It’s encouraging to see more organizations raising the profile on this important issue. ITIF has been monitoring India’s trade practices for some time now. In March, we submitted testimony to the U.S. House of Representatives’ Hearing on U.S.-India Trade Relations and last month we hosted a media teleconference during which ITIF called on the U.S. government to take a harder stance with India regarding protections for foreign intellectual property rights holders. We have also commented on India’s inclusion in the US Trade Representative Office’s 2013 Special 301 Report, noting that countries appearing on the report should lose their privileges to enjoy participation in the Generalized Systems of Preferences and to receive Millennium Challenge Grants.

India enjoys a tremendous opportunity to invest in its future and grow its economy, but lax intellectual property policies are standing in its own way. Unfortunately, when intellectual property rights are not protected, it has a chilling effect on both rates of domestic innovation and on foreign direct investment into India’s economy. As the letter to President Obama notes, such policies “are counterproductive to India’s stated goals to attract capital and to develop its own innovative economy.” And indeed, they are one reason why foreign direct investment in India, which reached a record $47 billion in FY 2011, had fallen by 67 percent in the following year (through September 2012). Not only would strengthening intellectual property protections improve India’s standing in the world economy, it would represent a long-term win for India by encouraging the domestic innovation and technological development necessary to take the nation from a regional power to a world power and a major market for American-made goods and services.

Both India and the United States deserve to enjoy robust innovation-based economic growth; and there’s no reason that the success of one needs to come at the expense of the other. As ITIF has documented extensively, good innovation policies can promote win-win economic growth, but only if countries pursue policies that promote open, market-based competition. A strong U.S.-India trade relationship is in both parties’ best interests, and to that end ITIF endorses the call for the U.S. government to immediately initiate bilateral engagement with the highest levels of the Indian government to address these issues.

Despite this success Singapore has long been criticized for growing its economy through capital investment (“increasing inputs”) instead of productivity growth. Capital investment increases output per worker, but only by sacrificing consumption spending. Paul Krugman was a vocal critic in a 1994 article on Singapore and other Asian Tigers:

Mere increases in inputs, without an increase in the efficiency with which those inputs are used–investing in more machinery and infrastructure–must run into diminishing returns; input-driven growth is inevitably limited.

Singapore’s leadership vehemently opposed Krugman’s prediction of slowdown at the time, which was a wise thing, as history has shown that he clearly missed some important factors in his analysis. Furthermore, is easy to understand the government’s chagrin as they had launched numerous initiatives in the 1980s intended to increase productivity: with the blessing of Lee Kuan Yew, Singapore’s National Productivity Council ran a 10+ year “Productivity Movement” program that worked with government agencies, businesses, workers, unions, and educational institutions. Singapore also worked with JICA and the Japan Productivity Center to provide training and technical knowledge. (In the 1980s, as the Yen appreciated and Japanese labor became less competitive, Japan began to offshore much of their production to parts of Southeast Asia. They were thus happy to help Singapore upgrade their productivity.)

Although Singapore’s push for productivity exited center stage during the 1990s and 2000s, it has reemerged recently (perhaps thanks to peaking savings rates) as a pillar of their competitiveness strategy. Singapore’s current initiative is under the heading of the National Productivity and Continuing Education Council, or NPCEC.

The NPCEC continues the Singapore government’s push for productivity growth through a range of activities. The council, comprised of six government ministry heads, four union leaders, and eight business leaders, oversees a working committee in charge of sector-based groups. The groups are focused on economic sectors where productivity improvement is a high priority, and have launched programs to increase worker skill and technology adoption, to lower production costs, and to encourage restructuring in some industries. The bulk of the funding so far has gone toward construction, transportation, and services, as well as some toward manufacturing. (a good official summary is available here)

The program also has a number of initiatives that cut across sectors. The NPCEC has launched a web portal that provides information for employers and workers called “Way to Go, Singapore!”, which provides a search for productivity consultants and information on productivity-related grant programs for businesses. NPCEC has also attempted to increase educational opportunities for working adults by streamlining technical skills training courses and providing new training courses specifically for low-wage workers.

