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A Chinese Restaurant Menu Instead of Bumper Stickers

Stop the madness!  Purge “tax and spend liberal,” and “corporate welfare proponent” from your label lexicons.  Don’t use phrases such as “industrial policy” and “cut spending across the board” and “big business giveaways” unless you really know what they mean.  The near-death experience with the economy in 2008-9 and painfully slow recovery are the result of often well-intentioned but ultimately flawed policies championed by Democrats and Republicans alike over the last 30 years.  Individual consumers also bear some of the burden.  Times and circumstances have changed. We must rethink our economic policies and realize that bumper stickers don’t amount to thoughtful policy debates.  We need a Chinese menu approach for reviving our economy in the years ahead.

It is time for both liberals and conservatives to acknowledge that their respective orthodoxies are not enough to jumpstart American innovation and competitiveness.  Both sides need to revisit their assumptions about taxes, trade, regulations, public research and development investments and education.  Business and labor groups need to stop fueling the partisan divide and make it easier for political leaders to think about national interests not groups’ interests.  Maybe even have a joint U.S. Chamber of Commerce – AFL-CIO summit, as suggested by ITIF President Rob Atkinson.  Both sides need to acknowledge the wisdom in some of the other side’s ideas.  Smarter economic policies might actually be as simple as choosing from column A and column B the way one does in many Chinese restaurants.

This is the thrust of a short ITIF report released in conjunction with a conference we hosted March 10 called, “U.S. Competitiveness: A New Conversation and new Opportunities.”  Let me clear at the outset that I use “Democrat” and “Republican” knowing that both parties have a range of views within their camps.  The report looks at five key components of economic policy.  Here are recommendations in each:

Taxes: Democrats, you can’t be pro-jobs and anti-business.  It is time to recognize that in a globalized world, tax policies should help our companies compete as much as they help families and workers prosper.   Whether you like it or not, companies shop the globe to find the places that offer the best workforce talent, infrastructure, technological capabilities and tax policies.  So long as the U.S. has the highest effective combined state and federal tax rate (39.1 percent) of any OECD country and an R&D tax credit that is less generous than that offered by 16 competing countries, we are putting our companies at a disadvantage.  What’s more, that high corporate tax rate makes it irrational for multinational companies to bring their overseas earnings back to the United States.  Critics characterize these companies as “Benedict Arnolds,” but some of these companies are practically begging to invest some $1 trillion now parked off shore in the United States.  Maybe we should emulate what competing countries do and help make it to make sense for them to invest in plants, equipment and workers at home.  Now that’s patriotic!  Republicans must move beyond the “simple is better” paradigm.  Some tax incentives encourage the kind of investment we need to spur-long term growth.  Others do not. A little complexity in the tax code makes sense.

Public Investment in Research and Innovation: Republicans, not all spending is created equal.  Cut every nickel of non-defense discretionary spending and we are still in deep, deep debt.  Both parties are beginning to recognize that entitlements, taxes, and defense must be put on the table eventually.  Until they fully act on that reality, deficit hawks would do the country a disservice in eating our seed corn because we are hungry.  This is the wrong time to take an ax to the National Science Foundation (NSF), the Defense Advanced Research Projects Agency (DARPA), and ARPA-Energy (ARPA-E), and other agencies that could help give rise to a technological transformation, new business models and new jobs.  The unfortunate realities are that the share of basic research as a percentage of corporate R&D fell by 3.6 percent from 1991 to 2008.  The U.S. share of global R&D fell from 39 percent in 1999 to 33% in 2007.  Over that time period, China’s share increased fourfold.  In addition, keep in mind that these investments often pay off astronomically.  Great companies such as Qualcomm and Google and revolutionary advances from lasers to the Internet itself grew from a little seed corn.

Government as a Facilitator of innovation: Republicans, you get credit for scrutinizing how regulatory burdens stifle innovation, most recently with regard to proposals related to net neutrality and online privacy.  Democrats, hats off to you for calling for adequate funding for the Patent and Trademark Office and the Food and Drug Administration.  The U.S. can’t be a global innovator if potential breakthroughs are collecting dust during a three-year review backlog.  However, both parties need to put the promotion of innovation and competitiveness at the center of government procurement and update traditional cost-benefit analyses of regulations in an era of global supply chains.

Trade Policy: Globalization has taken off in the last 40 years and there have been many positive results and some surprises along the way. Republicans, you have to acknowledge that it has had its downsides too.  There are closed factories in the congressional districts your represent just as there are in districts represented by Democrats.  It isn’t protectionist to enforce trade agreements.  The U.S. is no longer in the position to surrender our intellectual property and manufacturing capacity to the so-called developing world.  Many of these countries are mature competitors who are using nefarious forms of innovation mercantilism to outcompete us and win the race for new customers and markets.  It’s good business to fight back.  Democrats, it is time to stop laying all economic ills on the door step of trade.  If we are going to sell our goods and services to the 95% of the world’s consumers who live outside our borders, we need to conclude and implement new free trade agreements.  Our competitors are forging stronger trade ties with other countries everyday while we continue to debate the 1993 NAFTA.

Naturally, this is a shorthand summary of just a few ideas from “columns A and B” that should be combined to make a column C – for Competitiveness and Cooperation.  Time to cover up the bumper stickers and have a new conversation about seizing the new opportunities out there.



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