In the debate over what to do about America's fiscal crisis and ailing economy, one word is conspicuously absent: growth.
One's gut reaction might be to ask: What does growth have to do with the banking crisis? How could growth have made sense of complex new instruments such as CDOs and CDSs?
Well, for one thing, sustained high growth might have produced sufficient gains in personal income to keep more people from defaulting on their mortgages.
But that is not really the true value of growth. Over the long term, we can't count on growth to make bad loans good or risky investments safe. People will always need to live within their means, and investors should always be prudent.
However, over the long term, growth is the solution to what ails the US economy today, and the solution to many of the challenges we face down the road. Growth - and only growth - can produce the wealth that will enable us to further reduce poverty, create greater access to health care, and begin to tackle looming problems such as climate change and entitlements.
The stakes are high. The US economy grew at nearly 4 percent per year in the 25 years following World War II, but fell below 3 percent in the stagflation of the 1970's, only to return to 4 percent in the last decade.
The difference between 3 percent and 4 percent growth amounts to a roughly 40 percent increase in living standards over 30 years. To paraphrase the late Senator Everett Dirksen, we're talking about real money.
We should be asking President Obama, his economic team, and Congressional leaders a basic question: How do you propose to help ensure that the United States maintains a long-term annual growth rate of 4 percent (or higher)?
We at the Kauffman Foundation have our own proposals, all of them centered on the core fact - borne out by our research - that entrepreneurship and innovation are the key growth drivers in our economy. Highly entrepreneurial companies like Google, eBay, Amazon create more than half the nation's new jobs.
Action in several areas can make America's economic ecosystem more conducive to entrepreneurial growth and should therefore be central to the country's growth agenda.
• Building a skilled workforce. Finding and attracting highly skilled, entrepreneurial workers is one of the more important challenges facing the U.S. economy. Major, entrepreneurially driven improvements are necessary throughout our educational system to help prepare skilled workers, especially in math, science, technology, and engineering - the fields that will be most relevant to generating future innovative breakthroughs.
• Welcoming high-skilled legal immigrants. One quarter of the science and technology start-ups launched in the United States between 1995 and 2005 had a foreign-born founder. These companies employed 450,000 workers and generated $52 billion in revenue in 2006. Our economy needs more, not less, of such highly motivated entrepreneurs. One way to keep them is to grant a permanent work visa to any immigrant earns a degree in science, engineering or math.
• A lower-cost health care system that encourages entrepreneurship. Continued escalation of health care costs and uncertainties about future trends rank high on virtually every American's list of concerns. In addition, the fear of losing health care deters some employees from leaving their current jobs to launch new enterprises. Health care needs to be made both less expensive and more portable.
• Keeping U.S. capital markets competitive through appropriate regulation. Sarbanes-Oxley has turned out to be substantially more costly than was expected at the time. In addition, the SOX requirements may be discouraging successful entrepreneurial firms from going public and instead to sell to larger companies, an "exit" path that may reduce the entrepreneurial energy that drove the success of these firms in the first place. In its current form, SOX is a job killer in desperate need of reform. And, this current crisis, we should heed the lesson of SOX. Let's not ram a complex new regulatory scheme through Congress in a matter of days - only find out later that it has worsened the very problem it was intended to fix.
• Strengthening trade and global markets. Companies like Intel, Microsoft, eBay, and Google would not be the giants they are today without access to global markets in which to sell their products. In addition, firms of all sizes benefit from being able to purchase supplies and services from anywhere they can be competitively sourced. Free trade has a taken a political beating in recent years. It's time for our candidates to show some courage and stand up for this vital principle.
As Washington grapples with a solution, everyone should be asking: Will a given measure help or hinder the creation of new businesses and the expansion of innovation in new and existing companies? Will it strengthen America's entrepreneurial culture? Does it recognize the vital link between economic growth and our success in solving a host of global challenges?
The questions must be asked because our future prosperity and quality of life depend on the answers.