Singapore’s plan for productivity growth, true to its state-capitalist model, relies heavily on state action. In contrast, in the United States today we typically see productivity improvement as the job of the market—particularly the incremental kaizen-style progress that Singapore is focused on. (There is somewhat more recognition that government can help with big breakthroughs and increasing education.) However, as anyone who has worked on a factory floor can attest, mindset is a key component of improving productivity, and in that sense Singapore’s outreach programs may be quite helpful.  Moreover, there are a host of market failures that get in the way of faster productivity growth, ranging from atomistic industry structures that don’t invest in productivity (e.g., construction); externalities from investing in new machinery and equipment; and market failures around establishing new tech platforms (e.g., such as health IT, digital signatures, etc).

It is also wise for those of us with strong market tendencies not to forget our own past. While not in exactly the same style as Singapore, the United States was itself a long way from passively trusting innovation to the market for much of its own history. The USA also has some of its own productivity-focused institutions, such as NIST’s Manufacturing Extension Partnership and DOA’s Agricultural Extension Service, as well as many at the state and local level.  In short, while we won’t and shouldn’t adopt the Singapore model whole hog, America would we well advised to develop its own national productivity strategy (the topic of a future ITIF report).

(Photo credit Sarah Depper)

But another theme of the event was the seeming unfairness of a situation where domestic multinationals like Apple are not required to pay the full 35 percent tax on their foreign earnings. Despite the fact that we are one of the only nations with a worldwide system of taxation (that requires U.S. multinationals to pay US taxes on foreign earnings when they bring them home), this notion is actually wrong. It is actually in the interest of non-multinational U.S. firms for multinationals to pay less in taxes. Here’s why.

U.S. economic politics is often framed as a clash between “Main Street” and big multinational corporations, with the former salt-of-the earth hard working mom and pop owners and the latter controlled by profit-hungry greedy tycoons. But this framing misses the point that what will determine whether America thrives in the global economy is not whether Fred’s clothing shop on Main Street sells more pants. It is whether companies like Apple that export goods and services and compete in tough international markets do well.

Defenders of Main Street will, of course, argue otherwise. “How can you say that corporations, and not small Main Street businesses, are the engines of growth?” they will protest. “We all know that Main Street creates the jobs, produces the innovations, and drives the growth.” We may think we know this but what we think we know is wrong.

Let’s start with the claim that Main Street is the source of jobs. To understand why the jobs claim is wrong, it’s important to understand the difference between what regional economists refer to as local-serving and export-serving businesses. Consider if Apple were to go out of business because one of its main competitors, Samsung, pays lower taxes than it does (assuming that the U.S. ends foreign tax deferral). The closed facility would mean that Apple workers and suppliers would have less money to spend, and the local restaurants, dry cleaners, clothing stores, and barber shops in Silicon Valley would lose a significant amount of business. In contrast, if one of these local-serving “Main Street” businesses had gone out of business, it would have had no effect on the output of Apple; moreover, another business would more or less automatically expand or emerge to meet local demand.

The reality is that the majority of U.S. businesses are local-serving. These include, for example, the 219,986 doctors’ offices, 166,366 auto repair facilities, 151,031 food and beverage stores, 115,533 gas stations, 111,028 offices of real estate agents and brokers, 93,121 landscaping companies, 75,606 nursing homes, 36,246 furniture stores, 28,336 veterinary offices, 15,666 travel agencies, 4,571 bowling alleys, 2,463 amusement arcades, 858 radio networks, and 26 commuter rail systems. These and millions of other local-serving businesses will neither prosper nor suffer principally on the basis of economic policies targeted at them. Providing them easier credit, cutting their taxes, giving them subsidies, exempting them from regulations, or any of the myriad “remedies” offered by Main Street backers are largely irrelevant to their collective survival (although perhaps not to their owners’ income) and to U.S. economic vitality. What is relevant is the strength of the demand for their goods and services. Let’s say that the government decided to help these Main Street businesses by saying that they could pay taxes at a rate of 10 percent instead of 35 percent. No new jobs would be created because the same number of people would need haircuts and pants. It would even be the same if the government provided them with low-cost loans. If we want to help Main Street create jobs, the best way to do so is to help U.S. companies competing in intense global markets.

