated and our manufacturing
sector lost ground to foreign competitors. Observers have expressed concern
that the scientific and technological building blocks critical to our economic
leadership have been eroding at a time when many other nations are actively laying
strong foundations in these same areas. In short, some elements of the U.S.
economy are losing their competitive edge which may mean that future generations
of Americans will not enjoy a higher standard of living than is enjoyed in the
United States today.
Innovation is the key driver of competitiveness, wage and job growth, and longterm
economic growth. Therefore, one way to approach the question of how to
improve the competitiveness of the United States is to look to the past and examine
the factors that helped unleash the tremendous innovative potential of the
private sector. Among these factors, three pillars have been key: Federal support
for basic research, education, and infrastructure. Federally supported research
laid the groundwork for the integrated circuit and the subsequent computer industry;
the Internet; and advances in chemicals, agriculture, and medical science.
Millions of workers can trace their industries and companies back to technological
breakthroughs funded by the government. The U.S. educational system in the
20th century produced increasing numbers of high school and college graduates,
more so than anywhere else in the world. These highly skilled workers, in turn,
boosted innovation. The transformation of infrastructure in the 20th century was
nothing short of amazing: the country became electrified, clean water became
widely available, air transport became ubiquitous, and the interstate highway
system was planned and constructed. All of these developments helped businesses
compete by opening up markets and keeping costs low.
Common to all three pillars—research, education, and infrastructure—is that
they are areas where government has made, and should continue to make, significant
investments. For a variety of reasons, the private sector under‐invests in
these areas so the government needs to step in to bring investment up to the
socially optimal levels. An additional common thread between these three pillars
U.S.