Massive, but failed, federal jobs programs overlook two key sources of real job growth. Namely, exports and innovation.
“An increase in sales from exports creates twice as many jobs as a dollar from sales in domestic demand.” Technology firms “create even more jobs.” And jobs in exporting “pay 9 percent more” than work in firms that export less; while work in technology pays “90 percent” better than other jobs, according to the Information Technology & Innovation Foundation (ITIF).
Moreover, ITIF said, an increase in the federal research and development tax credit would not only pay for itself in added revenue, it also would encourage companies to increase hiring “within a matter of weeks.” ITIF is a non-partisan research and educational think tank.
Through June 2010, many industries “have not seen even one net new job” created since the $787 billion so-called stimulus act became law in 2009, according to a ladders.com tabulation by Rep. Dave Hall (R-MN). Obama administration economists Christina Romer and Jared Bernstein on January 1, 2009, in a 13-page study, forecast that “at least 3 million jobs” and possibly “between 3 and 4 million” will be created or saved by the end of 2010.
Here are their job forecasts and the dismal results as reported by the U.S. Department of Labor: Construction Forecast—678,000; Loss—853,000. Manufacturing—408,000; Loss—707,000. Financial—214,000; Loss–310,000. Retail—604,000; Loss–286,000. Professional & Business Services—345,000; Loss—211,000. Information—50,000; Loss—158,000. Transportation & Warehousing—98,000; Loss—155,600. Wholesale Trade—158,000; Loss–135,400. Other Services—99,000; Loss—72,000. Leisure & Hospitality—499,000; Loss—69,000. Mining—26,000; Loss-16,900. Utilities–11,000; Loss—7,500.
The only sectors where jobs would be created, as forecast by Romer and Bernstein, were: Government—244,000. Actual increase—201,000. Education, Health & Social Services—240,000. Actual increase—434,000.
The U.S. is lagging “far behind” other major economies in putting the jobless back to work, The Wall Street Journal reported July 10, in an analysis of employment in 11 countries. Total employment in June in this country was down 4.8 percent from December 2007, the article said.
In its report in January, the ITIF made a convincing case that if the federal research and development tax credit were increased a bit, it could help to create 162,000 jobs and “boost innovation and U.S. economic competitiveness, thus laying the groundwork for long-term prosperity.” ITIF estimates that expanding the tax credit from 14 percent to 20 percent would lead to an “increase in annual GDP by $90 billion, an increase in patents issued to American inventors by 3,850, and an increase in tax revenues by $17 billion, much more than the cost of expanding the tax credit itself.” The current tax credit spurred private-sector research through the 1980s. But, ITIF’s study pointed out, “Other nations soon learned” from our success and began to allow more generous tax credits. So, by 1996, the U.S. had fallen to seventh in R&D tax credits among the 30 OECD nations. By 2004, we had fallen to 17th.
The R&D tax credit, created in 1981, was never made a permanent part of the tax code. Congress has had to act each year to keep it alive. Leading up to the July 4 congressional break, the Senate tried three times to pass the bill. But it was entangled in “paygo.” This is the law requiring that any new spending increase or tax cut be offset by other spending cuts or tax increases. As tax hikes were proposed on more and more industries, businesses finally balked, at least until something can be worked out.
America’s economy is “in danger of losing our greatest competitive advantage: our genius for innovation,” John C. Lechleiter, CEO of Eli Lilly and Company, wrote in a July 10 Wall Street Journal op-ed piece. “[W]e are facing today nothing short of an innovation crisis in America’s life sciences. The industry I know best, biopharmaceuticals, is facing unprecedented pressure. R&D costs continue to rise, fewer new medicines gain regulatory approval.” New molecular medicines approved by the Food&Drug Administration (FDA) are lower than in the late 1970s, he said.
A society that “appreciates scientific inquiry and free markets where innovators can expect to be rewarded…has always been an American strength.”