Presumably Subcommittee Chairman Senator Carl Levin (D-MI) knows this when it comes to his home state of Michigan. For the Michigan Democratic party platform clearly endorses giving tax breaks to companies that sell their goods or services outside the state of Michigan. The same kind of tax breaks that Ireland provides to attract Apple jobs. Somehow it is okay that Michigan does this, but not okay for other nations, and certainly not okay for the federal government. Aren’t these policies the Democratic party supports unfair to local Michigan companies? Why should GM pay lower taxes than the local electric utility or barber shop? Every person who calls him or herself an economic developer knows the answer, for it’s the thing you learn in the first week of studying regional economic development. Unless Michigan (or any state or city) has healthy companies that sell their goods or services outside the state (e.g., the big three auto makers, Dow Chemical, etc.), they will not have a healthy economy and local-serving businesses will shrink. It’s no different at the national level.

In short, it’s Multinational Street (and “high growth entrepreneurship street”) not Main Street that predominantly drive the nation’s jobs, competitiveness, innovation, and productivity growth. Requiring U.S. traded sector firms to pay the same taxes as non-traded sector firms is a sure recipe for even lower levels of U.S. economic competitiveness, even less spending at Main Street companies, and even fewer jobs.

To be sure, a startup visa could have a beneficial impact on U.S. economic and employment growth, but why limit this dynamic only to foreign entrepreneurs looking to invest in starting new businesses? Why not extend visas to foreign individuals investing substantially into ongoing federally funded research and development (R&D) activities at U.S. universities or federal laboratories? Indeed, a research investor’s visa, a novel approach proposed by Representative Rush Holt (D-NJ), could also make important contributions to U.S. economic and employment growth.

As ITIF writes in “Stim-Novation”: Investing in Research to Spur Innovation and Boost Jobs, investment in R&D impacts the U.S. economy and employment through multiple channels, including first in the short-term through multiplier effects and then in the longer-term by fostering the development of new technologies and ultimately innovative new products and processes that enable American enterprises to successfully compete in a fiercely competitive global economy. Let’s take the employment and economic impacts of investment in R&D in turn.

First, from a standard Keynesian perspective, investment in U.S. R&D activities by an immigrant would directly create new jobs through increased spending, such as hiring new researchers in federal laboratories or hiring con­tractors to renovate existing facilities. Further, given the job multiplier effect, such investment would also create both “indirect jobs”—those created to supply the materials and other inputs to production, such as the manufacture of compo­nents for scientific equipment—and “induced jobs”—those created when newly employed (or retained) workers spend their paychecks, thus creating jobs in establishments such as restaurants and retail stores. ITIF has estimated that a $10 billion investment in research would create approximately 200,000 Ameri­can jobs for one year. If a research investor’s visa were created that permitted 10,000 foreign individuals to receive visas when making an investment of at least $1 million in ongoing federally funded R&D, this would generate at least $10 billion of new investment in U.S. R&D and thus support over 200,000 American jobs for one year.

Increased R&D investment would further boost employment through the “Schumpeterian” effect; that is, the jobs that arise over the longer term to manufacture and to service the products and technologies developed as a result of the enhanced R&D investments. As Bogliacino and Vivarelli find in The Job Creation Effects of R&D Expenditures, R&D expenditures have “positive and highly significant job-creating effects” in both manufacturing and services sectors. They find that a 1 percent increase in the R&D stock would lead to a .025 percent increase in employment. Given that the U.S. R&D capital stock is $3.2 trillion, an increase in R&D of $10 billion would increase U.S. capital stock by 0.3 percent, and thus lead to a .008 percent increase in employment. With 155 million Americans in the civilian labor force, this dynamic could lead to the creation of an additional 15,000 jobs.

And increased R&D investment will lead to increased U.S. economic growth. In fact, economists estimate that a 1 percent change in the R&D capital stock will cause a 0.13 percent change in GDP, meaning that the 0.3 percent increase in R&D capital stock that could result from a research investor’s visa would increase U.S. GDP by 0.039 percent.

