Race to Innovate

Competitiveness, Manufacturing, and Trade Policy Analysis

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‘Innovation Box’ Proposal Would Stimulate U.S. R&D and Innovation

In recent years, the United States has become less competitive in retaining and attracting globally mobile capital. That’s in large part due to an uncompetitive tax code that features the highest statutory corporate tax rate among OECD countries; a worldwide, as opposed to territorial, tax system; and an intermittent research and development (R&D) tax credit that has fallen to just the world’s 27th most generous, behind even Brazil, China, and India.

It’s high time for Congress to begin a serious reexamination of U.S. tax policy and to incorporate innovative approaches that spur greater levels of R&D, innovation, and investment by enterprises operating in the United States. One proposal that ITIF has long championed is the “innovation box” (or “patent box”). So named because it is implemented through a check box on a tax form, the policy provides favorable tax treatment for revenues generated from newly developed intellectual property (IP). As ITIF explained in its 2011 report “Patent Boxes: Innovation in Tax Policy and Tax Policy for Innovation,” these provisions differ from—and should be seen as a supplement to—R&D tax credits in that they provide firms with

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digital

Data a Key Driver of Transatlantic Economic Growth

The Transatlantic Policy Network hosted an event on Capitol Hill yesterday to discuss the data revolution in the transatlantic marketplace. The discussion was timely, for the reality is that data is the key commodity in today’s knowledge-based economy. In fact, a recent study by Finland’s TEKES finds that, by 2025, half of all value created in the global economy will be created digitally. Meanwhile, half of all global trade in services depends on access to open, cross-border data flows. Indeed, a wide range of industries—from manufacturers to miners, to banks, hospitals, and grocers—depend on the ability to move data across borders and/or analyze it in real-time as a fundamental component of their supply chains, operations, value propositions, and business models, as ITIF writes in Cross-Border Data Flows Enable Growth in All Industries. And this is as true for small businesses at it is for large—a 2014 study found that 60 percent of U.S. and European businesses with 50 or fewer employees regard data analytics as important to their enterprises’ success.

Moreover, the competencies of countries, and their enterprises therein, at extracting value and insights from data is instrumental to

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ice

Response to the Pope’s Encyclical on Global Warming: Markets and Technology Are the Solution, Not the Problem

It is difficult to know what to make of Pope Francis’ recent encyclical, Laudato Si’. Although formally devoted to global warming, the science and policy of climate change is mentioned only in passing. None of the encyclical’s 172 footnotes cite scientific or economic works. The facts associated with neither the immediate topic nor with broader ecological concerns are ever examined in any depth. Instead, readers are treated to a lengthy discussion of church philosophy on the relationship between man, God, and nature, illustrated by numerous quotations from past church leaders. Although critics have faulted the encyclical for many things, its language is too general and enough caveats are thrown in that such attacks seem overdone. The real problem is that, other than love each other and live more simply, it is difficult to know what Pope Francis would have us do differently.

The Pope is surely correct to point out the many instances where short-term profit for a few has produced environmental pollution whose cost is borne by the many. His criticism of materialism, defined as the love of things rather than people or values, also rings true. There is

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medicalworker

TPP Poised to Improve, Not Diminish, Health Outcomes Across Asia-Pacific Nations

In a not-so-shocking revelation last week, a leaked draft of the Trans-Pacific Partnership (TPP) intellectual property (IP) chapter turned up the fact that…surprise…the United States is fighting for its domestic industries in a trade agreement.

No real news there, especially since that’s exactly what our trade representatives should be doing, namely bringing home the strongest possible deal that protects and creates jobs and fosters the kind of innovation that will secure 21st century prosperity for Americans. What is extremely disconcerting, however, is that special interest groups and the generic drug industry are lobbying for drastic cuts to intellectual property protections for innovative medicines that could have lasting consequences for both global patient health as well as U.S. jobs and economic competitiveness.

These groups are (wrongly) asserting that the IP provisions being negotiated in the TPP will weaken competition from generics and raise drug prices by establishing protections that go beyond U.S. law. But, as usually happens, groups that oppose free trade agreements never let minor inconveniences like facts get in the way of their arguments.

For instance, it’s telling when the head of one of the world’s largest generic

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Dancing in the Streets

They’re Dancing in the Streets in Beijing and Berlin

Congressional authorization of the U.S. Export-Import Bank (Ex-Im Bank) is set to expire this evening, ending 81 years of continual and effective operation in the service of American exporters. The Bank has played a critical role in supporting the competitiveness of America’s traded-sector enterprises—that is, those competing in global markets—by stepping in to provide financing or insurance for export transactions that might not otherwise occur and by leveling the playing field for U.S. exporters by matching the credit support that other nations provide for export transactions.

Yet while some in Congress are pleased that they’ve “beat back the scourge of crony capitalism,” those who are truly giddy with delight are to be found in the capitals of the more than 80 countries that operate export credit agencies (ECAs)—from Beijing, to Berlin, to Brussels—and at the headquarters of businesses both small and large in such countries. That’s because, much to the chagrin of those in Washington who insist on not recognizing that America’s traded-sector enterprises are locked in fierce competition with foreign businesses spanning the globe, the ECAs of America’s competitors aren’t going to close up shop overnight in solidarity with

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transportation

DRIVE Act Drives in Right Direction; Yet Intelligent Transportation Systems Still Underfunded

The U.S. Senate Environment and Public Works Committee introduced a new bipartisan surface transportation reauthorization bill this week: the Developing a Reliable and Innovative Vision for the Economy (DRIVE) Act. And as ITIF called for in a May 2015 report, From Concrete to Chips: Bringing the Surface Transportation Reauthorization Act Into the Digital Age, the six-year reauthorization proposal does place increased policy emphasis on intelligent transportation systems (ITS)—particularly through a ground-breaking “Transportation Innovation” title which includes numerous provisions incentivizing the use of innovative transportation technologies.

