As a persuasive argument for government-assisted Schumpeterian economic growth, this book feels more relevant today in 2010 than when it was published in 2004.
America faces twin challenges in the post-crisis era: the emergence of China as a superpower and the looming fiscal crisis (see my review of book Comeback America). We can fight a trade war or lower our standard of living with spending cuts, but the only satisfying solution is reigniting strong economic growth to keep America ahead of the economic race with China and to grow the tax base fast enough to offset rising public outlays.
Dr. Atkinson's book has two parts: America's economic history and its implications for today's policy makers. In the first part, a romp through 160 years of history reveals four waves of technological/organizational transformation:
1) from agriculture to mercantile and craft manufacturing in the 1840s - 1890s period;
2) the development of factory-based industries in the 1890s - 1940s period;
3) the flowering of large corporate mass production in the 1940s - 1990s period;
4) the emergence of IT-driven knowledge society from the 1990s to today.
I believe this narrative is more precise and useful than Toffler's Third Wave theory.
Over a span of several decades, each wave begins with disruption of existing social and economic order, follows by a decade or two of exceptionally strong growth, and ends with a long period of stagnation and volatility. Out of despire comes the next New Economy and a shock to existing economic and social infrastructure.
The role of the government, then, is to recognize the real source of economic growth and to promote it rather than to focus on fighting short-term business cycles. In the second part of this book, the author points out that both the demand-side and supply-side economics are wrong. If boom and bust are a part of the natural outcome of the "long waves of innovation", public policies should be aimed at lifting productive potential rather than stopping the cycle and prevent new forms of technologies and organizational innovation to spread and drive growth.
Today, we are witnessing strong growth in China and revitalization of the German economy. It should not escape our attention that these two large economies follow some of the most important policy recommendations in this book - focus on real economy rather than virtual (financial) economy, focus on growth rather than business cycle, and focus on productivity, with government assisted R&D and human resource development. Both China and Germany have been blamed for global imbalances, yet nobody denies their competitiveness in global markets and they have done their share of stimulating domestic demand as global trade and demand collapsed (whether they have done enough is a subject of debate.)
Nobody knows the future, but I wish the author could provide some hints on what the next wave will be and whether the computer and Internet-driven IT economy has already shown sign of exhausting its potential. Real GDP growth over the last ten years was 1.9%, compared with 3.9% average over the previous six decades.
The last chapter, Building a More Humane Economy, seems to be disconnected from the rest the book. And I wish it is not there. Innovation economy will lift standard of living and enjoyment of life for all in absolute sense but not in relative sense. If a comfortable life is our ultimate goal, promoting growth, which inevitably involves growing pains, may not be the right thing to do. We need policies that mitigate the adjustment pains, but comfort or happiness should not be our ultimate goal.