As ITIF writes in Eroding Our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth, investments in R&D provide the foundation for new technologies and ultimately innovative products that drive the growth of the U.S. economy. America’s competitive niche in the modern global economy is in high-technology, knowledge- and IP-intensive industries such as life sciences, information and communications technology (ICT), and advanced manufacturing, and these are exactly the types of R&D-intensive industries that would benefit from increased R&D investment.

For example, taking the U.S. ICT sector alone, without the initial discoveries made by public R&D, over $80 billion in output per year would not exist today. Federally funded R&D has been instrumental in spawning a range of breakthroughs in the U.S. ICT sector, everything from the integrated circuit and relational databases to the graphical user interface and search engines. Those investments helped spawn a robust ICT sector that is one of our nation’s most dynamic industries. For instance, in the 2011 Inc. 5000 rankings of the 5,000 fastest growing companies in the United States, almost one-quarter (1,140) hail from the ICT industry, with a three-year average growth rate of 302 percent and revenues totaling nearly $54 billion.

One reason a research investor’s visa could have a particularly powerful economic effect is that it would specifically support the competitiveness of U.S. traded sector industries, for the most R&D-intensive sectors of the U.S. economy tend to be found in traded sectors (as evidenced by the fact that the U.S. manufacturing sector accounts for 72 percent of all private sector R&D spending). As ITIF explains in Fifty Ways to Leave Your Competitiveness Woes Behind: A National Traded Sector Competitiveness Strategy, the U.S. traded sector comprises those industries and establishments which compete in international marketplaces and whose output is sold at least in part to nonresidents of the nation. Establishments in traded sector industries—such as manufacturing, software, or engineering services—are the core engine of U.S. economic growth and vitality. While non-traded domestic-serving sectors are important, the reality is that the economy will only support as many grocers, dry cleaners, and mom-and-pop pizza parlors as local demand requires.

This is in fact a potential weakness of the immigrant entrepreneurs visa. The startup visa’s impact will be determined by the extent that entrepreneurs are starting businesses in traded vs. non-traded sectors. An entrepreneur using a startup visa to launch a business with a $1 million investment in a non-traded sector such as food service (i.e., groceries or restaurants), dry cleaning, or even accounting is unlikely to have a significant impact in growing U.S. employment because the maximum number of jobs in those sectors will be determined by local demand, and so the effect will merely be to shift employment among local producers, not expand net employment. (This is why the Kauffman Foundation’s report finds that a startup visa program not focused on supporting high-technology or engineering startups would create significantly fewer jobs, perhaps only one-third of their high-end estimate for job creation.) And this is why a research investor’s visa would be so powerful, because its effects would be concentrated almost entirely on the traded sectors of the U.S. economy.

As the Partnership for a New American Economy notes in its report Not Coming to America: Why the U.S Is Falling Behind in the Global Race for Talent, at least nine competitor nations—Australia, Canada, Chile, China, Germany, Ireland, Israel, Singapore, and the United Kingdom—have implemented innovative policies to attract foreign entrepreneurs and investors to their countries as part of a concerted effort to design their nations’ immigration strategies in ways that drive economic and employment growth. These countries “see immigration as an integral part of their national economic strategy—a factor in their prosperity as significant as education and infrastructure.” It’s time the United States does the same. A research investor’s visa would represent an innovative path to U.S. citizenship that at the same time boosts R&D investment and the competitiveness of the U.S. economy.

The NFLN would serve as a first point of contact for communities and organizations seeking to create fab labs; link funders and sites with operational entities that can source and install fab labs; support workforce training and job creation programs; and conduct research assessing the impact of the fab labs. The NFLN would operate at no cost to taxpayers, and would be chartered to accept funds from private individuals, corporations, government agencies, or other organizations. The fab labs would be poised to play an important role in encouraging students to become more active in science, technology, engineering, and math (STEM) fields and ultimately contribute to a well-trained workforce for advanced manufacturing in the United States.

