Next-stage capitalism.

• Author: Glastris, Paul
• Position: Editor's Note - Government investment should have been directed to the real estate market - Column

In February, the nonpartisan Washington-based Information Technology and Innovation Foundation released a study which, if not the worst economic news of the moment, wasn't exactly cause to cheer, either. The study compared the United States and thirty-nine other countries on their "innovation-based global competitiveness"--things like the number of new business startups, availability of venture capital, high-speed broadband access, and corporate and government R&D spending. In the overall rankings, the U.S. came in a respectable sixth, behind countries like Sweden and South Korea. But in terms of progress on these indicators since 1999, we scored dead last.

The financial crisis and the relative decline in our capacity for innovation may seem like separate problems, but they are connected in ways that bear examining. Both have their roots in the end of the last decade. The U.S. experienced astonishingly healthy economic growth in the 1990s, driven primarily by the diffusion of ever-cheaper computing power and the expansion of the Internet. When that boom ended, with the bursting of the dot-corn bubble in the spring of 2000, it was a warning sign: there was too much capital chasing too few good investment opportunities. For healthy growth to resume, new frontiers of enterprise needed to be opened up, new technologies and markets made available for investors and entrepreneurs.

If you were in the venture capital business back then, or read Wired magazine, or listened to then presidential candidate Al Gore, you had a pretty good sense of what those next frontiers were. They included renewable energy, high-speed broadband, and the extension of the IT revolution into hitherto-untapped sectors of the economy, like health care and the electric grid. These were the new "platforms," as the tech gurus called them, on which entrepreneurs and investors would build new companies, jobs, and wealth.

Yet to open up these new opportunities would have required substantial government investment and guidance. And that ran counter to the instinct and ideology of the newly established Bush administration. The president wasn't a tech guy. He was an oilman, as was his vice president. The first two Bush treasury secretaries hailed from, respectively, the aluminum and railroad industries--hardly the vanguard of the twenty-first-century economy. Moreover, Bush and his advisers preferred to trust the markets to find new investment opportunities on their own, unaided by...