Race to Innovate
Competitiveness, Manufacturing, and Trade Policy Analysis
It is now become accepted wisdom in economic circles that America is enjoying a manufacturing renaissance. As the general theme goes: American companies are no longer offshoring factories; foreign companies are building new factories here; cheap energy is allowing manufacturers in the United States to expand; and groups like the Boston Consulting Group are telling everyone not to worry, manufacturing will rebound. Wish that it were so. Unfortunately, reality appears to be more troubling
If a manufacturing resurgence was truly occurring we would see it in an expanded number of factories. In fact, according the U.S. Bureau of Labor Statistics (BLS) there are fewer U.S. factories today than there were two years ago. Moreover, the BLS’ Business Employment Dynamics survey indicates that net new manufacturing establishment openings (openings minus closings) has been negative every year since 1999. In 2012 alone, 3,000 more manufacturing establishments closed then opened. This is not to mention the fact that manufactures in America face one of the highest effective corporate tax rates in the world, while the federal government doesn’t support pre-competitive manufacturing research centers like our competitor nations (e.g. Germany, Japan, etc…)
Since after the Great Recession Congress has put in place temporary bonus depreciation for new capital investment. Given the current state of the economy, already high levels of corporate taxation, and the need for additional investment, Congress should renew bonus depreciation for at least another year.
As ITIF recently wrote, American companies already face the highest statutory tax rates in the developed world. Their effective tax rates also tend to be high, partially because they are taxed on their worldwide income. Bonus depreciation, which temporarily allows companies to deduct equipment purchases faster than they otherwise could, partially offsets this. But the current provision expired at the end of last year.
Faster depreciation reduces the economic cost of new equipment, thereby spurring more investment. It does not reduce the total taxes paid by a company, but it does delay them. The benefit to companies exceeds the cost to the government because the latter can borrow at much lower rates. Higher investment also benefits the broader economy by increasing productivity and creating jobs.
Bonus depreciation also helps align tax liability with actual profits. Accounting methods require companies to write off equipment … Read the rest
The Economic Benefits of Life Science Innovation
We often hear from advocates of weak intellectual property regimes for medicines that they are needed to increase access. Weakening incentives to innovate, however, will have serious repercussions on our future health and economic outcomes. A recent study on Sweden provides a unique opportunity to see what the world would look like if pharmaceutical and biotech innovation had suddenly stopped for 13 years, which is what is likely if IP protections were taken away.
The recent study by Lichtenburg and Pettersson attempted to measure the impact of new drugs on life expectancy in Sweden. Aggregate level data was collected on drugs released since 1997 and changes in mortality rates for various diseases. Using differences-in-differences methodology, the authors calculate an estimate of what health results in the country would look like if doctors and hospitals were constrained to only using medicines and technology created before 1997.
Between 1997 and 2010, the average age of death in Sweden rose by 1.88 years. The authors estimate that pharmaceutical innovation is responsible for 5.6 months of this increase. Moreover, the study estimates that if no new … Read the rest
The Potentially Deleterious Impacts of the President’s FY 2015 Budget on U.S. Life Sciences Industries
As ITIF notes in The President’s FY 2015 Budget Underinvests in U.S. Competitiveness and Innovation, while there are many things to like in the President’s Fiscal Year 2015 Budget, it still does not do enough to invest in innovation or to propose reforms to policies that hinder the competitiveness of key U.S. innovation industries. We see this particularly with regard to three issues impacting U.S. life sciences industries: flat funding for biomedical research at the National Institutes of Health (NIH), the budget’s call to provide only seven years of data exclusivity protection for novel biologic medicines, and the budget’s failure to repeal the self-destructive medical device tax that is contributing to the decimation of the U.S. medical device industry.
First, the FY 2015 budget proposes just $30.2 billion in funding for the National Institutes of Health, which actually represents a 3.6 percent decline over the Administration’s FY 2014 request. This would exacerbate a growing divide in critical investments in biomedical research between the United States and our global competitors. As a recent report from The New England Journal of Medicine, Asia’s Ascent—Global Trends in Biomedical R&D Expenditures… Read the rest
A few days ago, Marvin Ammori published a piece on Slate titled, “Hollywood’s Copyright Lobbyists Are Like Exes Who Won’t Give Up”, in reference to the House Judiciary Subcommittee on Courts, Intellectual Property and the Internet holding a hearing regarding the Digital Millennium Copyright Act (DMCA) notice and takedown system. In it, he alleges that the hearing’s existence, created to discuss the potential of voluntary initiatives among copyright stakeholders, is proof of a conspiratorial secret resurgence of the Stop Online Piracy Act (SOPA).
Ignoring the ludicrous nature of this claim — does every hearing that every committee holds in the entirety of the U.S. Congress have some secret ulterior purpose now? — his argument is demonstrably false. Let’s start with the facts: the DMCA notice and takedown system is the process by which content creators notify service providers that they are illegally distributing content. In exchange for working collaboratively with rights holders, service providers receive a “safe harbor” from prosecution. The House Judiciary subcommittee hearing tomorrow is an opportunity to discuss voluntary initiatives among stakeholders to curb piracy, not a chance to propose new legislation (and in case anyone … Read the rest
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