That said, and despite this progress, the proposed bill continues to significantly underfund ITS research, development, and deployment over the next six-year period. This despite the fact that intelligent transportation systems—the application of information and communications technologies (ICTs) to bring actionable, real-time intelligence to every actor and asset in a transportation network—have a cost-benefit ratio at least 9 to 1 over investments in traditional highway infrastructure.

With regard to research and development (R&D), the DRIVE Act keeps ITS research funding constant at $100 million annually. While the Act does provide an additional $72.5 million annually for the University Transportation Centers (UTC) program to fund

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Pharmaceutical Investment Saves Lives: Innovation in Cancer Treatments Well Worth the Cost

A new NBER paper from Columbia University economist Frank Lichtenberg examines how pharmaceutical innovation correlates to fewer deaths among people with certain types of cancers. Fewer cancer patients died before the age of 75 if their particular type of cancer had experienced more medical innovation.

The basic message here is intuitive—new drugs and treatments save lives—but Lichtenberg does a good job of breaking down the costs and benefits. He estimates that medical innovation saved more than 100,000 years of aggregate life in Canada alone, at a cost of $2,730 per year based on the total spending for drugs to treat those forms of cancer.

Unfortunately, Lichtenberg does not factor in R&D costs for the discovery and development of these drugs. He does estimate the cost if the drugs had been brand name (versus the generics they are assumed to be), which comes out to $11,000. This is still significantly below estimates for the value of a year of life, and it is possible to assume that prices would be set by private companies high enough to recoup their research investments. This leaves only the question of public investments in R&D;

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highgrowth

High-Growth Entrepreneurship for Development: Report of a Roundtable with Michael Dell

Policymakers around the world have increasingly come to realize that entrepreneurship, particularly high-growth entrepreneurship (HGE), is critical for economic development in nations at all levels of development. That is one reason the United Nations Foundation asked Michael Dell, founder and CEO of Dell Inc., to be the Global Advocate for Entrepreneurship and to work closely with the Foundation and its Global Entrepreneurs Council to help shape and advance a global entrepreneurship agenda.

To inform the Council’s thinking, Michael Dell led a meeting in Washington, DC, on December 2, 2014, hosted by 1776, a cutting-edge “accelerator” to help technology-based entrepreneurs translate their ideas into growing businesses. The meeting participants included tech-based entrepreneurs and policymakers, and I was asked to participate and serve as rapporteur.

Michael Dell opened up the roundtable with a discussion of proposed policy mechanisms to spur high growth entrepreneurship, including ensuring access to capital, technology, talent, and markets. The following is a summary of the themes and recommendations from the discussion.

The Nature of Technology-Enabled Entrepreneurship Opportunities

Policymakers around the world are interested in HGE because they understand that technology opportunities driving this type of entrepreneurship have exploded.

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plane

Latest Data Lend Urgency to Need for Ex-Im Bank Reauthorization

With Congress in the midst of considering legislation to reauthorize the U.S. Export-Import (Ex-Im) Bank—its current authorization expires and thus must be extended by June 30, 2015—comes fresh evidence reiterating the vital need for the Bank in providing export credit finance support for America’s exporters. On Friday, June 12 the Bank released its annual Report to the U.S. Congress on Global Export Credit and Competition, which once again demonstrates the emphasis America’s leading competitors place on providing export credit support for their traded-sector enterprises and underlines the risks if Congress does not reauthorize the Bank with alacrity.

As the chart below illustrates, as a share of GDP in particular, a number of countries significantly out-invested the United States in new medium- and long-term export credit assistance in 2014. In fact, as a share of its economy, China invested eight times as much in export credit assistance than the United States did in 2014, while Germany invested six times as much, and France and Italy almost five times as much. In fact, of 10 nations assessed for their 2014 export credit volumes, the United States ranked ninth in export credit

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whitehouseblog

What Presidential Candidates Should Stand For on Tech and the Economy

As of this week, there are 16 declared candidates in the 2016 presidential sweepstakes, with at least five more waiting in the wings. This makes for a rich cacophony of themes, messages, and policy proposals. But at the end of the day, this campaign really should be about one thing above all else—how to make the U.S. economy truly flourish again. Most people would agree we need an economy that is marked by expanding opportunities, rapidly rising wages, lower unemployment, and a broad-based sense of optimism about America’s fortunes. The question is: How can we create those conditions?

The Information Technology and Innovation Foundation has offered a series of concrete recommendations in an open strategy memo and suggested campaign speech that we invite all candidates to borrow from freely. They detail a comprehensive policy program to grow the U.S. economy by invigorating enterprises through greater innovation, productivity, and competitiveness.

This enterprise-centric approach would constitute a wholesale reimagining of both conservative supply-side and liberal demand-side economic doctrines, yet partisans in both camps will find proposals they can embrace unreservedly. Among other things, the right will welcome initiatives to streamline regulations

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