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All posts by Kenan Jarboe

The Case for Manufacturing and the Need to Understand the Transformation

A recent post by Stephen Ezell referenced, a recent op-ed by Christina Romer has touched off a back and forth on the blogshere on whether manufacturing matters.  The fact that the question is even asked illustrates the lack of understanding of the issue and of the structure of our economy. Back in December Susan Hockfield, the President of MIT, made the case for manufacturing in her own op-ed "Manufacturing a Recovery". Central to her argument is a description of some advanced manufacturing companies:

Like the jet aircraft made by Boeing, one of the country's largest exporters, products like these require sophisticated manufacturing equipment, operated by skilled workers, and benefit from the tight integration of design and production. With goods like these, the United States can reassert an economic advantage. If we can find ways for companies of every size to exploit the possibilities of nanofabrication, advanced materials, robotics and energy efficiency, we can create networks of innovation, joining lab research to new production processes and business models.

That tight linkage between product creation and product manufacturing has been highlighted by a number of others, most notable Gary Pisano and Willy Shih at the Harvard Business School in their HBR piece "Restoring American Competitiveness".

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What I would like to hear in the State of the Union

According to all indications, the President will use tonight’s State of the Union to hit on economic themes.  Look for exhortations to Congress to pass the payroll tax cut extension and other Obama Administration proposals.  With the head of the IMF now talking about a “1930’s moment” in Europe, there are clearly some short term economic issues to be addressed.  But on the long term issues, what I expect to hear tonight is an expanded variation of the following:

We need to increase our investments in basic research, education and infrastructure – and bring back manufacturing.

As I’ve noted before, that is all well and good.  But here is what I would like to hear next (using my wording from a number of reports and blog postings I’ve written over the past few years):

This is not the first time we have faced economic challenges.  In the 1980’s, the U.S. confronted a series of challenges to our economic competitiveness.  By working together, we overcame those challenges.  We can do the same today.

But we need to recognize that today’s challenges are different.  The nature of our economy has changed.

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There’s value in them numbers

Many years ago, I was the staffer for a Senate subcommittee that had jurisdiction over government data collection. When I would visit the Chairman’s home state (which staffers do a lot), I would be called upon to explain to people, mostly farmers, why they needed to fill out all this government paperwork. Why did the government need to collect all this information? It was just a useless nuisance, they would complain.

Fast forward 25 years to this story in the New York Times – “Agriculture Department Cuts Reports on Crop Inventories”. As the story points out, farm groups are not happy with the cut backs in data collection:

Farmers say such data is crucial — and not just because it helps them decide how much to plant or how many animals to raise. Potato farmers use reports on potato stocks to decide when to sell. Hops farmers use the data to persuade bankers to lend them money for costly processing facilities. Restaurant chains watch catfish numbers to anticipate price changes. With the Texas drought forcing farmers to send their sheep herds to other states, wool and lamb buyers would

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Sic transit innovation – and the broader role of intangibles

Innovation needs to be a verb.  Unfortunately, most people think of it as a noun.  Innovation is a thing, an outcome.  As Webster’s defines it: a new idea, method or device.  But we also need to think of innovation as a process.

Case in point is the recent history of Motorola.  As everyone now recognizes, the proposed takeover of Motorola Mobility by Google is based on access to the Motorola patent portfolio.  The acquisition has little to do with Motorola’s hardware technology.  In fact, as a story in today’s New York Times (“Motorola’s Identity Crisis”) points out, Google may have difficulties figuring out what to do with Motorola’s hardware activities.  Google already has close relations with other hardware manufacturers, such as Samsung and HTC.  Getting into the hardware business could disrupt those relationship. 
 
This is far cry from Motorola’s reputation as an innovative leader.  Motorola pioneered wireless communications, starting with the first “carphone” (a radiotelephone) in 1946 to the first commercial cellular phone (the DynaTAC 8000X) to the breakthrough flip phone StarTAC and the hot selling RAZR.  Motorola also led in process technologies in the late 1980 … Read the rest

More on Tax Reform

 

In yesterday’s posting, I cited Rob Atkinson’s new report on tax reform.  In that report, he argues that there is no evidence of the claim that tax incentives automatically lead to unproductive over investments in the favored sectors.  For example, some investment tax credits may actually boost productivity because of an underlying under investment in certain productivity raising activities.  I am prepared to admit that some tax incentives lead to economic distortions.  For example, I’m not sure the mortgage tax deduction for second homes leading to greater vacation home production is the most productive use of capital.  But I do agree that there is knee-jerk assumption about differential treatment in the tax code. 

Atkinson points to a recent report by the President’s Economic Recovery Advisory Board (PERAB), Report on Tax Reform Options.  That report asserts “Because certain assets and investments are tax favored, tax considerations drive overinvestment in those assets at the expense of more economically productive investments.”

