A new Commerce Department report makes the case for aggressive federal government investment in the "innovative capacity of the United States" to stimulate economic growth and, ultimately, create high-paying, sustainable jobs. It's an exhaustive, well researched report, and one whose recommendations deserve further scrutiny.
The 160-page report notes how government investments in "the building blocks of innovation"--basic research, education, and infrastructure--have laid the groundwork for advances in information technology, science, medicine, transportation, agriculture, and many other areas over the years. The report clangs six "alarms," arguing that the U.S. is slipping when it comes to job creation, middle class incomes, manufacturing, innovation, education, and infrastructure. In his 2011 State of the Union address, President Obama touched on the themes the report delves into. "We need to out-innovate, out-educate, and out-build the rest of the world," Obama said, while also acknowledging that we must do so in a fiscally responsible way.
Building on those themes, the report makes the following 10 policy proposals:
1. Support continued, stable funding for basic research--the experimental or theoretical research with no direct ties to business applications or outcomes. Breaking down the federal government's total R&D spending, about 17% now goes to basic research, 22% to applied research, and 60% to development work. (Federal R&D spending is forecast to reach about $141 billion in fiscal year 2012, a slight decline from the year earlier.)
The Commerce Department's report notes, for example, that the biopharmaceutical industry continues to draw upon "exceptionally large" publicly funded basic research at the National Institutes of Health and elsewhere, leading to breakthroughs in the fights against heart disease, diabetes, cancer, and AIDS. U.S. public-private research partnerships were also instrumental in the development of the transistor and Internet, as well as the semiconductor industry and search engines.
A prominent sidebar in the Commerce report focuses not on basic research, but on the fruits of an Army-funded project in the early 1940s to develop ENIAC, or Electronic Numerical Integrator And Computer, to calculate information related to the firing of artillery. Subsequent collaboration between the U.S. military, universities, and the private sector led to at least 19 projects related to the development of computers, the report notes.
2. Enhance and extend the R&D tax credit to incent private industry to invest for the long term. This is sound policy, as it leaves R&D investment decisions to the private-sector companies that take on the risk, not to public-sector central planners with no skin in the game. (Beware the next Solyndra.)
Those two recommendations jibe with the findings of InformationWeek's Innovation Mandate survey, conducted two years ago with 624 business technology pros. When we asked in that survey what the U.S. government's role should be in supporting technology innovation, most respondents--as well as scores of experts we interviewed separately--gravitated to R&D: 63% said the feds should provide R&D tax credits to companies, 60% said they should fund university basic and applied research, and 58% said they should support basic and applied research at federal institutions (such as the National Institutes of Health and NASA).
3. Speed the movement of ideas from basic science labs to commercial applications. Here, we need to be careful that the feds don't try to pick commercial winners (and by default losers) by designating which specific ideas are worthy of a government kick in the pants.
For instance, the administration says it's committed to working with industry and academia on "proof of concept centers" that promote development of green and "advanced manufacturing" technologies. (More on manufacturing later.) But who determines whether those technologies are more worthy of federal investment than, say, wireless broadband or analytics? If U.S. companies themselves aren't driving ideas from basic science labs to commercial applications, we need to ask why.
4. Address the country's shortcomings in STEM (science, technology, engineering, and math) education. U.S. colleges continue to lead the world, but this country's elementary and high school students are falling behind those in other countries, particularly in science and math, as measured by global testing programs. The Obama administration proposes funding more grants and organizing more public-private partnerships to extend STEM education to disadvantaged and "underrepresented" groups of students. It also wants to boost funding for STEM teacher training.
As I argued in a previous column, in response to those who say government officials and employers are exaggerating the urgency of boosting STEM education, STEM is about much more than job training. It's about preparing people to function in an increasingly technical society. It's critical to this country's future. But throwing taxpayer money at STEM education isn't necessarily the solution. The U.S. already spends almost twice as much money per student--across the primary, secondary, and tertiary levels--as the average developed country. So Obama's call for fiscal responsibility applies as much here as anywhere else.
