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Economists, Executives See Innovation as Key to Growth

Posted on January 18, 2013

Massachusetts enters 2013 with a brighter economic outlook that in the past five years, but the long-term future of the commonwealth revolves around its ability to foster innovation across all industries, a panel of business executives and economists said this morning.

Speakers at the AIM Executive Forum expressed mixed feelings about Governor Deval Patrick’s proposal this week to raise the income tax to fund education and to dedicate sales tax revenue to pay for transportation improvements. They agreed, however, that the cities and states that will lead the way out of the Great Recession will be the ones that create cutting-edge jobs that attract a new generation of workers.

“The new theory says that most economic growth occurs because of innovation,” said Barry Bluestone, Dean, School, of Public Policy & Urban Affairs at Northeastern University.

“Those that innovate succeed, those that don’t die. And no state in United States that does more innovation than we do.”

Bluestone said the importance of education and innovation suggests that business and government could reach a “grand bargain” on tax revenue. The economist said he supports a framework that would increase personal income taxes while reducing the corporate income tax.

But Jerry Sargent, President, Citizens Bank & RBS Citizens, Massachusetts, warned that shocking taxpayers may inhibit the ability of the commonwealth to foster innovation and entrepreneurship.

“Do we create a burden on businesses or individuals where you change the consumption pattern, the ability to consumer or the ability of businesses to invest in themselves. It’s a balancing act,” Sargent said.

Katherine Kiel, Professor of Economics at the College of the Holy Cross, suggested that the governor’s tax proposal may be the right prescription at the wrong time.

“We are in recovery that is not going gangbusters,” Kiel said.

“It needs to happen, but I do worry about the timing.”

All of the panelists agreed that the economy has strong growth potential during 2013 as long as policymakers in Washington reach some agreement on the federal deficit. Uncertainty surrounding the political debate, they said, is placing a significant constrain on the willingness of employers to grow and hire workers.