I ran into an example of this thinking specifically with respect to intangibles in the previous Administration’s Treasury Department’s 2007 report on

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Tax fairness or a new unfairness

Here is an interesting idea from my friend Rob Atkinson at ITIF: a one-size-fits-all tax code is not one-size-fit-all.  In a new report, (U.S. Corporate Tax Reform: Groupthink or Rational Debate?), he points out that the push for tax simplification will actually harm economic competitiveness.

The current thinking in Washington is that the tax code impedes economic competitiveness because of high tax rates.  In order to lower rates, the tax code should be “simplified”, i.e. eliminate many tax deductions and credits.  Increased revenues from tax simplification would offset revenues lost from lowering the corporate rate.

The other part of tax simplification is a call for fairness.  Many see these tax deductions and credits (aka loopholes) as breaks for special interests.  Others argue that they are expenditures in discipline, not subject to budgetary discipline.

Both of these arguments contain more than a grain of truth.  I have long argued that, contrary to popular perception, the United States has long had a (dis?)functioning industrial policy: the tax code.  It is a de-facto policy hidden from public (and most policymaker’s) sight.

The problem with the tax code is not that it

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We need to better tell the innovation story

The innovation story is getting lost in the jobs story.  Case in point was the critique by George Mason University economist Russell Roberts on a comment by President Obama on technology and jobs (Obama vs. ATMs–Why Technology Doesn’t Destroy Jobs – WSJ.com).  Roberts takes the President to task for suggesting that some technologies replace workers and thereby create short term dislocation.  Roberts discusses at great length the benefits to wealth creation of technology-induced productivity.

I agree with everything he said about the power of productivity (while I disagree with his political potshot at the President).  But, when it came to tying technology to job creation, here is the best Roberts could do:  “Somehow, new jobs get created to replace the old ones.”

If we can’t explain the “somehow”, we will lose the policy debates.

Roberts more detailed explanation given was this: “Fifty years ago, the computer industry was tiny. It was able to expand because we no longer had to have so many workers connecting telephone calls.”  In other words, the computer industry grew because all those unemployed telephone operators (unemployed because of advances in computer technology) could

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Rethinking Innovation Policy – response to RFI

Last week I posted a series of comments on my blog, The Intangible Economy, on the questions posed by the Commerce Department’s RFI on the Administration’s Strategy for American Innovation (see here, here, here, here, here, and here.  On Friday, these comments were submitted to Commerce in the forms of a paper entitled Rethinking Innovation Policy and is available on the Athena Alliance website.

The paper notes that the President’s Strategy for American Innovation and Request for Comments/Request for Information provide an important framework for thinking about U.S. innovation policy. However, both the framework presented in the Strategy and as articulated in the set of questions contained in the RFI are too narrow in their scope. Many of the comments included in this response refashion the questions to broaden the focus. The response urges the Commerce Department to use the study to undertake a broad analysis and rethinking of our innovation policy. The restated questions contained in this response are an attempt to articulate a starting point for that analysis.

I hope you will find it useful in stimulating your own thinking

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Response to competitiveness RFI – the innovation process

In the final installment of this series of comments on the questions posed by the Commerce Department’s Competitiveness study RFI (see here, here, here, here, and here), we have saved the best — or at least the most interesting and far reaching — for last.  Topic #8 is the Implications of changes in the innovative process.  The RFI asks the following questions:

In recent years, some experts have noted that the innovation process itself is changing, and that approaches such as user-driven innovation, open innovation, design thinking, combinatorial innovation, modularity, and multi-disciplinary innovation are growing in importance. What are the policy implications of these and other changes in the innovation process? Should policy makers be thinking differently about our approach to industrial organization and competition policy in light of these changes?

 The answer to the last question is a resounding yes.  Yes, policy makers should be thinking differently about approached to not only industrial organization and competition policy — but to every other part of innovation and competitiveness policy as well.

As currently framed, the question focuses on anti-trust/competition policy.  But

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Response to competitiveness RFI – knowledge creation and dissemination

Continuing comments on the questions posed by the Commerce Department’s Competitiveness study RFI (see here, here, here and here), we turn to a cluster of topics and questions concerning knowledge creation and dissemination.

The questions posed in topic #1 (government R&D) and #5 (incentives to innovate) can be taken together. 

Topic #1 – Government research and development – asks the following questions:

How can the economic impacts of basic research funding (e.g., NSF, NIH) be better measured and evaluated? What methods can the Federal Government use to prioritize funding areas of basic research, both within an area of science and across areas of science? How can existing Federal government institutions (not just organizations, but also programs, policies, and laws) devoted to basic research and innovation be improved? Are there new institutions of these types that are needed to achieve national innovation goals? How could the government increase support for industry-led, pre-competitive R&D?

Topic #5 – Incentives to innovate – asks:

How could the government better use incentives (including but not limited to procurement, Advanced Market Commitments, incentive prizes, and aggregation of demand) to promote innovation? Are

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