Archive for March, 2011

Response to competitiveness RFI – knowledge creation and dissemination

Continuing comments on the questions posed by the Commerce Department’s Competitiveness study RFI (see here, here, here and here), we turn to a cluster of topics and questions concerning knowledge creation and dissemination.

The questions posed in topic #1 (government R&D) and #5 (incentives to innovate) can be taken together. 

Topic #1 – Government research and development – asks the following questions:

How can the economic impacts of basic research funding (e.g., NSF, NIH) be better measured and evaluated? What methods can the Federal Government use to prioritize funding areas of basic research, both within an area of science and across areas of science? How can existing Federal government institutions (not just organizations, but also programs, policies, and laws) devoted to basic research and innovation be improved? Are there new institutions of these types that are needed to achieve national innovation goals? How could the government increase support for industry-led, pre-competitive R&D?

Topic #5 – Incentives to innovate – asks:

How could the government better use incentives (including but not limited to procurement, Advanced Market Commitments, incentive prizes, and aggregation of demand) to promote innovation? Are

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Turning Lead into Gold: An Innovation Carbon Price (VIDEO)

There are two things for certain about the energy policy debate: we’ve been having the same debate for almost 40 years without resolution and the struggle to implement a new energy policy isn’t going to get easier any time soon. Take today’s President’s Georgetown address on energy security:

“Presidents and politicians of every stripe have promised energy independence but that promise has so far gone unmet. That has to change. We cannot keep going from shock to trance on the issue of energy security, rushing to propose action when gas prices rise, then hitting the snooze button when they fall again.”

So here we are again, but in 2011. The United States needs a new energy policy, pronto. Gasoline prices are on the rise again. The national security impact of imported fossil fuels is an ever growing concern. We still haven’t dealt with the big issue of human-induced climate change. And cap and trade failed as a viable policy because it would have harmed U.S. competitiveness and not drastically reduced emissions.

It’s obvious that a new approach is needed – one that accounts for U.S. industrial competitiveness as well as

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Response to competitiveness RFI – entrepreneurship, education and exports

Continuing our series of comments on the questions posed by the Commerce Department’s Competitiveness study RFI (see earlier postings), lets us move on to the three E’s: entrepreneurship, education and exports.

In topic #2: Entrepreneurship, the RFI asks the following questions:

Through what measures can government policy better facilitate the creation and success of innovative new businesses? What obstacles limit entrepreneurship in America, and which of these obstacles can be reduced through public policy? What are the most important policy, legal, and regulatory steps that the federal government could take to expand access to capital for high-growth businesses?

In order to comment on the questions relating to entrepreneurship, we must first separate out various concepts:

1) start up versus growth

2) entrepreneurial growth (through new business opportunities) versus market expansion (through expanding into new markets geographically or serving an underserved market or by capturing market share or simply through an expanding customer base).

The start up process concerns establishing a new entity.  There are numerous specific issues associated with forming a new entity — business or non-profit.

The growth process may or may not be associate with that

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Induced Innovation and Carbon Pricing


In climate policy debates, it’s a matter of faith among some in the environmental and economics communities that “price is king.” No less an authority than Alan Blinder has referred to carbon prices as a “miracle cure,” key to inducing massive investment and, thus, radical innovation in the private sector.

But will it? No. As we argue in a new report, most analysts who see the carbon price as a be-all, end-all climate and energy solution are dramatically overstating the ability of market signals to draw forth major innovations. You can’t fully solve the climate problem without a clean energy portfolio approach that includes radical new technologies, yet you don’t get radical new technologies from a simple price on carbon (especially one that would be constrained by the political system).

At the heart of the matter is the old technology-push versus demand-pull debate. From the technology-push perspective, the way to drive innovation and technological change is through focused (or not-so-focused) development efforts. The policy toolbox from this perspective includes investment and incentives for basic, applied, and translational research, competitive institutional structures, and strategy, with the

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Response to competitiveness RFI – manufacturing and services


Following on yesterday’s posting, I would like to take up some of those intriguing questions posed by the Commerce Department’s Competitiveness study RFI (see earlier posting).

Let’s start with something I have written on before: manufacturing and services.

For topic #6: Manufacturing.  The RFI asks the following questions:

What is the role of advanced manufacturing in driving American economic growth and international competitiveness, and what are the key obstacles to success at advanced manufacturing? In which manufacturing industries will our nation have comparative advantages?

The short answer to the first question is simple: manufacturing will continue to play a major role in American economic prosperity.  It will be a different role.  As we pointed out a year ago in our Policy Brief–Intellectual Capital and Revitalizing Manufacturing, manufacturing is in the process of being transformed into a much more knowledge-intensive activity.  The process is analogous to the transformation of agriculture in the early 20th century.  Farming did not simply move to other nations with lower-cost producers using the traditional techniques. Agriculture was mechanized–or industrialized, if you prefer. That transformation led to

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Responding to the RFI on the Strategy for American Innovation


Earlier this month, I posted an item on the Commerce Department’s Request for Information on Administration’s Strategy for American Innovation.  I made some comments when the document first come out.  But, as I noted, the RFI asks a number of questions that go beyond the framework of the strategy –  both in detail and in subject area.  In a series of postings I plan to address many of these specific areas of questions.  But first let me return to the overall framework.  

