A Formula for Growth?

Michael Best, an emeritus professor at UMass-Lowell who has spent a long career studying industrial development, tackles these and related questions in his incisive, if dense, new analysis of economic growth and the interplay of enterprise, skill development, and government support.

Best’s thesis, which he backs up with a wide range of examples, is that sustainable growth can only be achieved through the careful pursuit of interconnected strategies. The core of his analysis is what he calls the “capability triad”: business models, production capabilities, and skill formation, three “mutually interdependent sub-systems of a single developmental process.”

Best bemoans the “formalistic turn” taken in recent years by the field of economics and seeks a “return to an economic framework that focuses on production, enterprise, and governance, with stabilization playing a supportive rather than a dominant role.” In this regard he extols the contributions to the literature of Charles Babbage, the 19th-century Englishman today remembered for his pioneering work in computing, but recognized in his own day for his deep knowledge of the technical, political, and economic factors that go into successful manufacturing. Babbage’s principles of political economy emphasized historical lessons and acknowledged the importance of government support. “In the history of economic thought,” Best reckons, “no one has matched Babbage’s practical grasp of machinery and range of engineering expertise.”

Best begins by examining the Victory Program, the extraordinary explosion in World War II-era defense production in the United States, during which aircraft output surged by an order of magnitude—the country produced more airplanes during the war than had existed in the entire world before the war—while munitions production grew by two orders of magnitude.

He credits this quantum leap in production to careful coordination between government planners, academic economists, and private industry. Best singles out for special praise Vannevar Bush, the MIT engineer extraordinaire who during the war chaired the National Defense Research Committee and the Office of Scientific Research and Development and helped start the Manhattan Project.

Another example: The Greater Boston area thrived after the war because its industrial ecosystem—which originated in key federal and academic research centers—was highly innovative. Best traces the region’s remarkable development through a longitudinal analysis of some 55,000 companies in the fields of turbines, optics, medical devices, internet equipment, biotech, and chemical engineering. Fueled by dozens of colleges and universities churning out highly skilled workers (including, of course, Bush’s MIT) and turbocharged by creative financing opportunities, the Boston region’s decades-long success story illustrates the power of an integrated approach.

Growth surged, too, in postwar Germany due to the combination of the Mittelstand business model, which relied heavily on small- and medium-sized family-owned businesses; a carefully designed vocational educational training system; and a series of quasigovernmental regional research and development establishments, such as the celebrated Fraunhofer Institutes. What Best labels a “social market economy” underpinned the German “miracle.”

But not all economies successfully implemented the capability triad. Best offers as a counterexample the United Kingdom, where the “productivity ‘puzzle’ of British excellence in innovation and design engineering alongside low productivity and a lack of successful industrial enterprises is in major part a consequence of policy failure.” The British mass-market automobile industry, unlike its prosperous American counterpart, suffered from a deficit of “interchangeability and flow” in its supply chain that derived at least in part from weak regional public-private partnerships and a failure to invest in skill development. (In contrast, the “Motor Sports Valley” in Oxfordshire shines as global Mecca for Formula One automotive production because, in Best’s telling, it nailed integration.)

Best also recounts his field research in Ireland, where state policies encouraged multinationals to open large-scale facilities but neglected to spur indigenous innovation and entrepreneurship. His analysis of the faltering Japanese and Chinese “miracles” highlights their shortcomings in systems integration, and he concludes with a clarion call for U.S. policymakers to channel their inner Vannevar Bushes toward promoting regional enterprise stewardship.

Best’s reliance on jargon—“capability triad,” “triple helix,” “vTHREAD” (for “making visible a Techno-Historical Regional Economic Analysis Database), “TQM” (for “total quality management”)—sometimes obscures more than it illuminates.

More substantively, as impressive as Best’s examples are, many of them are taken from the unique politico-economic emergency of World War II and its immediate aftermath. Heavy government involvement in steering growth appeared more warranted during that irreplicable crisis. And while it is true that the national government was involved in the subsequent growth of Silicon Valley, even in ways that are obscure to us today, as was Israel’s government in the rise of that country’s “startup nation” reputation, there was also an organic quality to those success stories that doesn’t fit comfortably with the kind of heavy-handed planning required by the exigencies of an active war.

Still, Best discerns and deciphers key economic trends at critical junctures in world history, and we should warmly welcome his willingness to sacrifice many of the sacred cows of economics on the altar of greater understanding.