5. Increase spectrum for wireless communications. As part of the national broadband plan laid out by the FCC in March, the agency aims to free up 500 MHz of unused or underused spectrum now controlled by broadcasters and auction it off for broadband wireless. Broadcasters that volunteer to give up spectrum would get a share of the proceeds.
Problem is, the FCC is still waiting for Congress to OK the plan. At the Consumer Electronics Show in Las Vegas earlier this month, FCC chairman Julius Genachowski sounded impatient, telling an audience: "My message today is simple. We need to get it done now and we need to get it done right. Few areas hold more promise for creating jobs than mobile."
Job creation aside, this is an important telecom capacity issue. As InformationWeek contributor Peter Rysavy noted in a recent column, improvements to broadband technologies such as LTE will let carriers squeeze more capacity out of their spectrum, "but that is a decade-long effort due to immense complexity and dependence on standards that haven't even been finished yet. Right now, we absolutely must have more spectrum. Without it, the industry will stall. Tiered pricing is not really a solution."
6. Increase access to data to spur innovation. It's among the broadest and most vague of the Obama administration's goals. A success story cited in the report is the launch of the data.gov website, a massive collection ground for datasets in areas as diverse as healthcare, energy, weather, law, and military gravesites. For example, developers have already used Bureau of Transportation statistics on data.gov to build an application that finds the flights between two airports that are on time most often and checks how late a particular flight is on average.
7. Coordinate federal support for manufacturing. Here, the Obama administration is playing a favorite, manufacturing, which represented only 11.2% of U.S. GDP in 2009 and 9.1% of U.S. employment. The best case the report makes for paying special attention to the manufacturing sector is the fact that hourly compensation in that sector "is, on average, 22% higher than that in the services sector." The report also asserts that manufacturing "provides the bulk of U.S. exports, contributes substantially to U.S. R&D, and protects national security."
8. Strengthen efforts to foster regional entrepreneurship "clusters." The example the report highlights, NorTech, run by Rebecca O. Bagley, one of the 15 innovation advisory board members the Commerce Department consulted for its report, is a nonprofit economic development organization serving 21 counties in Northeast Ohio. Focused on "advanced energy" and "flexible electronics" and funded with public and private money, NorTech aims to attract new members "by promoting Northeast Ohio's technology story" and pool funding for R&D and revenue opportunities.
Such clusters sound dynamic enough, but they're often more show than substance. As Vivek Wadhwa, a former tech entrepreneur and now an academic affiliated with several universities, wrote in a Bloomberg BusinessWeek column]: "Many of the cluster-development projects that have been started around the world since the 1980s have either failed or are on life support, including Tsukubu, Japan's science city, and Egypt's 'Silicon Pyramid.' Because they typically die a slow death, you don't hear about the failures on the front pages of newspapers."
9. Promote America's exports and improve access to foreign markets. The administration emphasizes the free trade agreements it's promoting with Panama, Colombia, and South Korea--all valuable efforts. It also emphasizes that U.S. businesses must have "fair and open access to foreign markets," a no-brainer, of course, as long as it's not a precursor to protectionism and trade retaliation.
10. Ensure that the conditions exist in which private enterprise can thrive. This is the most broad and vague of the report's innovation policy principles. It proposes reforming the corporate tax system, for example, but it never gets around to making a recommendation, acknowledging that U.S. companies are subject to the second highest tax base in the world (behind Japan) but also noting that U.S. companies exploit myriad tax loopholes that contribute to market "inefficiencies." The report also calls for reform of the intellectual property system so that it "continues to function in a way that encourages growth." But as the recent SOPA (Stop Online Piracy Act) kerfuffle shows, one group's IP protection measure is another's clampdown on free speech. Both the tax and IP protection issues are political landmines.
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