The Massachusetts Institute of Technology launched the first lab, The Center for Bits and Atoms, and it provides a strong model for a new kind of national laboratory that can link local facilities for advanced manufacturing. CBA’s fab lab has given rise to the so-called “maker movement,” which involves individuals designing and often manufacturing their own prototypes, inventions, tools, or other products using a variety of methods, including traditional manufacturing tools and more advanced technologies such as 3-D printers. “Makers” are increasingly becoming entrepreneurs, leading the development of industrial robots, 3-D printers, and other smart devices that integrate hardware, software, sensors, and Internet connectivity. Just as earlier digital revolutions in communications and computation empowered individuals with the Internet and personal computers, this digital revolution in fabrication will allow anyone to make almost anything, anywhere. The National Fab Lab Network Act is poised to play an important role in stimulating such manufacturing innovation, particularly by providing entrepreneurs access to tools with which they can design and manufacture products and even launch new businesses.

As ITIF writes in Fifty Ways to Leave Your Competitiveness Woes Behind: A National Traded Sector Competitiveness Strategy, there are several additional steps policymakers should take to foster the maker movement in addition to supporting Congressman Foster’s Fab Lab bill. For instance, DARPA (the Defense Advanced Research Projects Agency) is investing heavily in the tools needed to democratize design and manufacturing. The White House Office of Science and Technology Policy (OSTP) has encouraged all agencies to provide R&D funding for entrepreneurs with good ideas for low-cost instruments and kits for makers and citizen-scientists. In fact, OSTP has reached out to Small Business Innovation Research (SBIR) program managers about announcing solicitations supporting “development of a set of affordable tools, equipment and kits that will allow students to (1) engage in citizen science; and (2) design and build manufactured products.” These tools have the ability to create opportunities for entrepreneurship in manufacturing, in the same way that the Web and cloud computing have made it less expensive for software entrepreneurs to launch a new business. To encourage maker innovation, the Administration should call on federal agencies to allocate a very small share of SBIR awards to fund maker projects related to agency needs. These awards could be much smaller than traditional SBIR awards, perhaps on the order of $20,000.

IP is fundamental to America’s economy. With 40 million workers, or 30 percent of the American workforce, employed directly or indirectly in IP-intensive industries, intellectual property is at the heart of America’s economy. Unfortunately, six of our 11 would-be TPP partners are on the U.S.  Trade Representative Office’s Special 301 Watch List, which identifies countries that do not provide “adequate and effective” protection for U.S. intellectual property rights-holders. Canada and Chile are on the Priority Watch List, while Brunei, Mexico, Peru, and Vietnam are on the Watch List. And with nations like Brazil, China, and India also watching negotiations closely, it is imperative that any TPP agreement include robust and enforceable IP protections.

One IP protection the TPP needs is to ensure 12 years of data exclusivity protection for biologics in pharmaceutical medicines. This is the established law in the United States and needs to be extended among partners in the trade pact. Regrettably the Obama Administration has proposed only 7 years of data exclusivity for biologics in its current budget, but this undermines the investment in R&D by biologics makers who invest hundreds of millions of dollars attempting to find viable treatments for our most serious ailments. To realize a successful Trans-Pacific Partnership, this provision must be included.

It is our hope that when the Senate Finance Committee convenes today, the importance of protecting IP-intensive companies engaged in international trade is foremost on its agenda.

Unfortunately, other countries—and principally America’s top economic competitors in Europe and China—continue to invest significantly more than the United States does in export credit financing, both as a share of GDP and, in China’s and Germany’s case, even current dollars.

In fact, from 2007 to 2011, China invested $227.6 billion in cumulative new medium and long-term official export credit volumes compared to the United States’ $70.6 billion, according to data from the U.S. Export-Import Bank’s 2011 Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States. In other words, over the past five years, China has invested over three times as much in export credit financing as the United States in current dollars, and 6.6 times as much as a share of GDP. And though Germany invested just slightly more in current dollars (about $5 billion more) than the United States from 2007 to 2011, as a share of GDP Germany invested four and a half times more.

Examining the year 2011 alone (see chart), China invested over twice as much in current dollars and nearly five times as much in export credit financing than the United States did as a share of GDP. India invested four and a half times more as a share of GDP than the United States. France, Germany, and the United Kingdom collectively invested almost three times as much as the United States as a share of GDP, while investing $16 billion more in total new medium- and long-term official export credit volume. For its part, Germany in 2011 invested four times as much in export credit financing as the United States did.

