Learning By Doing II. The negative influence of lobbyists

 

My last post reported on a new book by James Bessen, “Learning by Doing: the real connection between innovation, wages and wealth.”  It makes several recommendations for how the U.S. can better meet the challenges posed by the hollowing out of the middle class, as illustrated in the chart just below from the Dallas Federal Reserve.
Capture Mr. Bessen blames one primary culprit for this problem: the growing role of money in politics.  For example:

  • The dramatic growth in occupational licensure from 70 occupations covering 5% of the workforce in the 1950s to over 800 occupations covering over 29% of the workforce in 2008. Such a major change can only be understood as the outcome of massive lobbying.
  • Defense procurement. For example, in 2012 the defense industry spent $132 million on over 900 lobbyists. It is hardly surprising that defense procurement rules have favored established defense contractors at the expense of start-up technology firms.
  • The best patent law money can buy. Patent trolls have continued to file more lawsuits, despite the America Invents Act of 2011. A new legislative effort for patent reform in 2013 passed the House by a margin by a margin of 325 to 91 but then was killed by the Senate in May 2014.
  • Changes in trade secret law. The problem is that more uniform trade law, which sounds desirable, also broadens its scope which then limits employee mobility and the creation of spin-offs.
  • Strong enforcement of non-compete agreements in Massachusetts protects established firms but hurts startups. This has given Silicon Valley companies a big advantage over the companies on Route 128 outside of Boston.

Mr. Bessen makes a very strong case for the harmful effects of lobbyists and their money in retarding economic growth.  But how can we possibly curtail the influence of lobbyists without limiting their freedom of speech?  Stay tuned for the next post!

Learning By Doing

 

The two biggest problems facing our country today are a stagnant economy and an exploding national debt.  Faster economic growth would help pay our bills by bringing in more tax revenue.  It would also create more jobs and give a boost to stagnant wages.  One of the causes of this stagnation is that our economy has become less entrepreneurial over time as shown by this often cited chart from the Brookings Institution.
CaptureA very interesting new book by James Bessen, “Learning by Doing: the real connection between innovation, wages and wealth.” looks at both our economic history and our current economy to understand how society can best meet the challenges posed by new technology.  Mr. Bessen  identifies the basic problems as follows:

  • Funds have been shifted away from vocational education and community colleges at a time when large numbers of workers could acquire valuable skills at these institutions.
  • The rapid growth of occupational licensing restricts training and jobs open to mid-skill workers and, in many cases, limits their use of technology.
  • Military procurement favors large defense contractors over start-up firms, while heightened secrecy requirements limit the development of open standards and the broad sharing of knowledge.
  • Job mobility has declined, limiting knowledge sharing and weakening labor markets.
  • Abusive patent litigation has exploded, making it harder for startups and small firms to develop new technology.

Mr. Bessen concludes:“The practical skills of ordinary people have been a wellspring of widely shared wealth for 200 years, and the economic power of mighty nations rests on the technical knowledge of the humble.  Provide the means for ordinary workers to acquire the skills and knowledge to implement new technology today and the economic bounty will not only grow, it will be widely shared.”
What are the roadblocks to implementing Mr. Bessen’s recommendations?  I will return to this question later.