All posts by Stephen Ezell
Yet another study has highlighted the United States’ expanding investment deficit and our growing innovation disadvantage compared with our global competitors. Battelle’s 2013 Global R&D Funding Forecast indicates that, even before accounting for the looming sequester, total U.S. R&D investment in 2013 is expected to decline in real dollars, with growth of only 1.2 percent compared with an inflation rate of 1.3 percent. This continues a long period of U.S. underinvestment in R&D, which has been particularly acute in stagnating federal research investment. According to the National Science Foundation, federal R&D investment grew at just 1.3 percent annually from 1989 to 2009, while gross domestic product rose an average of 2.4 percent over that time. In fact, to restore federal support for research as a share of GDP to 1987 levels, Congress would have to increase federal research funding by almost $110 billion—per year.
Meanwhile, the world’s greatest growth in R&D investment in 2013 will come from China, which is expected to increase its R&D investment by $22.9 billion in 2013.Through its Innovation 2020 strategy, China plans to invest $1.5 trillion over the next seven years on seven “strategic emerging … Read the rest
President Obama Calls for Creation of a National Network for Manufacturing Innovation in State of the Union Address
In his State of the Union address this evening, President Obama called on Congress to support creation of a network of at least fifteen manufacturing innovation institutes that would bring together industry, universities, community colleges, federal agencies, and states to accelerate innovation by investing in industrially relevant manufacturing technologies with broad applications. The first institute in this network, the National Additive Manufacturing Innovation Institute, launched in Youngstown, Ohio in August 2012 to pioneer additive manufacturing and 3D printing technologies and tonight the President announced the launch of three more of these manufacturing hubs “where businesses will partner with the Departments of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs.
As ITIF explains in Why America Needs a National Network for Manufacturing Innovation, these institutes are poised to play a pivotal role in spurring U.S. industrial competitiveness and revitalizing American manufacturing by helping bridge the gap between basic research and product development, providing shared assets to help companies (including small- to medium-sized enterprises, or SMEs) access cutting-edge capabilities and equipment, and creating a compelling environment in which to educate and train … Read the rest
As an American, it was heartening to read Prime Minister David Cameron’s recent Lord Banquet Speech about the need to better prepare Great Britain for the global economic race. The prime minister articulated the need for a comprehensive plan of reforms to enhance innovation and improve Britain’s industrial competitiveness. It shows that, unlike America, Britain is recognizing the broader systemic causes of the global recession and moving past old ideas and theories that do not match our current reality.
Here most economists and policy makers continue to assert that the 2008 Great Recession was caused by the collapse of the housing bubble, and that budget belt tightening alone is the best medicine needed to revive a sluggish economy. However, as we showed in Innovation Economics: The Race for Global Advantage, the housing bubble was not the cause, it was the effect. For in the last decade, many western countries, including Britain, Greece, Ireland, Italy, Spain, and the United States, began to fall behind in global competitiveness, losing production and jobs to developing nations, like China and India. With companies losing markets and … Read the rest
Withdraw India’s GSP Preference If It Continues to Impose Localization Barriers to Trade on Foreign Enterprises
Recent months have seen India introduce several disconcerting localization barriers to trade (LTBs) that discriminate against foreign companies. The Indian government already has imposed LTBs in government procurement contracts, and has further proposed far-reaching local content requirements on even private procurements of electronic goods. Most recently, on January 21, 2013, one news report indicated that India was preparing to exclude foreign information and communications technology (ICT) vendors from participating in the country’s $4 billion national optical fiber network project that will bring high-speed Internet connections to rural areas throughout India.
This follows the Indian Ministry of Communications and Information Technology’s February 2012 announcement of a preferential market access mandate for electronic goods (the PMA Mandate), which if implemented would require a large percentage of high-tech goods sold in India to be manufactured there. A specified share of each product’s market—anywhere from 30 to possibly even 100 percent—would have to be filled by India-based manufacturers, with the local content share for each product rising over time. One of the goals of the PMA Mandate would be to have 80 percent of the computers and electronics sold in India be manufactured … Read the rest
Cameron Calls for “Modern Industrial Strategy” to Help Britain Win Race for Global Innovation Advantage
In his November 12th Lord Mayor’s Banquet Speech, Conservative Party leader David Cameron—acknowledging that “Britain is in a global race that is a moment of reckoning for every country” (as ITIF argues in Innovation Economics: The Race for Global Advantage)—called on Britain to unabashedly articulate a “modern industrial strategy” to help Britain “compete and win” in the intense global race “for high-knowledge, high-value goods and jobs.” Cameron’s phenomenal speech is in fact revolutionary in its call―coming from the heart of the conservative movement―for a far more proactive role for government in stimulating an economy’s ability to compete in global competition.