This intensified foreign competition in export credit financing is just one more example of how America’s competitors have ramped up their efforts to win in global export markets. But as Ex-Im Bank Chairman Fred Hochberg testified before the Senate Banking Committee in May 2011, the United States “is clearly outgunned when it comes to foreign [export credit] competition.” Indeed, the United States needs to continue to take seriously the challenges posed by the aggressive export credit financing policies of its top competitors and ensure that the U.S. Ex-Im Bank remains competitive and well-functioning, in part by increasing its authorization levels and swiftly confirming its Board Members.

While President Obama signed on May 30, 2012 Congressional legislation that reauthorized the Ex-Im Bank for three additional years (to September 30, 2014, the end of the next Fiscal Year) and raised its aggregate lending authority to $140 billion by 2014, much more needs to be done. In particular, on July 20^th of this year, the terms of Ex-Im Bank Chairman Fred Hochberg and two Ex-Im Board Members will expire. The President has re-nominated Chairman Hochberg for another four-year term, however Congress will need to confirm his nomination (as well as those of the other two Board Members whose terms are expiring). It’s vital that Congress do this quickly, for the Ex-Im Bank has a total of five members, and would not be able to do business without an active quorum of at least three members. In other words, the Ex-Im Bank could be in a position of not being able to issue export credit beyond July 20^th if its Board Member(s) are not confirmed.

Beyond this, to adequately respond to intensifying foreign export credit competition, Congress should raise the Ex-Im Bank’s aggregate authorization limit to at least $200 billion. This does not mean that taxpayers would have to foot the bill for this increase in lending authorization, as ITIF writes in The Export-Import Bank Works for America: Responses for 18 Arguments for Cutting Ex-Im’s Authorization. The Ex-Im Bank is an independent federal government agency that operates at no cost to U.S. taxpayers and has in fact returned $1.6 billion to the U.S. Treasury above and beyond the cost of its operations over the past five years. Thus, increasing the Bank’s statutory lending authority from its $140 billion (by 2014) exposure cap would not add to the national debt.

In summary, export credit financing is a critical tool for boosting U.S. exports, boosting U.S. job growth, narrowing the trade deficit, and revitalizing the U.S. economy. In 2011, Ex-Im Bank-backed transactions supported an estimated $41 billion worth of American exports and an estimated 290,000 American jobs at more than 3,600 U.S. companies. And since 2008, the Ex-Im Bank has assisted in creating or sustaining more than one million American jobs. Many of these jobs are at SMEs; in fact, more than 85 percent of Ex-Im’s transactions in recent years have directly benefited small businesses. Thus, the Ex-Im Bank plays an invaluable role in enabling U.S. exporters to compete on a more level playing field in commercial markets where current and future competitors continue to enjoy aggressive support from their countries’ export credit agencies.

Yet some have argued that the United States should unilaterally abandon export credit financing activities on the principle that it constitutes industrial policy or government picking winners. Others fret because they don’t like the fact that Beijing’s aggressive embrace of export credit financing is setting the terms and pace of global export financing policy—though it does. (Nor, as this blog has shown, is China the only country that aggressively uses export credit financing.) This would be akin to saying during the Cold War, “to let Moscow set the terms and pace of military spending in the United States is foolhardy at best.” Would anyone say that it’s okay and prudent to let China (or Russia before it) outinvest the United States in defense expenditures, moreover to unilaterally abandon our investment in a sound defense? But that’s exactly what those who advocate for the United States to unilaterally abandon the use of export credit financing activities are calling for. The simple reality is that America’s economic competitors are in the game to win and if the United States unilaterally disarms the U.S. Ex-Im Bank, the only result will be fewer U.S. exports and the jobs dependent on them.

