What Anti-Growth Agenda?

Contrary to centrist critiques, the left has always promoted growth and innovation. A response to William Galston.

In his essay “Progressive Entrepreneurship: A Work in Progress” [Issue #21], William Galston argues that liberals “must embrace growth as a high priority, and they must therefore endorse its preconditions,” by which he means “innovation and entrepreneurship.” Galston further notes that “innovation advocates must recognize that not all reservations against growth and competition are the product of ideology or ignorance.” “Justice matters,” he continues, “and so do public goods that markets cannot provide.” What we have, then, is the familiar New Democrat formula, arguing for a golden mean, here labeled “progressive entrepreneurship,” that goes beyond the familiar stalemate of left and right positions.

I have two responses, one congenial and the other harder-edged. The congenial response is that Galston, with whom I share many values, is kicking down an open door—progressives readily embrace most of what he suggests and have done so for many years. The edgier response is that Galston, self-identifying as pro-growth, is adopting some of the familiar, baseless arguments made by business about what creates—or blocks—growth (taxes, torts, government mandates), and then compounds the error by falsely claiming that progressives are not pro-growth or pro-innovation.

Galston rightly argues that we need to encourage innovation and the emergence of new sectors, and offers several prescriptions to achieve those objectives. He recommends maximum feasible transparency so that firms report all assets and liabilities fully and intelligibly. He supports making the research-and-development tax credit permanent. He also calls for maximizing public access to government-supported research, and suggests the Commerce Department issue new rules to ensure that university bureaucracies do not impede innovation.

I wish I could agree that these policies will accelerate the pace of innovation substantially. But—and this is more important—though the specifics may matter a lot, there’s no big fight to be had in these areas. Simply put, it would be hard to say that progressives are standing in the way of this agenda.

Galston makes the case for innovation by citing a Kauffman Foundation study showing that “the lion’s share of net new job generation occurred in firms less than five years old.” True enough, but this finding represents much less than Galston makes of it. First, the report itself notes, “To be fair, startups have a definitional advantage because they can’t lose jobs, and some of their created jobs will surely be lost by next year’s age one firms.” Further, “there are two simple categories of existing firms: those that go out of business (Deaths) and those that continue (Survivors). On balance, existing firms lose more jobs than they create. But once Deaths are set aside, Survivors usually create more net jobs than startups do.” In other words, the focus on startups turns out to be somewhat misguided. One could just as easily push for a slowdown in the death rate of existing firms rather than an increase in the growth rate of startups to promote jobs.

Still, I accept the need for innovation, so let’s proceed with Galston’s argument. After recommending policies that are neither bold nor objectionable, Galston argues that we need to take seriously our tax policies, government mandates, and regulation, and investigate how they impact new ventures and startups. He asserts that they “hit smaller firms harder than larger ones,” but offers no evidence that our current policies actually impede innovation or startups. Given that most employment mandates exempt many small businesses, I’m not sure that’s true. In fact, I don’t think there is any significant body of research that demonstrates that innovation is harmed by taxes, regulation, or government mandates. Quite the contrary: Michael Porter of Harvard Business School has argued that regulations actually spur innovation (for example, environmental regulations can lead to production innovations that reduce the use of costly chemicals or lower waste disposal costs).

It’s worth noting that in cases where deregulation is especially aggressive, innovation can lead to harmful consequences, a fact its boosters rarely scrutinize. Let us remember the roots of the current global fiscal crisis. Corporate interests argued that financial sector deregulation would encourage financial innovations. Encourage financial innovation it did, helping lead to the meltdown from which we have yet to recover. To his credit, Galston seems very aware of this downside of innovation-mania: As he acknowledged in a recent New Republic essay, these “innovations helped crater the world economy.”

Galston anticipates progressive concerns that the fruits of innovation will not be evenly distributed. He rightly couples “accelerating the pace of innovation” with a call for “concrete measures for ensuring that its fruits are widely shared.” Curiously, the agenda for obtaining widely shared growth is missing from his essay. But this line is simply a new name for an old argument neoliberals have been making for a long time now: All you have to do is substitute the word “productivity” for “innovation.”

We know that wage or income growth over the last three decades did not come anywhere near the productivity growth rate of the same period (specifically, 73 percent productivity growth from 1979 to 2007). Neoliberals like Brookings Institution economists Barry Bosworth, Martin Neil Baily, and Charles L. Schultze focused their attention on the productivity slowdown that began in the early 1970s and told us that productivity was the basis for future growth in living standards. Rising inequality, according to their narrative, was not the main factor behind wage stagnation—low productivity growth was. Productivity actually accelerated in the mid-1990s—and yet the wages of the typical worker did not grow correspondingly. In fact, the inflation-adjusted wages of both high school and college-educated workers haven’t risen in ten years, including the five years of recovery starting in 2002.

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