Race to Innovate
Competitiveness, Manufacturing, and Trade Policy Analysis
We are in a world where Republican budgets cut government and taxes—including government spending that is truly investment—and where Democratic budgets increase spending and taxes— including taxes on corporations that compete globally. And so it should be no surprise that the President’s budget mostly conformed to this pattern.
To be sure, there are many things to like in the President’s Fiscal Year 2015 Budget. On the positive side of the ledger is the budget’s call for a slate of programs designed to boost U.S. advanced manufacturing and industrial competitiveness—such as the Administration’s call for $1 billion to create a National Network for Manufacturing Innovation (NNMI) comprised of 45 Institutes of Manufacturing Innovation that are poised to play a key role in revitalizing U.S. manufacturing. The President’s budget also calls for $1.5 billion in funding for the National Nanotechnology Initiative (NNI), $5.1 billion for the Office of Science at the Department of Energy (DOE), and $3.8 billion for the Networking and Information Technology Research and Development (NITRD) program, which plays an important role in keeping the United States at the leading-edge of advanced research into high-performance computing and cybersecurity. It … Read the rest
The Bureau of Labor Statistics (BLS) is considering cutting more of its data reports, this time weighing the elimination of Import-Export Pricing Data. Far from saving tax-payers money, the potential cut will hobble the ability for both our government and our exporters to have the information they need to innovate and compete in a changing global marketplace.
The BLS’s Import-Export Pricing is a valuable part of its Price and Cost of Living report. The report collects data on goods entering and exiting the country and the prices of those goods by polling U.S. companies. The data gives producers vital information on trends in world prices and provides the public with information on U.S. inflation, economic output, and the overall well-being and competitiveness of American business.
Unfortunately, eliminating Import-Export Pricing is not an isolated example of the government’s growing information crisis. Across the board, budget cuts and sequestration has severely reduced efforts by the BLS, the Bureau of Economic Analysis, the National Science Foundation, the Department of Labor, and the Department of Commerce to produce timely and high-quality data to assess traded sector competitiveness. The BLS has already eliminated its … Read the rest
A Paul Krugman op-ed in The New York Times today, “No Big Deal,” incorrectly argues that completing a trans-pacific trade pact would be of little consequence to the U.S. economy. Rather, successfully concluding The Trans-Pacific Partnership (TPP), which includes 12 Asia-Pacific region countries—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States—is vitally important to the U.S. economy and to future global economic integration, as ITIF argues in Concluding a High-Standard, Innovation-Maximizing TPP Agreement.
Krugman argues that the “glory days” of trade deals are over, in part because previous trade pacts significantly reduced many countries’ tariff levels, such that “there just isn’t much more protectionism to eliminate.”
Unfortunately this line of thinking fails to acknowledge the pernicious and growing impact of NON-TARIFF barriers (NTBs) on innovation industries. These barriers include a range of unfair and distortionary practices, such as inadequate intellectual protections on foreign intellectual property (IP), restrictions on trade in services, barriers to digital trade and cross-border data flows, currency and standards manipulation, and localization barriers to trade—policies that mandate local production or the transfer of technology or intellectual property … Read the rest
In 2012, ITIF’s report Leadership in Decline: Assessing U.S. International Competitiveness in Biomedical Research—which National Institutes of Health Director Francis Collins told the New York Times last July was the one publication he’d most recommend President Barack Obama read—warned that the United States has not been sustaining the historically strong investments in biomedical research that previously propelled it to global life sciences leadership. The report noted that an increasing number of countries are investing more in biomedical research as a share of their economy than the United States. For example, in terms of government funding for pharmaceutical industry-performed research, Korea’s government provides seven times more funding as a share of GDP than does the U.S., while Singapore and Taiwan provide five and three times as much, respectively.
Now comes a new report, Asia’s Ascent—Global Trends in Biomedical R&D Expenditures, from The New England Journal of Medicine confirming these findings. As summarized by a recent Economist article, Biomedical research budgets: The party’s over, the report finds that, from 2007 to 2012, average annual investment in biomedical R&D increased by 33 percent in China, 12 percent in South Korea, … Read the rest
In an op-ed for the Washington Post this past Sunday, Charles Kenny writes that America is No. 2! And that’s great news, referring to the day soon to come when China’s GDP surpasses that of the United States. Kenny writes that this is an eventuality that should not distress Americans, because “losing the title of largest economy doesn’t really matter much to Americans’ quality of life,” particularly because it is America’s superior per-capita GDP that matters more than aggregate GDP, and so “living in an America that ranks second in GDP to China will still be far, far better than living in China.” While certainly Kenny is correct that average per-capita GDP is the proper measuring stick, there are actually a number of compelling reasons why China’s impending eclipse of U.S. GDP will not be the sanguine moment Kenny characterizes it as.
