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President Obama’s Budget Promotes Innovation but More Work Needs to be Done

Budget jar

Innovation is one of America’s most prized assets. If our country is going to successfully compete on the global stage over the course of the next several decades, we must develop the new technologies, businesses and industries that will allow us to keep pace. President Obama’s just-released budget for 2014 contains several key components that further this goal.

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

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About the author

Robert D. Atkinson is the founder and president of ITIF. Atkinson’s books include Innovation Economics: The Race for Global Advantage (Yale, 2012), Supply-Side Follies: Why Conservative Economics Fails, Liberal Economics Falters, and Innovation Economics is the Answer (Rowman & Littlefield, 2006), and The Past And Future Of America’s Economy: Long Waves Of Innovation That Power Cycles Of Growth (Edward Elgar, 2005). Atkinson holds a Ph.D. in city and regional planning from the University of North Carolina, Chapel Hill, and a master’s degree in urban and regional planning from the University of Oregon.