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Peter Crabb: We must innovate to prosper — and Micron shows the way

The financial markets always reward innovation and so should we. Idaho’s Micron Technology is at innovation’s leading edge.

Micron’s stock price has been rising in recent months on expectations that rising prices for its computer memory products will improve profitability. The stock, traded under the stock quote symbol MU, has risen 10 percent since the start of March and is 50 percent higher since April of last year.

As Joe Estrella reported in the Idaho Statesman this week, Micron reported strong profits in the most recent quarter. This was Micron’s second straight profitable quarter following years of losses. Even if Micron doesn’t increase hiring, as many U.S. firms are still not doing, the greater profits will increase employee pay and benefits leading to greater spending in the local economy.

Mr. Estrella quoted analysts who believe the chances for continued profit growth are excellent because Micron has been investing in technology. Kevin Jones of Boise-based Harmonic Investment Advisors noted that new technology is lowering manufacturing costs while prices rise. He goes on to say that Micron is a leader in memory chips per wafer – more memory per wafer lowers the cost per unit.

Just as technological benefits Micron, technological investments will benefit the U.S.

Economists have long studied what leads to economic growth. Adam Smith’s famous book on economics is titled "An Inquiry into the Nature and Causes of the Wealth of Nations." Smith was asking what gives rise to a higher standard of living, or wealth.

What Smith learned, and later economists have since verified, is that new technologies are the source of wealth. For Smith, it was the division of labor duties that gave rise to more specialized workers with better skills — that is, greater labor productivity.

Today, productivity gains come from advances in technology, such as better communication systems and faster computing power. Higher productivity makes workers more efficient and helps companies recover from the devastating recession of 2008.

On March 4 the U.S. Labor Department revised upward its estimate of non-farm industry productivity gains from an annualized 6.2 percent gain to 6.9 percent for the fourth quarter of 2009. Over the last year, manufacturing productivity like that of Micron’s has increased 6.1 percent.

Higher worker productivity is good for all. Alexander Field summarizes what economists have learned in the Concise Encyclopedia of Economics. He writes, “The growth of productivity — output per unit of input — is the fundamental determinant of the growth of a country’s material standard of living The bottom line: If a country wants its standard of living to rise over the long run, its labor productivity has to go up. And for that to happen, it either has to save more or innovate.”

We must therefore applaud Micron’s achievements this past year and support its innovative moves. Policies that promote savings by households (think better after-tax interest rates) and innovation by businesses (think investment or research tax credits) will give us needed technological advances.

As the statesman Edmund Burke said, “America demands invention and innovation to succeed.”

Peter R. Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. He earned his doctorate in international and financial economics from the University of Oregon.

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