Also last week, Business Week published a piece by Adrian Slywotzky on a related topic. "Where Have You Gone, Bell Labs?," the headline cried, wondering whatever happened to those industrial labs, the breakthroughs they facilitated, and the millions of new jobs those breakthroughs led to. This is one of those rare articles that says what needs saying so completely, there's not a lot left to say. America needs jobs--badly--and her chief engine of job creation--investment in basic research--is in decline.
I think Business Week may have a smart new editor somewhere in the organization, since this is the second article in a few days (here's my blog entry about the first) that questions the conventional wisdom that global structural changes are behind the decline in America's leadership in technological innovation and its economic consequences. While very different in their specific topics--the first focuses on call centers, the second on basic research labs--the two articles share a premise that declining competitiveness can be traced not to changing global fundamentals but to choices America--specifically American companies--have made in recent decades. We can't compete in service industries because we have failed to invest in people. We can't compete in technology jobs because we have failed to invest in the development of knowledge and tools.
Is the argument correct? I suspect that 10 economists would have at least 7 different opinions. But to me it just seems right, like a return to fundamentals that deep down we always knew still applied. Doing what has always worked--investing in knowledge, new tools, and people--just seems like a promising strategy; though globalization no doubt complicates things, maybe a return to fundamentals will work just like it used to.
Here's a sort of corollary: Between World War II and the new millennium, the financial industry grew from a 3% share of American economic activity to more than 8% (source: Thomas Philippon, NBER Working Paper No. 13405). In other words, 5% more money was tied up in making money by manipulating money than 60 years before. That extra 5% of GDP--in case you were wondering, that's about $700 billion every year--was in financial instruments instead of other kinds of economic activity, such as the creation of actual new products and useful stuff and the research and development that goes into it.
So maybe, in the aftermath of the financial crisis, the financial sector will shrink back to a more reasonable size and physicists will once again be able to find jobs doing physics, figuring out how to make money for companies by making things instead of figuring out how to make money for companies by making money. There's nothing wrong with being a quant (a/k/a, quantitative financial analyst)--you certainly can make the case that physics has done more harm than quantitative finance, though I like to think it has also done more good. But my main concern, as always, is with careers. Maybe we can have a new era of Bell Labs and Xerox PARC and other great corporate laboratories. It would be really great, in my opinion, if more physicists could make a living doing physics.