January 17, 2012
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Bruce Monk
How can the United States compete better in the global economy? Increasing business innovation is the key.
As part of the America Competes Reauthorization Act, the Commerce Department just released "The Competitiveness and Innovation Capacity of the United States." The report contains recommendations for the best ways to support innovation.
The United States, once the global leader in innovation, has fallen woefully behind. For instance, the report cites a July 2011 Atlantic Century report reviewing 16 key indicators: the number of scientists and engineers, corporate and government R&D, venture capital, productivity and trade performance.
The report found that “the United States [has] made little or no progress in its competitiveness since 1999 and now ranks fourth in innovation‐based competitiveness.”
To determine what would make the U.S. more innovative, the Commerce Department looked back at how innovation has been fostered in the past. It found that government funding for research, education and infrastructure are essential for encouraging innovation.
Because private industry tends to under-invest in these three areas, the report says it’s crucial for government to invest in them. But in recent years, research, education and infrastructure have gotten short shrift. The authors note that these investments typically take a long time to pay off, so their benefits aren’t immediately clear to cash-strapped governments trying to cut spending.
What changes will bring the United States back up to speed? The Competitiveness and Innovation report recommends that government should focus on these areas.
- Provide funding for basic research
- Enhance and extend the R&D tax credit
- Speed ideas from science labs to commercial applications
- Improve education in science, technology, engineering and math (STEM)
- Increase spectrum for wireless communications
- Improve access to data to help spur innovation
- Coordinate federal support for manufacturing
- Promote exports and improve access to foreign markets
- Ensure that conditions encourage private enterprise to thrive
Ah yes, private enterprise. If you’re like me, you believe entrepreneurs are key to innovation. The Commerce Department agrees.
“Although improving research, education, infrastructure and the manufacturing sector are essential to increasing innovation and competitiveness, many other factors also contribute to economic success,” the authors write. “Perhaps chief among them is ensuring that both established firms and entrepreneurs in the private sector have the best possible environment in which to innovate.”
What steps can be taken to help encourage entrepreneurial innovation? The report identifies five.
1. Support regional clusters
Clusters of similar businesses encourage innovation. Silicon Valley is the best example of that. The Federal government is partnering with state and local governments through agencies like the SBA and the Commerce Department’s Economic Development Administration (EDA) to foster the growth of regional clusters.
2. Accelerate high‐growth entrepreneurship
Startup America is a White House initiative to foster innovative, high-growth companies through both public-sector efforts and public-private partnerships. The Startup America Partnership matches businesses with resources.
3. Promote exports and access to foreign markets
President Obama’s National Export Initiative (NEI) and the recent approval of free-trade agreements with Panama, Colombia and South Korea are steps in the right direction.
4. Restructure corporate taxes
The tax code needs to be simplified to save businesses time. It should be designed to help businesses easily collect taxes and adequately reward R&D efforts. The taxes collected in turn support the federal government’s efforts.
5. Provide an effective intellectual property system
Protecting intellectual property is key to innovation, but the Patent Office has been backlogged for years. The logjam hinders entrepreneurs’ ability to bring innovations to market. The America Invents Act, which was passed in September 2011, creates a new fast track for reviewing patents with a guaranteed 12‐month approval timetable for certain patents. (Twelve months still sounds pretty slow, but it's an improvement on the current situation.)
While these five actions may be steps in the right direction, there is still a long way to go. Do you agree with these suggestions for improving our nation’s competitiveness? Do you agree that government needs to help, or would it be better if they simply got out of the way?
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Bruce Monk 4 months ago
Good observations on where the problems lie. Very poor articulation in the five steps to meet the challenge. We need leadership and not government interference. Not all jobs and not all products have the same impact in stimuling true economic growth. In many cases creating jobs with new businesses in a market segment simply take jobs away from competitors in the segment. A godd example is a new restaurant in an area saturated with restaurants. It may be very successful; however, this will come largely at the expense of the competition. There is finite demand. The administrations answer seems to be to throw government programs at the problem using their concept of what will help and with little regard to the effectiveness and timeline for the effort proposed. We need jobs whose work product creates or enables other jobs. We need jobs whose work product results in durable goods that retain value and not just jobs in the services and consummables markets where there is little, if any, impact on long term value retention. We need a Vision supported by a Strategic Plan and Road Map that shows the way to recapturing our manufacturing base and regaining our position as the global competitor that leads the way. This will only come through innovation focused on specific goals to address our vulnerabilities and meet the challenges that we will face 50 years from now. Our short term mentality in our finances, the stock market (hence executive compensation and stock manipulation), the political quest for re-election, etc. fuels greed and uncertainty. It does not instill confidence for our future in consumers, businesses, or investrors.