So much for the competitiveness agenda

The science community is expressing disappointment in the final federal budget deal. This was the reaction from
ASTRA:

“Short-sighted and short-changed” declared Dr. Mary Good, Chairman of ASTRA, the Alliance for Science & Technology Research in America, following last-minute changes in key science budgets by Congress and the Administration as lawmakers rush to adjourn before the Holidays.
“Reversing years of hard work, Congress and the Administration have been short-sighted in their haste to get a budget agreement — and they have short-changed America in the process” declared Good. “Only a few months ago, we achieved a refreshing consensus to begin the much-needed doubling of key science budgets under the America COMPETES Act,” said Good, adding “passage of the COMPETES Act recognized that America must increase its investment in physical sciences and engineering if it is to compete successfully in the future global economy. The COMPETES Act was bipartisan and signed by the President. It was a first step in insuring that future generations of Americans can be prepared for the competitive dynamics of a flat world.”

But, apparently, the actual final funding levels don’t come up to those set in the COMPETES Act.
The website of ScienceNOW had this to say:

The White House and Congress delivered a heavy blow to the hopes of the U.S. science community yesterday as part of a long-delayed final agreement on the 2008 federal budget. As a result, what began as a year of soaring rhetoric in support of science seems likely to end with agency officials and research advocates shaking their heads and wondering what went wrong.

I don’t know how other parts of the competitiveness agenda faired in the budget game between the Congress and the President. But after been promised much, the physical sciences are clearly not happy.

Micro climates of innovation

Today’s New York Times has a fascinating article about the microclusters of technology innovation in Silicon Valley — Silicon Valley Shaped by Technology and Traffic. Similar to the microclimates that determine the locations of the wineries, these microclimates are “collection of remarkably local clusters based on industry niches, skills, school ties, traffic patterns, ethnic groups and even weekend sports teams.”
Take, for example Palo Alto Networks:

Nir Zuk, its founder and chief technology officer, notes that Palo Alto is synonymous with high-tech innovation, and he was living there when he came up with the name.
“But in Silicon Valley, you locate a company where the engineers are,” he said. “You would never locate a networking company in Palo Alto.”

As the article points out,

a look at the microclusters within Silicon Valley demonstrates the business relationships, the social connections and the seamless communication that animate the region’s economy. It also suggests the human nuance behind the Valley’s success and shows why that success is not easy to copy, export or outsource.

That human nuance is the interaction of people and ideas and the transmission of tacit knowledge. In my paper Knowledge Management as an Economic Development Strategy, I noted that economic clusters succeeded because they are efficient knowledge management mechanisms. This micro look at Silicon Valley shows just how local that knowledge can be.
The irony of the information age is that while telecommunications technology has resulted in the “death of distance” for some types of information, being there is still important. It become even more important on the cutting edge of innovation, where face to face interaction and serendipity are key. As Richard Florida says, the world is not flat; it is spiky – because innovative and creative people need to be near other innovative and creative people.

Fiscal stimulus

While today’s GDP numbers don’t show it (a 4.9% growth in the third quarter of 2007), there is growing worry that the nation is slipping into a recession. Some, such as Marty Feldstein, Larry Summers, and Robert Reich, are calling for fiscal stimulus. Summers calls for a $50 to 75 billion tax cut/spending increase combination. Feldstein isn’t specific, other than to condition it to the economy actually going into recession. Reich wants it to be revenue neutral by cutting taxes at the low income end and raising them at the high end.
But David Wessel, in his column today, points out that “the best political forecast is that nothing will come of this talk of fiscal stimulus.” (Emphasis in original).
Everyone may have missed something, however. Inadvertently, Summers may have gotten his wish — at least in part. Congress passed a $50 billion stimulus package just before it went out. It just wasn’t called a stimulus package. The $50 billion Alternative Minimum Tax “patch” was not offset my any new revenues (the GOP’s anti-tax forces being stronger than the anti-deficit side). And supposedly, it provides a break to the middle class.
While I was initially disturbed at the lack of a budget offset for the ATM, maybe – just maybe some good will come out of this. Not the most effective or well designed stimulus package. But a “stimulus” none the less.
The real question remains, however. Is fiscal stimulus the right treatment for the current situation? Congress has inadvertently set up a nature experiment. We will know the answer in a few months.

Creative central banks

This from Business Week – Why Central Banks Are ‘Experimenting’:

When is the last time “central banker” and “creative” appeared in the same sentence? The conservative guardians of the world financial system aren’t exactly known as renegades, but the global credit crunch that originated in the U.S. housing market is forcing them to try things they’ve never tried before.

The rush to the creative economy has begun!
Some are concerned with this trend:

Bert Ely, a banking consultant in Alexandria, Va., who’s known for his irreverent declarations, puts it differently: “These guys are flying by the seat of their pants.”

But as those in the creative fields know, flying by the seat of your pants is the standard modus operandi.

Services trade as part of gambling settlement

According to press reports issued Monday, USTR has agreed to a settlement with the EU, Japan and Canada over our ban on foreign online gambling. The US will keep the ban, but as allowed under the trade rules, give other countries trade compensation:

“The agreement involves commitments to maintain our liberalized markets for warehousing services, technical testing services, research and development services and postal services relating to outbound international letters,” said Gretchen Hamel, the USTR spokeswoman, in a statement.

