Earlier this month, President Barack Obama came to the Kellogg School of Management at Northwestern University to update the nation on the progress we’ve made in recovering from the Great Recession, as well as to promote policies to spur further growth.
As economists who have served both in the U.S. Department of the Treasury and White House, we also see the President’s vision that the U.S. economy has made considerable progress—jobs are up, the unemployment rate is at a six-year low, and corporate profits are strong—and yet there is still much to be done. The recovery, while real, has been slow to gain strength. It has also been uneven, where some workers—and their families—have yet to feel the employment gains, and income gains have largely accrued to top earners.
Policies to promote investment will be crucial for encouraging the right kind of growth. Growth in the previous decade was built on credit and inflated asset prices: “hot air” that contributed to the economic crisis. Now America needs growth that is both durable and shared, which is not possible without substantive investments in infrastructure, research, and education.
This is not just a result of the Great Recession. We’ve postponed these investments for decades. Physical infrastructure has deteriorated. Government funding levels for research and development have recently been in retreat. Perhaps most critically of all, our education systems have fallen short. Students in other countries now regularly outperform students from U.S. schools, and many countries now surpass the U.S. in the fraction of young people who obtain a college degree. This has left us in a deep hole—we must overcome both flagging investment today and our failures to act in the past.
But it was not by chance that President Obama opted to deliver his speech at a business school. Because as important as public policy is, business leaders, not government officials, have the greatest role to play in deciding how and how much our economy will grow in the future.
Take innovation. When a company invents an effective cancer medication, that’s great for the business, but it’s even greater for the patient. Whether the innovation is a better wind turbine, a better combine-harvester, a new business process, or a new smartphone, the gains are spread between the innovators and the ultimate users, raising our collective prosperity.
We need entrepreneurs and corporations to innovate and drive durable growth. Because such innovation is itself reliant on strong infrastructure, a healthy research climate, and a highly skilled workforce, the public and private sectors must co-invest in growth together.
This public–private partnership will not succeed if it is entirely top-down, with policy makers dictating change. Instead, entrepreneurs, businesses, and individuals must take the lead, using rigorous standards and skills to explore what works and what does not. The best solutions will be found on the ground, at the storefront, at the playground, one project and one student at a time—and then scaled up.
Make no mistake: no quick fixes will overcome our challenges—including the mindset that got us here—because obstacles to progress are powerful and multifaceted. But business leaders and policy makers must nonetheless commit to sustained effort, because the stakes couldn’t be higher.
Janice Eberly is the James R. and Helen D. Russell Professor of Finance and faculty director for the Kellogg Public–Private Initiative. From 2011 to 2013, she served as the Assistant Secretary for Economic Policy at the U.S. Treasury.
Benjamin Jones is the Gordon and Llura Gund Family Professor of Entrepreneurship and the faculty director for the Kellogg Innovation and Entrepreneurship Initiative. From 2010 to 2011, he served as the senior economist for macroeconomics for the White House Council of Economic Advisors, and earlier served in the U.S. Treasury.
Photo credit: Andrew Walker III