Monday, November 13, 2006

Economic Policy Pittsburgh

The best Pittsburgh can do to stimulate the regional economy is to push on a string. In the face of globalization, economic policy is increasingly impotent. Even investment in innovation is unlikely to generate the desired return:

The truth is, China and India are increasingly attractive places for companies to do research and development (using ideas, perhaps, that were originally developed using U.S. tax dollars). Money is following as well, with U.S. venture capitalists investing more than $400 million in Chinese and Indian companies in the third quarter alone, according to the National Venture Capital Assn. There's a growing sense that at a time of scarce resources, the U.S. may not be getting enough bang for its buck from R&D spending. "The question about funding basic R&D for health care is the same as for funding other basic R&D," says Robert B. Reich, Labor Secretary under Clinton and now at the University of California at Berkeley. "How long can and should the U.S. continue to subsidize the rest of the world?"

Venture capital does not understand regional or national loyalty. Public dollars spent in Pittsburgh can and will flow overseas, with local tax payers left wondering if they will ever see any results. Politicians are unlikely to offer voters a choice that can help improve the economy, with foreign nationals reaping the benefits.

The counterintuitive approach is to embrace all kinds of regional capital outflows, more intensely linking Pittsburgh to the global economy. Pittsburgh should look for investment opportunities wherever they may be, which is likely well beyond the Three Rivers.

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