The good news is that the uncertainty about a recession has been dispelled. We are officially in a recession which started in December 2007.The bad news is that it is likely to be the severest recession since the great depression of the 1930’s by the time it is over. Hopefully this will be sometime in the second half of 2009.
Unlike the depression era the Federal Government has not been complacent about the meltdown of the economy and the financial sector. It has been very proactive. Hundreds of billions of dollars of tax payers money has been allocated to bail out the icons of our banking and insurance industries that are too big to fail but the strategy has yet to payoff .The credit markets are yet to unfreeze. At this time it is difficult to figure out what the money is being used for by the banks.
In addition Congress is in the process of approving a $15 billion loan package for the three struggling U.S. auto giants-Ford, GM, and Chrysler in order to stave off their imminent bankruptcy. The prime rationale for the federal assistance is that they are too big to fail .Bankruptcy will result in severe job losses in the economy at time when we are in a deep recession and that is unacceptable to policy makers.
Well known economist Joseph Schumpeter some time ago said that recessions are like “a good cold shower for the economic system”. My hope is that even large old companies such as Ford, GM, and Chrysler can wake up with the cold shower hitting them with the realities of the 21st century and become efficient and smart and build advanced fuel efficient cars that can compete with automobile leaders such as Toyota, Honda, and BMW.
In times of economic downturns businesses lay off workers and cut costs wherever possible even in innovation projects that could pay handsome dividends in terms new products down the road. In other words innovation is often seen as a frill and can be dispensed with in tough economic times. That can ultimately spell disaster for a business in a highly competitive global economy.
This phenomenon is also nationally true. Bailouts, however, are temporary solutions only. They will not sustain productivity and prosperity into the future.
In order to revitalize our economy we need to fall back on America’s strength—the idea and innovation economy. America has been a leader in innovation for quite some time.
The list of American successes is long and impressive and ranges from the light bulb to the transistor, the personal computer, the Internet, the genome. Four out of the eight winners of the Economist magazine’s recent annual innovation award (October 2008) are Americans. They include Jimmy Wales for the Wikipedia, the free on-line encyclopedia; Steve Chen and Chad Hurley, for You Tube, an easy way to share video via the Internet; Arthur Rosenfeld for the promotion of energy efficiency; and Bill and Melinda Gates for developing a businesslike approach to philanthropy. Their foundation provides an enabling platform for other non-profits for improving lives around the world. (Economist, December 6, 2008).
I would like to suggest that clean tech be one of our top national economic priorities. Silicon Valley as well as other US prime innovation regions are active in developing and investing in various forms of clean tech ranging from solar thermal, solar photovoltaic, biomass, tidal power, and energy efficiency.
Clean energy is currently one the fastest growing sectors of our economy and it has the capacity of growing hundreds of thousands of jobs in the next several years. In addition it would contribute to our critical economic and national security needs of energy independence as well as reducing air pollution and mitigating the threat of climate change.
As job creation is one of the urgent priorities one of the obvious areas for government to invest in immediately would be to retrofit all of our existing public buildings .The payoff in addition to creating thousands of jobs is electricity conservation and reduction of pollution. Existing buildings use about 70% of our electricity and contribute to nearly 40% of our air pollution .The proposed Obama public works plan supports this initiative.
Enormous innovation opportunities also exist in health care, education, and infrastructure development with emphasis on transportation. Let us emulate the Silicon Valley ecology of innovation around the country so that we can become world leaders in creating new technologies that enhance our commerce as well as our quality of life.
We need to move beyond gas guzzling SUV’s, McMansions, and risk oblivious financial gymnastics in order to sustain our economy.
December 14, 2008