First, the United States has held its position as the world’s largest economy since surpassing Britain for that distinction in 1871; that the United States should be losing that position in 2016 or 2017 is not preordained. Many argue that China’s immense population of 1.36 billion people, … Read the rest
In an otherwise quite nice report from the Government Accounting Office (GAO) called Global Manufacturing: Foreign Government Programs Differ in Some Key Respects from those in the United States, the authors discuss the efforts of countries including Canada, Germany, Japan, South Korea, and the United States to support manufacturing, in part through the development of regional high-tech clusters. Yet the report’s authors argue that “the effectiveness of cluster policy has not been established; the formation of successful clusters in the United States, such as California’s Silicon Valley, suggests that government support for clusters may not be necessary.”
Unfortunately, here the GAO authors are echoing the point of view of individuals such as Michael Arrington, who believes that the Best Way to Fix Silicon Valley is to Leave it Alone. But as Robert Atkinson convincingly argues in Divorce Washington at Your Peril, Silicon Valley—as will a forthcoming MIT-ITIF report, Federally Supported Innovations: 22 Examples of Major Technology Advances that Stem from Federal Research Support (February 2014)—government support has actually played a fundamental underlying role in the development of Silicon Valley (as it has in the development of other … Read the rest
Innovation in the nascent multipolar world
Global innovation is shifting toward Asia and China – faster than anticipated.
In 2012, the share of the emerging economies in the rivalry for foreign direct investment (FDI) exceeded that of the advanced economies, for the first time. At the same time, the United States, through still by far the largest recipient of such inflows, has been steadily losing ground to emerging economies.
The United States has failed to live up to its promise in the innovation game in the past decade, as evidenced by recent data on R&D expenditures.
R&D investments stagnate in the advanced world
Innovation is often measured by input indicators, such as research and development (R&D), and output indicators, such as patents. While patents tend to tell us more about past glory, R&D may be more reflective of current and future trends.
Today, international R&D rivalry is no longer driven by the U.S., Europe or Japan, but Asia and particularly China.
According to current estimates, growth in global R&D funding slowed in 2013 in comparison to 2011-2012. Mimicking the global FDI trends, the slowdown can be attributed primarily to … Read the rest
Economist, venture capitalist, and co-founder of the Institute for New Economic Thinking Dr. William Janeway stopped by ITIF this week for a discussion about his new book, Doing Capitalism in an Innovation Economy. Dr. Janeway presented a compelling view of the economy and touched on a number of important issues along the way.
Janeway explained that the government plays a critical role in innovation by providing research funding through institutions such as DARPA and the NIH, by leveraging the buying power of the federal coffers, and by creating policies that encourage business investment in R&D. Economists have long understood that private markets fail to allocate adequate resources to innovation and research: the benefits are too hard for individual corporations to capture. For this reason, policies like the R&D tax credit and public investment in basic research have long been uncontroversial.
Contrary to what recent high-profile failures like Solyndra might lead people to believe, government policies to spur innovation in the United States have had great success. This is apparent in the vast amount of money the private sector has poured into IT and Biotech businesses based on initial … Read the rest
On Tuesday, December 10, Senators John Thune (R-SD) and Ron Wyden (D-OR) introduced The Digital Trade Act of 2013, legislation that would protect the Internet from restrictive measures that obstruct the free flow of data in the global economy. The Act establishes negotiating principles designed to guide U.S. negotiators in addressing key digital trade issues in future bilateral and multilateral agreements and in multi-stakeholder settings. Key principles include: preventing or eliminating restrictions on cross-border data flows, prohibiting localization requirements for data and computing infrastructure, ensuring that provisions affecting platform Internet sites are consistent with U.S. law, and recommitting to a multi-stakeholder model of Internet governance.
Affirming these principles protecting digital trade is vitally important because information and communications technologies have become the modern global economy’s principal driver of growth. For example, a March 2013 study by Finland’s Ministry of Employment and Economy estimates that, by 2025, half of all value in the global economy will be created digitally. Similarly, the McKinsey Global Institute estimates that the Internet alone accounted for 21 percent of aggregate GDP growth between 2007 and 2011 across 13 of the world’s largest economies. Digitally enabled … Read the rest
As final negotiations begin for the Trans Pacific Partnership (TPP) trade pact, it is essential that U.S. representatives understand the impact this agreement will have on our future. The TPP presents an opportunity to set the standard for future trade agreements, but implementing the wrong policies could do more harm than good.
Any TPP agreement must enable U.S. innovation and not finalizing an agreement is better than signing one that compromises America’s ability to create technologies and make advancements that benefit society. A key factor in protecting innovation through the TPP will be the assurance of strong intellectual property (IP) rights protections that promote investments in R&D and technology development and insure the free flow of information across borders.
As ITIF has noted, IP is a central component of the innovation ecosystem, which is a key factor in a healthy economy, in both developed and developing nations. For example, strengthening IP rights has been connected with increased inflows of foreign direct investment, rates of domestic innovation, and trade in high technology products.