TechElect’s Six Steps to Jobs, Prosperity, and Innovation Sets the Right Agenda

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TechElect has identified six of the most critical policy reforms that American policymakers from across both sides of the aisle need to embrace if the United States is to restore its leadership in the race for global innovation advantage. Indeed, the United States would go a long way toward enhancing its innovation competitiveness if it tackled these six steps as the first items on the 2013 legislative agenda.

TechElect rightly focuses first on skills and investment, specifically boosting American students’ math, science, and engineering skills and ensuring America’s technological leadership through strategic investments in scientific research. Unfortunately, the United States is currently lagging on both accounts. For example, U.S. students in the class of 2011, with a 32 percent proficiency, came in just 32nd out of the 65 nations whose students participated in the Program for International Student Assessment (PISA). Worse, 22 countries “significantly outperformed” the United States in the share of students reaching the proficient level in math. But lackluster science and math scores don’t afflict just U.S. middle- and high-schoolers. Only 34 percent of seniors at four-year U.S. colleges demonstrate proficient quantitative skills (while only 38 and 40 percent demonstrate proficient doc­ument and prose literacy skills, respectively). The United States must get serious about improving the math, science, and engineering skills of America’s students, and ITIF lays out a number of ideas for how to get there in Refueling the U.S. Innovation Economy: Fresh Approaches to Science, Technology, Engineering and Mathematics (STEM) Education, including by employing more teachers themselves educated in math and science and by adopting new educational approaches, including more project and team based learning.

At the same time, the federal government must redouble its investments in scientific research, which have faltered as a share of our economy for many years. In fact, to restore federal support for research and development (R&D) as a share of GDP to 1987 levels, Congress would have to increase federal support for R&D by almost $110 billion—per year. This faltering support has been especially apparent in federally funded university research. America ranks just 22nd out of thirty major nations in university research and development as a share of GDP. Worse is that we are falling even farther behind. From 2000 to 2008, the United States ranked 18th in the growth of government-funded university research. Meanwhile, the United States also risks falling behind in scientific research in the most cutting-edge technologies. For instance, over the next five years, China is poised to invest twice as much (in current dollars) in life sciences research as the United States (and four times as much as a share of the GDP). Just as it has been in the past for everything from the development of semiconductors to the Internet to monoclonal antibodies, robust federal investment in strategic areas of scientific research are imperative to ensure that the next generation of breakthrough technologies emerge from the United States.

In addition to investments in research, the federal government should leverage its procurement budgets to support next-generation technologies. For instance, advanced energy technologies are central to boosting national energy security, increasing U.S. warfighter capabilities, reducing energy costs, and ultimately reducing U.S. greenhouse gas emissions. To accelerate the development of advanced energy technologies, agencies like the Department of Defense (DOD) and General Service Administration (GSA) should leverage their procurement budgets to act as early markets for new energy technologies. This could directly support innovative advanced energy technologies in energy storage, energy-efficiency, smart grids, and power electronics at a much faster pace than if left on their own. One needs to look no further than the impact DOD’s procurement practices have had on microchips and jet turbines to recognize the potential influence through small changes in procurement.

Strengthening incentives for companies, whether domestic or foreign, to invest in the United States in R&D, workforce training, and new plant and capital equipment is essential. Unfortunately, other countries have moved far beyond the United States in redesigning their tax code to incent these types of investments. In fact, the United States has the highest corporate tax rate in the OECD and just the 27th most generous R&D tax credit out of the approximately 45 nations that offer one. Clearly, the next Congress and Administration must take up corporate tax reform. But simply “broadening the base and lowering the rate” won’t be good enough. While simplifying the tax code is important, any tax reform that reduces or eliminates key incentives for investing in R&D, innovation, or capital equipment (especially in traded sectors, like manufacturing) will only reduce, not boost, U.S. growth and competitiveness. Reforming the U.S. tax code should also include measures specifically designed to incent innovation and commercialization, such as by introducing a patent box that would allow corporate income from the sale of patented products to be taxed at a lower rate than other income.

TechElect is spot on that U.S. trade policy needs to get more sophisticated, placing greater focus on market opening, trade promotion, and trade enforcement. With 95 percent of the world’s consumers living outside the United States, it’s vital that U.S. trade policy secure fair rights for U.S. enterprises to reach consumers in these markets. But it’s also important that the United States retain its leadership position as being the world’s leading advocate for liberalized, market-based trade. Unfortunately, whereas the United States currently has only one new trade agreement under negotiation in the Trans-Pacific Partnership, the European Union is actively negotiating free trade agreements with at least five countries (Canada, India, Malaysia, Singapore, and the Ukraine) and two trade blocks—the Association of Southeast Asian Nations (ASEAN) and the Gulf Co-operation Council (GCC)—that represent an additional sixteen nations. The United States needs to actively work to create new high-standard free trade zones, including by initiating a new Trans-Atlantic Partnership with like-minded European and Commonwealth nations.

With the documented incidence of industrial espionage cases having risen over 40 percent in the past two years, America must better protect its digital networks through more effective cybersecurity partnerships. Protecting America’s digital networks is vital not only because core industries like finance and aviation depend upon it for their day-to-day function, but also because America’s intellectual property (e.g., it’s knowledge base) resides within digital systems, and these are vulnerable to foreign theft if not properly defended, as TechElect presciently notes.

Finally, immigration reform should be one of the very first—if not the very first—priorities of the next Administration and Congress. Historically, one of the greatest strengths of the American innovation system has been its open embrace of the world’s best and brightest talent, but today restrictive immigration policies have largely rolled up the welcome mat for foreign talent, often forcing those from abroad who graduate from America’s leading universities to depart upon graduation. But fortunately strong legislation already exists to rectify this situation. There is already bipartisan support—in both houses of Congress—for the Startup 2.0 Act, sponsored by Senators Jerry Moran (R-KS), Mark Warner (D-VA), Marco Rubio (R-FL), and Chris Coons (D-DE). The Startup Act 2.0 would make new visas available for foreign students who graduate with an advanced degree in a STEM field from an American university. As many other countries have done, the Act would also create an Entrepreneur’s Visa that would allow foreign-born entrepreneurs already legally in the United States to stay here if they are able to raise $100,000 in capital to start a business and hire at least two American workers. Passing the Startup 2.0 Act should be one of the first priorities Congress takes up when it gets back to work.

In the coming weeks, a plethora of reports will emerge enumerating the most urgent priorities for the next Administration and Congress to address. TechElect’s Six Steps to Jobs, Prosperity, and Innovation cuts through the thicket and succinctly highlights the six key steps that should be the starting point for policymakers after the November 6 election.

Originally posted to the TechElect Blog.

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About the author

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Mr. Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Mr. Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide.