Fostering Innovation and Restoring America’s Competitive Edge

Stephen DeAngelis

March 4, 2009

In his first address to the Congress (24 February 2009), President Barack Obama frankly confronted the financial mess that affects the U.S. and global economies. He declared:

“The weight of this crisis will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and our universities, in our fields and our factories, in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth. Those qualities that have made America the greatest force of progress and prosperity in human history we still possess in ample measure. What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more.”

I have repeatedly argued that bolstering support for entrepreneurs is a good idea. New, well-paying jobs are more likely to be created by entrepreneurs than by established companies. And creating new jobs is what is going to bring the U.S. and the world out of it current financial malaise. As the President put it:

“Now is the time to act boldly and wisely, to not only revive this economy, but to build a new foundation for lasting prosperity. Now is the time to jump-start job creation, re-start lending, and invest in areas like energy, health care, and education that will grow our economy.”

Stirring as those words might be, unless they are backed by action they will fall clattering to the floor only to echo down the empty halls of silenced factories and abandoned offices. The President’s call for support to entrepreneurs is also a call for innovation. The call is timely since a recent report indicates that the U.S. is headed down the ladder of innovation instead of climbing it [“In Innovation, U.S. Said to Be Losing Competitive Edge,” by Steve Lohr, New York Times, 25 February 2009]. Lohr reports:

“The competitive edge of the United States economy has eroded sharply over the last decade, according to a new study by a nonpartisan research group. The report by the Information Technology and Innovation Foundation found that the United States ranked sixth among 40 countries and regions, based on 16 indicators of innovation and competitiveness. They included venture capital investment, scientific researchers, spending on research and educational achievement. But the American economy placed last in terms of progress made over the last decade. ‘The trend is very troubling,’ said Robert D. Atkinson, president of the foundation.”

The President made education one of the three pillars of his speech to Congress (the other pillars were energy and healthcare). He noted that “three-quarters of the fastest-growing occupations require more than a high school diploma, and yet just over half of our citizens have that level of education. We have one of the highest high school dropout rates of any industrialized nation, and half of the students who begin college never finish.” Of course, we all know that statistics can be misleading. Some of the world’s most innovative people have not finished college; but they have all had a thirst for knowledge. Innovators have inquisitive minds and an unquenchable urge to solve problems. As Lohr goes on to note, it’s very difficult to define (let alone measure) things like “innovation.”

“Measuring national competitiveness and the capacity for innovation is tricky. Definitions and methods differ, and so do the outcomes. For example, the World Economic Forum’s recent global competitiveness report ranked the United States first. Much of the forum’s report is based on opinion surveys. A report last year by the Rand Corporation concluded that the United States was in ‘no imminent danger’ of losing its competitive advantage in science and technology. The new report, published on Wednesday, offers a more pessimistic portrait. Its assessment is in line with a landmark study in late 2005, ‘Rising Above the Gathering Storm,’ by the National Academies, the nation’s leading science advisory group. It warned that America’s lead in science and technology was ‘eroding at a time when many other nations are gathering strength.'”

This is not the first time I broached the subjects of U.S. innovation and competitiveness (for example, read my posts Another Slowdown to Worry About — Innovation? and America’s Competitive Edge). These topics take on much more importance during bad economic times because they are essential keys to prosperity. Lohr notes that the President has often commented that America’s future prosperity, as well as the rest of the world’s prosperity, rests on the U.S. becoming an innovation economy. He asserts, however, that despite funding for scientific research and high-technology sectors “the administration has no coordinated innovation agenda.” Although the President’s speech to Congress reiterated his commitment to an “innovation economy,” I’m not sure it made any progress in defining a “coordinated innovation agenda.” One analyst has called for the creation of Cabinet-level position to help create and coordinate innovation in America (see my post Lobbying for an Innovation Czar). If you want to read more the subject, see my post entitled Innovation Economics.

“Some countries, including Singapore, Taiwan, Finland and China, are pursuing policies that are explicitly designed to spur innovation. These policies typically try to nurture a broader ‘ecology of innovation,’ which often includes education, training, intellectual property protection and immigration. This is in contrast to the industrial policy of the 1980s in which governments helped pick winners among domestic industries. The foundation study, according to John Kao, a former professor at the Harvard business school and an innovation consultant to governments and corporations, is an ambitious effort at measurement. He called its conclusions ‘a wake-up call.’ In the foundation report, unlike some competitiveness studies, results were adjusted for the size of each economy and its population. Consequently, the United States ranked sixth in venture capital investment (Sweden was first); fifth in corporate research and development spending (Japan led); and fourth in science and technology researchers (again, Sweden was first). Over all, the most innovatively competitive nation was Singapore, which embarked on a national innovation strategy years ago, investing heavily and recruiting leading scientists and technologists from around the world.”

New York Times‘ columnist Tom Friedman laments that we are discouraging leading scientists and technologists from coming to America rather than encouraging them (see my post Globalization and Recovery). Lohr concludes:

“Mr. Atkinson of the foundation said the United States should act more like the individual states had been doing for some time. They have government programs to attract investment and talent and improve work force skills of local people. The study’s specific recommendations include federal incentives for American companies to innovate at home, ranging from research tax incentives to work force development tax credits. Public investments and regulatory incentives can accelerate the use of information technology in health care, energy systems, transportation, government and education.”

I concluded one of the posts mentioned above by writing:

“One of the reasons that American universities remain the best in the world is that critical thinking is at the heart of higher education. We need to stress those same kinds of critical thinking skills in elementary and secondary schools. Students that learn to think critically also learn to think innovatively. Complement that approach with programs that interest students in science, math, and technology and you have a winning formula for securing our children’s future.”

I’m optimistic about America’s future. I don’t believe we’ve ever stopped being a nation of innovators and entrepreneurs, but I agree we can do better. I don’t think the Information Technology and Innovation Foundation report provides nearly as good a “wake-up call” as the current recession. Everyone’s eyes are wide open to new solutions at the moment. If Washington politicians can set aside partisan bickering and seize this window of opportunity for stimulating new economic sectors, then America should once begin climbing the ladder of innovation.