I don’t understand this. Does it mean we currently have restrictions on foreign technical testing services and R&D services? Or are we just promising not to put future restrictions on these services? And were there proposals for restrictions on technical testing and R&D services? (I hadn’t heard of any). All very interesting.

The ECB and intangibles

Yesterday, following last week’s joint move by the world’s leading central banks, the European Central Bank up the scale of the liquidity relief to $500 billion (see Cheap Money Is ECB’s Answer – WSJ.com and E.C.B. Makes $500 Billion Infusion – New York Times). This prompts me to raise the same question I asked earlier about the Fed action: will they accept intangibles as collateral for any of this lending? As Steven Pearlstein put it this morning:

In this case, it’s not only $500 billion, but $500 billion lent against almost any collateral, including a handwritten IOU from Uncle Ludwig in Dusseldorf.

If that is the case, then lending intangibles might be a much safer bet.

Medical tourism

For a long time, international trade in services was seen as an outlier — some thing that is rare and not quite comprehensible. That changed in the 1980’s with the inclusion of services in the Uruguay Round of trade negotiations. Back then, I was also involved in one of the first looks at the specifics services trade by the non-disbanded Congressional Office of Technology Assessment. Our study, International Competition in Services: Banking, Building, Software, Know-How… looked at what we saw were four key tradable services. Medical services were not on the radar — except for some wealthy foreigners coming to the US for specialized treatment.
Now, as a new case study from Harvard Business School outlines, trade in medical services (dubbed “medial tourism”) is a big deal — and the shoe is on the other foot. More and more Americans are seeking lower cost treatment abroad, especially in India. The case study looks specifically at the rise of Apollo Hospitals. But, as the overview discussion in HBS Working Knowledge — The Rise of Medical Tourism the phenomenon is more wide spread:

Patients with resources can easily go where care is provided. “Historically doctors moved from Africa and India to London and New York to provide care. Now we are basically flipping it around and saying, ‘Why don’t the patients move? It’s not as difficult as it used to be.’ ”

It is growing and it is not just trade catering to patients from Western nations:

We will see solutions emerge that have nothing to do with the West and that specialize in particular kinds of care where the West may not even have much competence: tropical diseases in Southeast Asia and Africa, for instance. On the other hand, you might see very interesting links between particular companies, research institutes, and hospitals in different parts of the world—in the Middle East, Europe, the United States. My guess is that 3 or 4 prominent hospital companies will survive because the demand is so huge.

The growth of medical tourism highlights the changes in what is tradable. Medical services were once seen as one of the last remaining bedrocks of local economic development. The medical center replaced the factory as the main employer in many cities. But with greater push for telemedicine, the centralization of medical services is not as compelling as it once was. And improvements in transportation, not just information technology, are enabling the rise of medial tourism.
As the I-Cubed continues to evolve, look for more of these paradigm flipping strategies. They will pose a challenge not only to corporate strategy, but to our economic development strategies.

Innovation predictions

Business Week has published its Innovation Predictions 2008. An interesting bunch of predictions about innovation itself — not necessarily about innovations. Some of them are already in place — like “the customer is king” where “Consumers replace competitors as the key reference point for corporate strategy.” Many revolve around the new face of innovation – with d-schools replacing b-schools, private equity firms embracing innovation as a turn around strategy and major consulting firms going after the design/innovation firms. Others have to do with the privacy backlash and new marketing trends. The one I found especially interesting was about politics:

A national innovation policy emerges as a key part of the Presidential campaign. With the economy sinking into recession and competitors from China, India, and Europe embracing national innovation plans, Hillary Clinton is the first to propose a program—and rivals respond.

That would be nice — but don’t hold your breath. Yes, the candidates will say (and already have said) nice things about innovation and have put forward plans and proposals (see earlier posting). But whether they add up to a “national innovation strategy” or simply a call for a “national innovation strategy” remains to be seen. Of course, even a call for a strategy would be a good starting point.
The real problem will be connecting to the voters – which is needed if innovation becomes a “key part.” The candidates can talk about what ever they want, but it is what the voters are interested in hearing about that determines the course of a campaign. Right now, “innovation” is a MEGO issue (“my eyes glass over”). Until and unless one of the candidates can connect the issue emotionally to the public, it will remain the providence of policy wonks and specific interests. And making that connection requires transforming the rhetoric and the public consciousness — two things I don’t yet see happening.
So, look for innovation to come up in the campaign, but not be a key part. It would be great if I’m wrong on that latter point, however.

Mission Intangible: A Conference on the Financial Impact of Extra-financial Information

Mission Intangible: A Conference on the Financial Impact of Extra-financial Information
December 14, 2007
Athena Alliance and the Intangible Assets Finance Society

There’s more to corporate performance than what can be gleaned from traditional financial reporting. We know that information on intangibles (also know as “extra-financial” information) plays a major part in investment decisions. One study found that non-financial criteria constitute, on average, 35 percent of the equity investor’s portfolio allocation decisions. But, it is not always readily available. Another study reported that over half of the information investors want is not reported on the balance sheet. This one day conference held in the heart of Wall Street brought together a number of experts and practioners. Dr. Cynthia A. Glassman, Undersecretary of Commerce for Economic Affairs, and former Commissioner of the U.S. Securities and Exchange Commission, was the keynote speaker. Her keynote speech is available online.

For summaries of the conference, see Intangible Asset Finance Society Conference Solidifies Understanding of Emerging Asset Class and IAFS seeks to spread the intangible asset message to the wider business community – Intellectual Asset Management.