Cameron observes that government’s first role is to get the framework (or factor) conditions right, and he notes that, even facing budget deficits, Britain has “cut corporate tax rates to the lowest in the G20,” introduced generous tax breaks for early stage investment in start-ups, and launched a patent box whereby firms and individuals only pay 10 percent tax on profits made from intellectual property. There are two key things about this. First, Cameron recognizes that these tax expenditures are an investment that will grow the UK economy, … Read the rest
TechElect has identified six of the most critical policy reforms that American policymakers from across both sides of the aisle need to embrace if the United States is to restore its leadership in the race for global innovation advantage. Indeed, the United States would go a long way toward enhancing its innovation competitiveness if it tackled these six steps as the first items on the 2013 legislative agenda.
TechElect rightly focuses first on skills and investment, specifically boosting American students’ math, science, and engineering skills and ensuring America’s technological leadership through strategic investments in scientific research. Unfortunately, the United States is currently lagging on both accounts. For example, U.S. students in the class of 2011, with a 32 percent proficiency, came in just 32nd out of the 65 nations whose students participated in the Program for International Student Assessment (PISA). Worse, 22 countries “significantly outperformed” the United States in the share of students reaching the proficient level in math. But lackluster science and math scores don’t afflict just U.S. middle- and high-schoolers. Only 34 percent of seniors at four-year U.S. colleges demonstrate proficient quantitative skills (while only 38 … Read the rest
Today, October 5, is National Manufacturing Day. The day is being marked with events around the country highlighting the importance of manufacturing to the U.S. economy and celebrating innovations in fields ranging from aerospace and automobiles to nanotechnology and medical devices.
Manufacturing remains a vital component of America’s economy. However, as Neil Irwin wrote Monday in the Washington Post in “The manufacturing recovery that wasn’t,” despite claims that U.S. manufacturing sectors have recovered and put the United States on track to regain its status as a global industrial powerhouse, the reality is that U.S. manufacturing recovery—just like broader U.S. economic recovery—has a long way to go. As Irwin points out, while “the U.S. manufacturing sector isn’t collapsing, it’s definitely flat-lining.” Industrial production by U.S. manufacturers fell in June, July, and August at a 1.4 percent annual rate and the factory sector added an average of 5,000 jobs nationally each month this summer compared to 19,000 per month during those months in 2011.
In other words, American manufacturing has a long way to go to recover from the 5.7 million jobs it lost and 11 percent decline in output it … Read the rest
A BCG report out today claims the United States is on course to regain its status as a global industrial powerhouse, arguing that several forces—including lower U.S. energy costs, rising labor costs in competitor nations, and idle port capacity—will empower the United States to boost goods exports by up to $130 billion by 2012, creating 5 million jobs in the process. But as ITIF explains in Worse Than the Great Depression: What Experts Are Missing About American Manufacturing Decline, in the last decade the United States lost one-third of its manufacturing jobs (5.7 million—a rate of loss worse than during the Great Depression) and 11 percent of its manufacturing output due to structural weaknesses that won’t simply be rectified by market adjustments.
Chinese manufacturing wage costs are still a small fraction of the United States’, and the hollowing out of the U.S. industrial base over the past decade has meant that the United States simply cannot manufacture a range of high-tech products (from LCD screens to electrophoretic displays to polycrystalline solar panels), explaining why the United States still runs a trade deficit in advanced technology products approaching $100 billion annually. … Read the rest
A response to Dean Baker’s Huffington Post review of Innovation Economics
Dean Baker suggests that the causes of the so-called Great Recession—itself precipitated by the mortgage bust and subsequent housing decline—are cut and dried. He traces these to beginning with the “anti-worker policies of the 80s” and continuing through Greenspan’s insistence to keep interest rates low throughout the 2000s, which contributed to the inflating of an asset bubble (housing) that subsequently burst. Today, Baker’s prescription is to throw trillions more of stimulus at the economy (because the initial almost $1 trillion wasn’t enough) to get the economic ship of state straightened.
In essence, what Baker, reflecting the classical Keynesian perspective, proposes is a massive adrenaline shot to the heart to get the economy pumping again. But the point ITIF’s book, Innovation Economics: The Race for Global Advantage, makes is that the constant resort to shots to the heart—whether Greenspan’s low rates or Baker’s stimulus (which are really just different sides of the same coin, artificially pumping up the economy)—miss the underlying problem and solution: the need to strengthen the heart muscle; that is, the competitiveness, innovation, and productivity capacity … Read the rest
The announcement today that more than a dozen retailers have announced plans to create a mobile-payments system called Merchant Customer Exchange (MCX) highlights the growing interest in near-field communications (NFC)-based mobile payment solutions in the United States, a field in which the United States has trailed several Asian countries. The competition this will create with Isis—a mobile-payments solution being developed by AT&T Mobility, T-Mobile USA, and Verizon—Google Wallet, Square, and others will drive innovation and growth in the nascent industry while encouraging competitors to develop solutions delivering maximum value for consumers.
However, as ITIF notes in Explaining International Leadership in Contactless Mobile Payments, it remains important for policymakers to support the development of interoperable NFC standards so that these solutions can work across a wide array of mobile devices and point of sale systems. Moreover, any successful mobile wallet system should be able to do more than simply handle payments; it should be fully functional, storing identification/authentication credentials and/or key codes, thus enabling customers to check into hotels, movie theatres, schools, gyms, etc. using their mobile device.