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These are heady times -- maybe the best years of our lives, economically, at least. Thanks to a remarkable ferment of technological and organizational innovation, ranging from the Internet to the virtual corporation, productivity growth is strong, inflation is tame, and the economic expansion is at record length. The critical question facing policymakers: How to keep the innovation pipeline full and the economy growing fast?
Why is this so important? Because if the good times keep rolling, they'll take care of some knotty fiscal problems for the U.S. retirement and health-care systems. The economy's underlying trend of growth from 1870 to 1992 was 1.8% (measured as income per capita). If that growth rate could be increased to 2.3% over the next half century, the monstrous budget problems widely forecast for Social Security, Medicare, and Medicaid would disappear, calculates Paul M. Romer, economist at Stanford University.
MORE TALENT.
But how fast the economy grows will depend on more than encouraging greater investment with tax credits for research, development, and capital investment. Policymakers must also focus their efforts on increasing the supply of talent that can transform ideas and information into high-tech products and marketable services. It's what economists call "human capital" and Silicon Valley denizens call "intellectual capital." They rest of us call it "educated workers."
"The rapidity of innovation and the unpredictability of the directions it may take imply a need for considerable investment in human capital," said Federal Reserve Board Chairman Alan Greenspan at a national governors' conference in State College, Pa., on July 11. "Even the most significant advances in information and computer technology will produce little additional economic value without human creativity and intellect."
Clearly, education reform is vital for hiking the supply of skilled workers. But overhauling the education system takes time. Policymakers can dramatically increase the supply of skilled and educated workers by immediately boosting the immigration numbers of scientists, engineers, programmers, and others by the hundreds of thousands. High-tech companies, desperate for workers with New Economy skills, are currently lobbying the government to substantially raise employment-based visas, including the annual cap on H-1B temporary work permits for foreign professionals.
TRADE BRIDGES.
Indeed, educated immigrants may be steroids for economic growth. American universities are very successful at attracting foreign students (see table). Many of these foreign students stay. For instance, a 1999 study found that 48% of the 1992-93 science and engineering doctorate recipients from American universities with temporary visas were still in the U.S. in 1994. In April, 1997, 26% of holders of doctorates in science and engineering in the U.S. were foreign born, according to the National Science Foundation. Immigrants accounted for 22.7% of the labor force in electrical engineering and 20.4% in computer sciences. By some estimates, a third of Silicon Valley workers were foreign born.
What's more, immigrant workers create valuable trade bridges elsewhere in the global economy. The most striking recent example is the Indian diaspora that has done so well in Silicon Valley. Many wealthy Indian entrepreneurs are bringing home ideas, capital, and trade contracts.
Yes, the U.S. could do a better job in preparing children for creative, highly skilled jobs. But an open door for skilled and educated foreigners is a policy initiative that would also improve the prospects for faster economic growth over the long haul.
Farrell is contributing economics editor for Business Week. His Sound Money radio commentaries are broadcast on Saturdays in nearly 200 markets nationwide
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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