(Source: OECD)

Regarding safety, with human error the definite or probable cause of 93 percent of traffic accidents, autonomous vehicles could dramatically reduce accident incidence because they will obey all traffic laws, won’t speed, and won’t drive while distracted, tired, texting, or inebriated. This could significantly ameliorate the over 4 million traffic accidents which occur annually on U.S. roadways and which cause more than 35,000 traffic fatalities (almost 100/day) and an estimated $450 billion in economic losses. In the meantime, a range of automated driver assistance technologies, from blind spot detection, lane departure warnings, dangerous proximity (pre-collision) indicators, rearview cameras, parking assist, etc. are already having an impact in reducing accidents and increasing driver and pedestrian safety. Here, Jason Schulz, Toyota’s Manager of 21st Century Business Partnerships, noted that Toyota invests $1 million per hour in research and development and highlighted Toyota’s Advanced Active Research Safety Vehicle, which is pioneering many new automated driving and intelligent transportation system technologies.

At the same time, autonomous vehicles could profoundly enhance personal mobility and convenience for those who cannot drive themselves, particularly the elderly or the disabled. Chris Urmson, the Leader of Google’s Self-driving Car program, showed a compelling video of a blind citizen, Steve Mahan, completing daily chores and visiting friends thanks to Google’s driverless vehicle. As Urmson noted, “We all at some point will lose the privilege of driving [as we get older],” and autonomous vehicles could help people maintain the mobility they’ve grown accustomed to throughout our lives.

Autonomous vehicles would further enable maximal utilization of existing transportation infrastructure and assets. On average, the American car sits idle 92 percent of the time, but autonomous vehicles could be shared or otherwise deployed in their spare time (e.g., the car goes to the dry cleaner to pick up your clothes or gets rented out to others). Autonomous vehicles could also maximize highway utilization by allowing vehicles to drive closer together and more seamlessly integrating with transportation infrastructure. Today, highways at peak capacity are only 6-8 percent occupied with vehicles, but highways full with autonomous vehicles could accommodate 2 to 3 times as many automobiles, significantly ameliorating the $200 billion in annual economic losses and environmental damage caused by traffic congestion (and the 34 hours per year the average American spends stuck in traffic). In fact, Toyota’s Schulz noted that the average American pays a “congestion penalty” of $818 per year, with DC-area drivers paying the highest penalty at over $1,400 per year. Autonomous vehicles will also enable entirely new business models. Companies will offer personal mobility solutions where instead of going to pick up a ZipCar or hail a taxi, one can use a smartphone application to summon an autonomous vehicle to you on-demand. Likewise, if the vehicle is doing the driving, an opportunity opens to provide value-added services to the vehicles’ occupant, whether entertainment, Internet connectivity for productivity, concierge services, etc. Next-generation car sharing, fractionalized vehicle ownership, new auto insurance models, and new forms of connected vehicles and user experiences will all be made possible through automated vehicle technologies.

The panelists noted that the technologies needed to support automated driving and ultimately fully autonomous vehicles are rapidly maturing, however they noted it will take some time yet before the technologies are at price points that can support mass markets. Nevertheless, Google’s driverless car has now driven over one-and-a-half million miles on public roads. And it has logged more than 96,000 miles (almost ten years of human driving) between recording software critical driving errors. Google’s Urmson noted that his team is trying “to accelerate the time horizon” and expressed Google’s (intentionally ambitious) goal to make autonomous vehicles a reality for consumers within five years.

To be sure, as ITIF writes in The Road Ahead: The Emerging Policy Debates for IT in Vehicles, a number of technical, policy, regulatory, and product liability hurdles still need to be addressed.  DC Councilmember Mary Cheh noted the importance of establishing a legal framework in which autonomous vehicles can operate. In particular, the National Highway Transportation Safety Administration (NHTSA) will be challenged to develop common standards and protocols for testing and evaluation of autonomous vehicles to certify their safety. But the panelists noted that—given the profound benefits autonomous vehicles are poised to deliver—if all parties work collaboratively toward common goals, these challenges can be solved.

