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Innovate or Languish

A full-throated defense of innovation and creative destruction from someone who knows.

By 6.20.11

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The Comeback: How Innovation Will Restore the American Dream.
By Gary Shapiro
(Beaufort Books, 204 pages, $24.95)

"We are the first American generation that has failed to sacrifice for the next generation."

A nation that is transitioning from thriftiness, ingenuity, and resourcefulness to bureaucratization, rent-seeking, and stagnation -- that is the America that Gary Shapiro, the head of the Consumer Electronics Association, sees today. The Comeback: How Innovation Will Restore the American Dream, is his response to this crisis: a full-throated defense of innovation and creative destruction, from someone who knows.

Creative destruction is the phrase popularized by the great early 20th-century economist Joseph Schumpeter, who argued that economic growth depended on innovation even though it often is disruptive at first. Shapiro uses the examples of cell phones and Internet travel sites to illustrate the principle: no one now would argue that those weren't great inventions, although they probably didn't seem so to phone booth installers and travel agents when they debuted.

No industry has seen as much innovation, or as much constant turmoil, over the past decade as Shapiro's -- namely, technology and consumer electronics. In many ways, consumer technology is one of the few sectors of the economy that has "worked" over the Bush and Obama years, improving the quality of life for Americans of all socioeconomic backgrounds. That fact is not an accident, in Shapiro's estimation. As a product of this industry, Shapiro is well positioned to proclaim some obvious, hard truths about the state of the U.S. economy.

Shapiro's main theme is that, in key areas, the U.S. has ceased endeavoring, and become lethargic. For instance, he points out that our inefficient health care system is about to become even less innovative, thanks to Obamacare. Shapiro notes that Obamacare was never intended to reform the system: "The bill's focus was obtaining coverage for working poor Americans who do not presently have health-care coverage. Most of the bill prescribed a method of defining the coverage and then imagining creative ways of paying for it."

Government overreach is a problem in every sector. Shapiro uses the growth of Washington, D.C., as a proxy measure for the encroachment of government: "Our tale of two cities is the story of how Washington, D.C., like Cicero's Rome, has grown out of control at the direct expense of our once-thriving private sector, with Detroit as one very painful example."

The lesson of Detroit, according to Shapiro, is that a city will fail if creative destruction is not allowed to take place, and instead resources are shifted to incumbent industries (in Detroit's case, the automakers) and away from potential entrepreneurs.

D.C., meanwhile, exemplifies rent-seeking. Shapiro reports that one of every 12 D.C. residents is a lawyer -- 10 times the rate of any other city. The greater D.C. area is now home to six of the 10 wealthiest counties in the country, and is adding residents constantly. Meanwhile, Detroit has lost half its population over the past 50 years. And looming over everything, representing the aggregation of all the instances of Washington's over-expansion, is the enormous federal debt.

Shapiro's fear is that the U.S. could easily become one large Detroit, at the same time that China and other emerging economies embrace many of the institutions that made the U.S. innovative and exceptional in the first place. He identifies a number of areas in which the clear solution is to remove the obstacles created by government regulation and usher in private sector discipline.

These include trade (free it up), education (rein in teachers' unions), immigration (let the smart ones stay), and so forth in a number of different sectors.

Shapiro's proposed solutions probably aren't anything new to readers familiar with Washington's ways. Some of his recommendations, furthermore, are surprisingly at odds with the overall free-market attitude of the book. For example, he advocates a gasoline tax that "should be increased five cents every six months for the foreseeable future." There's an argument to be made that such a tax would encourage rapid innovation in alternative fuels, but this argument (and others in the book) makes it seem as though Shapiro favors pro-innovation government intervention, without regard for the underlying problem. That problem is, throughout his narrative, activist and bureaucratic government.

That being said, the biggest problem with Shapiro's call for increased competitiveness and decreased bureaucracy is that it is too convincing. If The Comeback were the first book one read on the topic of, for instance, the unsustainable federal deficits, the reader would probably think that Shapiro had set up a straw man -- the reality of U.S. law would seem too absurd otherwise. In some ways, this story needs a more probing diagnosis of the problem. How did the U.S. get so far along this road to stagnation, when every honest broker acknowledges it's the wrong direction? That's the deeper question facing whoever would try to lead the country out of its current predicament.

By the way, Shapiro has a thought as to who that leader may be. "Fortunately, we have some politicians who are also demonstrating common sense and backbone in response to our crises," he writes. "Case in point is Minnesota governor Tim Pawlenty, a Republican who inherited a financially troubled state but turned the state's finances around simply through priority setting and discipline.... Governor Pawlenty is demonstrating what must be done and can be done to reverse our economic fortunes."

Pawlenty, of course, is now running for president. And being dubbed the pro-innovation candidate might be exactly what he needs.

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About the Author

Joseph Lawler, former managing editor of The American Spectator, is editor of Real Clear Policy. Follow him on twitter: @josephlawler.