Race to Innovate
Competitiveness, Manufacturing, and Trade Policy Analysis
While America’s manufacturing sector has rebounded somewhat from Great Recession lows—for example, adding 865,000 manufacturing jobs since February 2010—the recovery languishes, and even those job gains recover less than one-sixth of the U.S. manufacturing jobs lost during the 2000s. Moreover, the U.S. manufacturing sector has seen no growth in real value added since the end of the Recession. In fact, in 2013, U.S. manufacturing value added remained 3.2 percent below 2007 levels.
Put simply, America’s manufacturing sector continues to underperform its potential, meaning that America’s policymakers need to be leveraging every tool and instrument at their disposal to bolster the health of America’s manufacturing economy. And here, a key component of the strategy for accelerating America’s manufacturing recovery should include better empowering regional- and community-based manufacturing ecosystems.
That’s exactly what new, bipartisan legislation in the Made In America Manufacturing Communities Act, unveiled on Tuesday, February 9, 2016, sets out to accomplish. Sponsored by Senators Kirsten Gillibrand (D-NY), Mark Kirk (R-IL), and Jerry Moran (R-KS) along with Representatives David Cicilline (D-NY), Richard Hanna (R-NY), John Katko (R-NY), Tom Reed (R-NY), and Tim Ryan (D-OH), the legislation supports local manufacturing ecosystems
Innovation Fact of the Week: Commercial Value of Illegally Installed PC Software Totaled Nearly $63B Globally in 2013
(Ed Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
The global market for PC software is huge, but 43 percent of all PC programs that individuals and businesses installed in 2013 were not properly licensed, according to the BSA Global Software Survey. The commercial value of those illegal installations was $62.7 billion that year, up from $47.8 billion in 2007 when the illegal rate was 38 percent.
The United States has the world’s lowest rate of unlicensed software use (18 percent in 2013), but it is such a large market that the commercial value of those illegal installations is the world’s highest at $9.7 billion. In China, by contrast, 77 percent of all PC software installations were illegal in 2013, with a commercial value of $8.9 billion, the world’s second-highest total.
By region, the average rate of unlicensed software use was 59 percent or higher in Latin America, Central and Eastern Europe, the Middle East and Africa, and the Asia-Pacific region. That compared to 19 percent in North America and 29 percent
Innovation Fact of the Week: US Leads World in Period of Data Exclusivity For Biologic Medicine Innovators
(Editor’s Note: ITIF features an “Innovation Fact of the Week” in each edition of its weekly email newsletter and on Innovation Files.)
In addition to awarding patents to creators of novel biologic medicines, countries also mandate varying periods of intellectual property protection for the clinical test data on the drugs. This “data exclusivity,” as it is commonly known, helps ensure that creators of biologic medicines have sole rights for a certain period to all of the underlying IP necessary to make and market the drugs. Once the patent on the original compound expires, other manufacturers are free to produce similar drugs—and they are free to generate their own clinical trial data in the process—but, until the period of data exclusivity expires, they cannot use the original patent holder’s clinical trial data to prove the safety and efficacy of their new “biosimilar.”
This additional period of data exclusivity is important because it makes the economics of drug development work. It gives the innovator more time to market the drug and recoup the costs of developing it, which today can approach $3 billion for innovative biologics. The United States offers 12 full
President Obama’s final State of the Union address serves both as a marker for his last year in office and as a reference point (and foil) for candidates on both sides of the 2016 presidential race. So the State of the Union speech that ITIF would hope to hear the president deliver and the campaign stump speech we would hope to hear his would-be successors deliver are one and the same.
Last June, ITIF sent an open memo to all presidential candidates outlining exactly what we would dearly love to hear someone say. Written in speech form, the memo provides a detailed policy agenda to foster innovation, boost productivity, and make the United States more competitive in the global economy.
In the campaign debates that have ensued, several candidates have touched on issues that ITIF highlighted—from reforming the corporate tax code to bolstering STEM education—but none have yet embraced the fundamental precepts of our agenda, so we continue to hope.
On the eve of the State of the Union address, here again is our policy wish list:
A recent proposal by two noted tax experts—“Shifting the Burden of Taxation from the Corporate to the Individual Level and Getting the Corporate Tax Rate Down to 15 Percent” by Harry Grubert of the Office of Tax Analysis in the Department of the Treasury and Rosanne Altshuler of Rutgers University—promises to lower the federal corporate tax rate to 15 percent. Much of the revenue loss would be made up by eliminating lower individual taxes on capital gains and dividends. The proposal solves many of the political problems plaguing corporate tax reform and deserves serious consideration.