The strategy has three major components: Investing in building blocks of education, basic research and infrastructure; Promoting market-based Innovation; Catalyzing breakthroughs for national priorities.  They form a pyramid type arrangement, with basic foundations leading to market commercialization and then focusing on specific areas of special interest within that broader market framework.


This framework is fine as far as it goes.  It is useful for tying together the Administration’s policy initiatives.  But the framework and those initiatives don’t go far enough to effectively foster innovation in the new I-Cubed Economy.

The foundation of the pyramid is call, fittingly enough, “Building Blocks.” The framework describes three basic foundations:

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Spectrum: The Capital that Drives Wireless Competition

Wireless competition depends on spectrum: We can only have as much effective mobile broadband competition as have spectrum to support. This fact doesn’t get as much attention as it should in the general discourse on network competition or the specific controversy currently raging over the proposed ATT-T-Mobile merger. While Washington is clearly aware of the need for more spectrum, the link to competition has been lacking.  The National Broadband Plan called for a massive release of spectrum to enable mobile networking:

Recommendation 5.8: The FCC should make 500 megahertz newly available for broadband use within the next 10 years, of which 300 megahertz between 225 MHz and 3.7 GHz should be made newly available for mobile use within five years.

In the year since the Plan was published, there’s been a lot of talk in Washington about this recommendation: Some partial inventories have been released, some candidate bands have been identified, a number of bills have circulated regarding spectrum auctions and additional inventories, but there’s been no concrete action to implement the recommendation.

The spectrum crunch is real: Without spectrum, we don’t get the benefits of LTE, the next-generation mobile

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The Drunk, the Street Light, and the President (and Jobs, Innovation, and Competitiveness)

Try a quick (perhaps not so quick) experiment.   Build a list of all the major companies that have been recognized as technology leaders in their use of “IT” over the past 5 years.  Create a “technology leaders index” like a Dow Jones or  Standard and Poor’s and look at the behavior of these technology leaders as whole.  You will find that together they outperform any of our traditional market indices and the US Fortune 500 as a group.

Perhaps your reaction will be a big “so what” – conventional wisdom says that technology and technology innovation is a major driver of productivity and business performance, so what is the “big deal”?

Now try something else.  Look at the employment figures for these same technology leaders over the same multi-year period.   On the news every day we hear the financial network commentators and their interviewees talk about the “jobless recovery” and how the key economic indices can climb along with national productivity as a consequence of automation.  But this second experiment reveals a new phenomena – these technology leaders with their superior market performance and above-the-norm investment in technology increased their

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Venture Capital Regulatory Hot Buttons: Innovation or Guild Agenda?

I was asked last week at a seminar what the “regulatory hot buttons” were for venture capital firms.

My response was to tick off at least these:

1)      End or reduce the impact of Sarbanes-Oxley.  This legislation is a tax on public companies without significant protection for the public, and is widely blamed by VCs for the wretched IPO environment of the past almost-decade.

2)      Don’t mess with capital-gains tax treatment for carried interest.  Carried interest is the way that profits from successful startup investments convey to venture capitalists and our backers.  Treating these as ordinary income would be another tax on innovation.

3)      Visa reform.  By restricting talented scientists, engineers, and entrepreneurs from study, work, and citizenship opportunities in the U.S. we cut ourselves off from the historic stream of human capital that immigrants have furnished to the U.S.

I found myself thinking after the class, “Is this a true innovation agenda, or is it just a set of guild protections for what we do”?

What do you think?  I came to the conclusion that these are actually in the interests of the innovation agenda as

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How Global Foreign Aid Supports China’s Clean Tech Mercantilism

The United States, international development organizations like the World Bank, and fellow developed countries continue to give China—the world’s second largest economy which holds $2.85 trillion in foreign currency reserves and which in 2011 will become the world’s largest manufacturer—billions of dollars in development assistance. In fact, China receives more than $2.5 billion a year in foreign government aid, according to the OECD. But China effectively plays all these countries and institutions for suckers, because it continues to take their billions even while it refuses to open up its markets to foreign countries’ products.

The numbers are astounding. In 2008, Japan gave China $1.2 billion in development aid and Germany gave about $600 million. Though the United States gave less, it still gave China at least $65 million for programs promoting nuclear energy, health, and human rights. Likewise, the World Bank provides China billions. In 2008, the World Bank supported seventy-five projects in China and provided the country over $2.4 billion in loans, bringing the total amount of outstanding World Bank loans and development credits in China to over $23 billion. Despite its $2.85 trillion in foreign currency reserves, China

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