A Better Way to Track the Economy

A groundbreaking Commerce Dept. report could lead to new yardsticks for measuring growth

Changing the U.S. system of economic statistics is like turning a supertanker. You can do it, but it takes time. The report to be released by the Commerce Dept. on Jan. 18, called Innovation Measurement: Tracking the State of Innovation in the American Economy, amounts to a sharp turn of the wheel.

The report—assembled by a panel of top academics and business leaders, including Samuel J. Palmisano of IBM (IBM) and Steven A. Ballmer of Microsoft (MSFT)—observes that innovation is key for growth and competitiveness. But it gets short shrift in government data.

The panel makes aggressive proposals for measuring innovation better. Some are important but mundane, such as getting different statistical agencies to share data. Others are high-concept, including tracking "innovation inputs," improving the measurement of intangible assets, and possibly putting together a "national innovation index." (Some of these ideas were explored in the Feb. 13, 2006, Cover Story, "Unmasking the Economy.")

NO MAGIC NUMBER

Taken as a whole, these recommendations are a notable break from the past. The current stats were created to track the ups and downs of a manufacturing economy. Now different data are needed to boost the economy's long-term growth potential. The result would be "the most significant change in our statistical system since the national accounts were established 50 years ago," says Dale W. Jorgenson, a Harvard University economist on the panel.

The new approach should change how we perceive the economy, putting more emphasis on research and development, product design, and other intangibles that actually drive growth. And that may influence policy. "You get what you measure," says panel member Arthur D. Collins Jr., chairman and former chief executive of medical technology company Medtronic (MDT).

The report itself will be a bit disappointing for anyone looking for specific measures of innovation. "This is not a magic number that says innovation was X last year and Y this year," says Cynthia A. Glassman, Commerce Under Secretary for Economic Affairs. "This is a long-term road map."

There is also the question of money. The Bureau of Economic Analysis estimates that adopting the panel's proposals would cost it about $5 million a year. Other agencies would need additional funding as well. But in an era when innovation is king, this could be money well spent.

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