There is wide agreement that the U.S. corporate tax laws need broad reform. Over the past decade or so, nations have become increasingly aggressive in competing for the business tax base generated by multinational companies and fast-growing start-ups. This competition includes lowering statutory tax rates, and providing incentives for investment through policies like innovation boxes and research credits. As a result, the U.S. tax rate of 35 percent is now the highest statutory rate among Organization for Economic Cooperation and Development countries, in many cases 20 percentage points higher than U.S. competitors. These rates strongly
Innovation drives economic growth. But what fuels innovation? At the heart of it, research and development (R&D) activities allow scientists and researchers to develop new knowledge, techniques, and technologies. As technology changes, people can produce more with either the same amount or fewer resources, thereby increasing productivity. As productivity grows, so does the economy.
A recent study by Begun Erdil Sahin adds to the already wide breadth of economic literature that affirms this notion—investing in R&D increases economic growth. From a sample of 15 Organization for Economic Cooperation and Development (OECD) countries, including the United States, she estimates that a 1 percent increase in R&D spending could grow the economy by 0.61 percent. This means that as countries invest more in R&D, their economy will grow faster.
Significant interest in understanding how innovation impacts the economy started to gather in economics during the 1980s. Prior to this, the general consensus in economics was that innovation just “happened” and improved the economy through technological change—basically, government policy had little impact on long-term economic growth.
However, some economists started to realize that innovation could be shaped by public policy and that as
As ITIF has long argued, China pursues an autarkic, indigenous economic growth and innovation development strategy, particularly with regard to high-tech products. For example, in the semiconductor sector, China has launched a $100 billion National IC (integrated circuits) Industry Development plan designed to significantly increase domestic IC production and to reduce China’s imports of semiconductors—by half in 10 years and entirely in 20 years. To justify its mercantilist industrial development policies China claims hardship: we import too many semiconductors. This argument has been broached again recently given the potential merger between two semiconductor companies, one of which, Western Digital, has a major Chinese stockholder. This simplistic analysis needs to be called out for what it is—false—and a façade for a policy which breaches rules China agreed to when joining the WTO.
One reason China has tried to give for its aggressive and mercantilist IC industry development plan is that it runs a “large” trade deficit in semiconductors—$232 billion in 2013—which supposedly justifies efforts to replace foreign imports with domestic production, but this rationale is wrong on several levels. First, this simplistic narrative fails to account for the fact that
At a time of considerable uncertainty about the future of transatlantic digital commerce, one Europe’s top officials for such issues, Gϋnther Oettinger, visited the United States last week and did little to dispel concerns that the EU’s Digital Single Market (DSM) may raise new barriers for U.S. companies. Of particular concern for many in the United States is vague language in the DSM that appears to be designed for protectionist purposes. As one of the strategy’s chief architects, Oettinger would have been uniquely well-positioned to offer needed clarification. He didn’t.
The growing list of political, legal, and regulatory cases involving top American technology companies prompted U.S. President Barack Obama earlier this year to call out Europe for protecting domestic competitors. More generally, it has raised serious concerns about the direction that Europe’s regulatory environment is heading as it proceeds through multiple policy initiatives in parallel—the Digital Single Market, the General Data Protection Review, a revision of the U.S.-Europe Safe Harbor Framework, and the Trans-Atlantic Trade and Investment Partnership. Any one of these on its own would be a major issue for the transatlantic trade relationship, but taken together, they
The House Energy and Commerce Committee is holding a hearing this week on “How the Sharing Economy Creates Jobs, Benefits Consumers and Raises Policy Questions.” These new Internet marketplace platforms are raising many new policy questions about U.S. labor law and competition.
A large part of the problem is that U.S. labor law remains guided by the National Labor Relations Act of 1935. A lot has changed since then. In 1935 the United States faced little international competition. The economy was dominated by large, stable companies that hired a lot of people. Many workers anticipated staying with their current employer for decades. Coincidentally, these traits also favor unionization.
Today’s global economy is characterized by international competition that we are losing in some respects. Companies are slashing fixed costs to avoid the very real threat of bankruptcy or acquisition. They can no longer make long-term commitments to their workers, who, in any case, anticipate working for many companies during their career. Labor law has strained to accommodate this.
Into this mix comes the rise of the Internet platforms that make up the sharing economy. Platforms such as Uber and
After almost 15 years in the World Trade Organization (WTO), China has still failed to follow through on many of the trade-liberalizing commitments it made in order to convince free trade-oriented nations to approve its membership in 2001. These broken promises have harmed the global trading system as well as both economic growth and the health of innovative industries across the United States and Europe. Here are nine commitments China made, but never lived up to:
- Refraining from requiring technology transfer as a condition of market access
Although its WTO accession agreement included rules forbidding China from tying foreign direct investment or market access to technology-transfer requirements, it remains commonplace for China to compel firms to hand over their technology in exchange for the privilege of investing, operating, or selling in China.
- Significantly reducing intellectual property (IP) theft and violations
Joining the WTO required China to recognize the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides protections for patents, copyrights, trademarks, service marks, industrial designs, digital content, and other intangible property. Unfortunately, Chinese IP theft grows unabated. The IP Commission Report on the Theft of U.S. Intellectual