

A High-Octane Economy for All

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DO AMERICANS LIVE ON TWO DIFFERENT PLANETS? Those from Mars tell us that times are better than ever: Productivity growth of more than 3% per year since 2001 has eclipsed previous records; the unemployment rate is touching a cyclical low at 4.5%; inflation continues to be reasonably well-contained. Those from Venus respond: Most of the good fortune is going to the rich; income and wealth gaps are widening; jobs, incomes and health care for much of America is increasingly insecure.

Too often those from Mars deny that the problems pointed out by the Venus crowd exist. Equally disturbing, from Venus we hear the drumbeat of populism, protectionism and more government regulation, which its advocates believe can rescue the American middle class without threatening the dynamic economic engine that has fueled the U.S. economy and the global economy.

This Mars-Venus debate over our economic future will continue. It is shaping up to be the centerpiece of the 2008 presidential campaign. Before the rhetoric gets totally out of hand, we propose that Americans and their leaders step back and search for ways to bridge the divide.

The challenge now is to transform government policy in order to make it work, as do the entrepreneurs who create high-growth companies.

Enhance Economic Growth

An entrepreneurial country must continue to be open to the rest of the world, accepting goods, capital and ideas from abroad.

We also should have a welcoming attitude toward people from other countries, especially those who come here to study math and science. Those are the two fields that innovative entrepreneurs and their employees must master if we are to generate commercial breakthroughs.

It's time to reverse the current trend, and induce well-educated immigrants to come to the United States. Immigrant students of math and science should receive citizenship papers with their diplomas. We can use all the talent we can get.

Former President Bill Clinton summed it up well when he said that "you earn what you learn." If we want the benefits of growth to be widely shared, we need a workforce in which more people have 21st-century skills.

Meanwhile, with roughly one in three students failing to complete high school, and national student scores lagging behind those in many other countries, the employment prospects for millions of young Americans look bleak -- as does the current prospect of filling jobs with skilled U.S.-born workers.

Share the Benefits of Growth

Competition brings out the best in organizations and their people. For example, Detroit builds far better cars than it used to because of stiff competition from Japan. But our states vary widely in their willingness to permit charter public schools to operate alongside other public schools, and even then, many states still don't give these public schools the same funds per pupil that they do for other public schools.

State legislatures should provide equal funding and encourage competition. The federal government could hold out the carrot of additional performance-based pay supplements -- especially for needed math and science teachers-for those states that move quickly on this agenda.

Although universities are better for competing with each other for students, the market for university education is plagued with imperfect information. Students and their parents have to judge schools primarily on the basis of inputs-how much money schools have, their teacher-student ratios and the like. We need universities to do a much better job measuring how much students are actually learning -- and reporting those results to the public. They should help students and parents to make better-informed choices about the quality of their teaching.

Universities also must do a far better job commercializing innovations developed by their faculty. Let's allow innovative university professors to act like true entrepreneurs, unbound from university bureaucracies, because American businesses are increasingly turning to foreign universities for research.

Reduce Anxiety

One way of curbing self-defeating populism is to address the causes of worker anxiety. Despite the extremely low unemployment rate, more and more workers who lose their jobs end up in lower-paying jobs. Perhaps worse for the economy, health insurance locks people into jobs they don't like.

The government could sponsor and support a high-octane form of unemployment insurance, which could pay some portion of the income loss people might suffer in accepting new, lower-paying jobs or in starting new businesses. Since the payments would be tied to accepting a new job, or starting a new business, income insurance actually would encourage entrepreneurial behavior by individuals while giving all individuals fearful of losing their current jobs some greater security.

As for health insurance, it should be sold in the marketplace like other insurance, to individuals acting alone or together as part of a group (members of organizations, churches, communities and so forth). Once employment and health insurance are uncoupled, people wouldn't fret as much about having to stick with jobs they don't like, or fear so much about losing ones they do like.

About $200 billion of foregone income tax through the health-insurance tax deduction could be used far better. The government could give premium support for low- and moderate-income individuals when they buy health insurance, and there would be room left for a general tax cut to ease the pain for the rest of us.

Meeting the leading economic challenges of our time depends on our ability to apply the same kind of entrepreneurial thinking to developing policy that we've applied to the economy itself. Message to those hailing from Mars and from Venus: It's time to come back to Earth.