"It's actually quite simple," a former head of a South Asian state remarked recently … 

When he first came into office, the economists tried to explain macroeconomics using technical terms he could not understand, but then he realized it really was quite simple.  You have revenues … funds coming in and you have disbursements.  The difference, the surplus … this is the tricky part because one has to think carefully about how to invest it.  Well, not everyone has surpluses — a deficit merely means we borrow and pay the loan back gradually profiting from wise investment.

Not too different from a family's finances.  They can blow the surpluses on frivolities or forgo some of today's fun in exchange, say, for a better education for the children, and direct money to their education fund — the house with a mortgage, or the car with payments due put many in deficit.

Tax cuts and other direct payments increase spending by the populace and jump starts a dead economy, but then we also have to look ahead.  Unfortunately, relying only on trickle-down economics and entrepreneurs produces occasional brilliant ideas and a start.  Such haphazard investing limits sustained success (remember the hare-brained internet start-ups in the late 1990s) and is unable to compete against state directed capitalism by MITI (Ministry of Trade and Industry) in Japan, replicated by South Korea and now China.

The entrepreneurial mystique and the push for innovation are no longer enough —  we are already the leading innovators in the world.  No, the Schumpeterian "creative destruction" ship has run aground on the shoals of globalism.  It is now companies like Samsung, prodded and helped by government, that are able to garner the massive investment necessary to build globally competitive factories for electronic durables.  We are often the initiators but the massive profits in the secondary stage are being reaped by others. 

Now here is the surprise.  What they are doing in Asia is nothing new.  We set out to do the same in the 19th century to Britain, then the world's leading industrial power.  Investing in huge infrastructure projects like the transcontinental railroad, we forged a government/business partnership which became the cornerstone of our technology development.  Entrepreneurship?  Yes, but tended towards national advantage against outside competition — not a grab-bag of loose cannons with a hit or miss agenda where the hits are marked by the competition to examine and capture.  For example, President Wilson actively set out to challenge Britain's monopoly in the transatlantic cable telegraph, the internet of that era.  He was instrumental in forming a consortium that laid a competing cable under the Atlantic.

What happens with a tax cut?  Well, the lower and middle income segments spend it.  Clothes and consumer electronics are preferred choices.  Unfortunately, these are manufactured abroad although the retailers and their supply chains benefit.  An infusion of a few hundred billion into the economy will certainly have an effect.  It is like the family only going out to dinner and not planning for the son/daughter's college education.  They can, of course, do both and most families do — but our government is not.  Sustained growth with better paying jobs means investment in education not cutbacks.  It also does not mean paying our taxes to bankers to cover gambling losses.

And what of infrastructure and industry?  While we remain firmly rooted in the twentieth century, our competitors are moving forward rapidly.  China is busy:  roads, airports, railroads (including high-speed trains between commercial hubs), aircraft and auto industries; the list expands daily.

Infrastructure projects are a good way of honing our competitiveness and building our economy beyond recession.  Take the example of high-speed rail.  It carries the potential of a geographical transformation of the economy.  Add the hundreds of thousands of jobs created in developing a national network and the environmental benefits, and the proposal would appear to have no negatives, except for the airline industry.  Pollution figures quoted by Greenguage 21, a British group promoting the benefits of high-speed rail, state that a journey on it has a third (1/3) of the emissions of travel by automobile and quarter (1/4) of the carbon footprint of air travel.

China's high-speed trains set a speed record (461 kilometers per hour) recently.  Japan is planning a maglev (magnetic levitation) line expected to run at speeds of up to 560 kilometers per hour.  Imagine 350 mph trains across our landscape.  A man could board a train at Grand Central Station in New York at 7:00 AM and be in downtown Chicago for a 10:00 AM appointment … without airport hassles, limos and delays taking as long as the flight.  The Eastern Corridor between Boston and Washington would become a single metropolitan area with all the benefits of economic and employment flexibility.

The formula for a hospitable environment attracting high-paying manufacturing jobs is not new.  It requires an educated, trained workforce, which means investment in schools, equipment and workers' training/apprenticeship programs; a cleaning out of the sclerotic arteries forming our transportation base; offering a local environment for manufacturers (local or foreign) that enhances competitiveness.  All of this has been known for a very long time.  Much has been written by numerous researchers including this author — see, for example, "Problems and Policies for Transitional Economies", International Journal of Technology Management, Vol. 8 (1993) pp. 513-526 or, for an easier read, his op-ed piece, "Why the U.S. trails in Competitiveness,"  Dallas Morning News, Sunday, May 6, 1990, which predicted the loss of higher and higher end jobs to lower wage countries.  We  know the problem; we have known it for decades.  The real issue is whether we have the will to do something about it.

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