Indeed, smart public policies and government support will be vital in ensuring nations’ pioneering positions in the deployment and adoption of autonomous vehicle technologies. For example, Google’s Urmson noted that much of the industry’s work on autonomous vehicles stemmed from the Department of Defense’s 2005 Grand Challenge for Autonomous Vehicles, which he called a “Woodstock for geeks,” in which autonomous vehicles had to navigate 132 miles across the Mojave Desert in just ten hours. Likewise, leadership will be needed from U.S. policymakers at both the federal and state levels to craft legislation and safety standards through which automated or autonomous vehicle technologies can be researched, developed, tested, and ultimately deployed. But as Bill Krenik, Texas Instrument’s Chief Technologist, noted, the advent of autonomous vehicles will be as transformative as the shift from the horse to the internal combustion engine in the prior era. As Krenik noted, automated and autonomous vehicles will be key to the future competitiveness of both countries’ automobile industries and economies; and it’s vitally important that the United States provide a welcoming policy and sociopolitical environment to encourage the deployment and adoption.

ITIF applauds the President’s $1 billion request to create a series of manufacturing innovation institutes that will help propel advanced manufacturing and rejuvenate a sector of our economy that has been hit especially hard over the past decade. The National Network for Manufacturing Innovation will create 15 advanced manufacturing centers across the country that will spur research, development and deployment of next generation technologies, products and processes. As ITIF has shown, improving manufacturing innovation is central to enhancing American competitiveness and furthering economic development and business creation.

On energy innovation, the President’s budget request continues to push for greater public investment in the development of new clean energy technologies. The budget proposes boosting clean energy research to nearly $5 billion, a 15 percent increase compared to the FY2013 Continuing Resolution (CR) and 21 percent more than the CR with sequestration cuts. A significant portion of this increase, about $219 million, is tagged for expanding advanced energy manufacturing research, which ITIF analysts Clifton Yin and Matthew Stepp recently argued is an excellent first step on the path to a robust U.S. energy manufacturing sector and a boon to innovation as a whole. The proposal also seeks to increase ARPA-E’s budget by $100 million to increase investments in more high-risk, high-reward clean energy research.

In addition, President Obama calls for a nine percent increase in non-defense R&D over 2012 levels, and makes permanent tax incentives for research and development. These proposals will expand innovation capacity and spur private sector investment, which will ultimately increase overall innovation growth and development throughout the economy.

Another area the President’s budget addresses is our decaying infrastructure. His proposal calls for $50 billion in additional federal funding for infrastructure projects, as well as the creation of a National Infrastructure Bank and a new bond program to catalyze private sector investment. By expanding and updating our transportation, telecommunications and computing networks we can increase opportunities for innovation and create a better environment for high tech business development.

Despite these generally positive components there is work to be done on several fronts.

Overall investment in R&D will continue to be in jeopardy unless the sequester is reformed. ITIF’s research shows that the current sequestration cuts will reduce federal R&D investment by 7 percent annually and could lead to a $150 billion reduction in GDP by 2021. Obviously, the President is working under severe constraints, especially since Democrats and Republicans have both refused to consider significant cuts to entitlements. However, while the budget deficit and government spending are important issues, we urge Congress and the Administration to properly address the need for sustained government investment in innovation as they conduct negotiations.

The proposal also only represents a modest increase in funding for energy research, which falls well short of the $15 to $20 billion recommended by leading thinkers and organizations. It’s certainly important that the President is pointing energy research budgets in the right direction, but it’s a reminder on how much more public investment is needed.

Also, a midst a budget that otherwise enacts policies that bolster the competitiveness of key U.S. industries it’s disheartening that the proposal includes several provisions that would undermine U.S. trade competitiveness.

Specifically, the President’s proposal weakens intellectual property protections for biologic drugs and restricts certain pharmaceutical patent settlements. Beginning in 2014, brand biologic manufacturers would receive seven years of exclusivity, rather than 12 years under current law. While this is presented as a budget-saving measure, as ITIF has noted, reducing intellectual property protections for American innovators can have significant consequences for our economic future. Worse, if this standard were to subsequently be embodied in trade agreements the United States is currently negotiating, such as the Trans-Pacific Partnership, it will only further compromise the competitiveness and innovation potential of U.S. industry.

Overall, the President’s budget proposal does create a stronger innovation framework that can assist in improving economic development and overall societal health. However, we do call on Congress and the administration to specifically address the above mentioned areas of need as they proceed with negotiations.

Image courtesy of Flickr user Tax Credits