Less than a month after taking office, the Obama administrationunveiled its massive stimulus package aimed at recharging thelagging American economy – a staggering three-quarters of atrillion dollars. As the Harper administration rushes to dole out a$40-billion stimulus of its own, it’s high time to ask a simplequestion: Are we stimulating the right things?
Confusion was nowhere more evident than in the debate on theU.S. Senate floor, where a relatively small amount marked for theNational Endowment for the Arts was derided as nothing butpork-barrel spending and waste. The stimulus, such thinking goes,ought to focus on infrastructure only.
As Jack Kingston, a Georgia Republican, put it: “We have realpeople out of work right now and putting $50-million in the NEA andpretending that’s going to save jobs as opposed to putting$50-million in a road project is disingenuous.”
However, the facts are that the locus of economic growth hasshifted dramatically and a stimulus that focuses on traditionalinfrastructure cannot succeed. What drives the economy today is notthe old mix of highways and single-family homes but new, ideadriven industries. They range from software, communication devicesand biotechnologies to culture and entertainment – and importantlythe convergence of the two.
The familiar kind of stimulus – the “shovel-ready” kind thatbuilt highways and roads, and worked so well during the GreatDepression and its aftermath – worked precisely because it didn’tstimulate that period’s aging agriculture economy. Instead, itaccelerated the transition to a new economy based on housing, autosand all the products of the industrial assembly line, fromrefrigerators and washing machines to air conditioners andtelevision sets.
The Keynes-derived notion of pouring money into public worksbuilt the roads and infrastructure that spurred postwar demand andprimed North America for postwar global economic dominance, becausethe consumption embedded in our suburban way of life stimulatedjust the right kind of industrial production.
But eventually the system got out of whack. The housing andcredit bubbles of the past decade ultimately biased and distortedour economy, channelling money and investment toward olderindustries, real estate and construction and away from moreproductive, innovative and creative ones.
For a stimulus to work today it has to stimulate the emergingcreative economy, the engines of regional economic growth andhigher incomes across Canada and the U.S. Companies and workers inthese fields also have “spillover effects.” Computer scientists anddesigners – unlike, say, lawyers and doctors – foster productivityin others, beyond the services they provide themselves. Creativeindustries also benefit from considerable synergy as arts anddesign combine with technology, from iPods to video games.
But it’s not enough merely to produce more scientists, engineersand artists or even hightech entrepreneurs and entertainmentmoguls. We must also build an infrastructure and an economy thatcan sustain a demand for their creative efforts. In his bookThe Venturesome Economy, Columbia Universitybusiness professor Amar Bhide shows how sophisticated, risk-takingconsumers who demand new things and buy new products are the key totechnological innovation in places such as Austin, Tex., andSilicon Valley.
It’s unlikely that the BlackBerry would have succeeded if it hadcome from Eastern Europe, for example, because consumers therewould not have appreciated its security, convenience and systemsintegration the way that the Western world did. The creativeeconomy already includes roughly 30 per cent of Canada’s work forceand about a third in the U.S. It accounts for more than half of allwages and salaries paid in each country.
So, if the stimulus were allocated proportionately, between$250-billion and $375-billion should have gone to the U.S. creativeeconomy; in Canada, the figure would be $12-billion to$20-billion. Stimulus funds could be used to strengthenCanada’s science and technology infrastructure and its music, filmand art scenes; it would provide entrepreneurial assistance andgarage-like incubation spaces for innovators the Bloombergadministration is doing in New York City.
It would make far greater sense to invest preciousinfrastructure dollars in high-speed rail and broadband Internetlines to connect our communities than in roads and highways. Wewill begin to move toward a durable recovery only when we stopunnecessarily propping up the old economy. Indeed, we have to makehousing and transportation cheaper, as we did with agricultureduring the New Deal, in order to free up the demand that willprovide enduring stimulus for the creative-economy businesses andjobs of the future.
Fortunately, in the U.S., the $50-million for the NEA wasreinstated at the very last minute. But it still aimed a hugeamount of its stimulus at the old economy. Canada has the chance todo much better.