Good Institutions are America’s Growth Engine

Nobel Laureate Simon Johnson argues that the rules of the game matter as much as the players.

At Leadership Now’s Summit last month, 2024 Nobel Laureate in Economics Simon Johnson sat down with Leadership Now Advisory Board Chair Eddie Fishman to make the case that the consequences of U.S. institutional deterioration are an economic risk as much as a political one.

He argued that the U.S. became the most innovative country in the history of humankind not because of geography or luck, but because of the quality of its institutions. These include the rule of law, inclusive opportunity, scientific investment, and a strong middle class. These same factors are now facing serious pressure.

Several things stood out from the conversation. 

Henry Ford and AI policy. When Ford automated the assembly line, the result was the creation of  hundreds of thousands of new jobs that hadn’t existed before. By contrast, the automation boom of the 1980s didn’t replicate the same pattern. Many parts of the economy were automated, but new task creation didn’t keep up. That gap then squeezed the middle class. Johnson said we should heed the lesson today, and ensure that we are building the next layer of economic opportunity as more jobs face automation.

The bi-partisan response to Sputnik. When the Soviet Union launched Sputnik in 1957, the U.S. responded on a bipartisan basis, passing the National Defense Education Act, investing in schools, and opening the nation’s doors to talented immigrants. Johnson called for a similar response today: reinvigorating the NSF, NIH, and DARPA; spreading research investment beyond the coasts; and creating a direct, tangible link between public science funding and taxpayer benefit.

Johnson was clear: government shouldn’t be picking winners — instead, it should aim to create the conditions for winners to emerge. In his words: “We should swing for the fences as much as we can.