The innovation agenda

Yesterday morning I was at the Information Technology and Innovation Foundation (ITIF) conference on Innovation Economics for the Next Administration. A lot of great discussion – much of which was based on two papers on the ITIF website: An Innovation Economics Agenda for the Next Administration and Economic Doctrines and Policy Differences: Why Washington Can’t Agree on Economic Policies.
The National Journal’s Tech Daily summarizes:

One study describes how three traditional economics doctrines – conservative neo-classical (supply-side), liberal neo-classical (Rubinomics), and neo-Keynesianism – have dominated thinking in Washington. It explains how innovation economics, which is based on an explicit effort to understand and model how technological advances occur, should be the path of the future. A companion report argues that putting innovation at the center of U.S. economic policies can spur economic growth and raise standards of living.
ITIF offers eight policy ideas to drive innovation-led economic growth:
1) Significantly expand the federal research and development tax credit
2) Create a national innovation foundation
3) Allow foreign students receiving graduate degrees to get a green card
4) Reform the patent system to drive innovation
5) Let companies expense new investments in IT in the first year
6) Establish a federal chief information officer
7) Implement a national broadband strategy
8) Implement an innovation-based national trade policy

Bottom line of the conference was that innovation is a key part of our economic strategy – but that policymakers need help in both understanding it and making the political case. In that regard, I was especially struck by the comment of Mike Mandel (of BusinessWeek) early in the morning that the US has failed in innovation — not that we haven’t created new stuff, but that we have failed to turn innovation into job creation. Invented here; produced over there. That seems to be the problem.
Re-establishing the connection between innovation and employment/incomes needs to be a major part of the new strategy. It is also part of the problem discussed at the New America Foundation forum a couple of days ago of reconnecting the link between productivity and wages (see earlier posting).
Rather than try to capture the entire discussion, I want to cherry pick a couple of ideas. One was the issue of measurement of innovation. As Mike pointed out, we do a good job of measuring consumption, but not innovation. Professor Richard Lipsey made the excellent follow on point that even when we think we are capturing innovation — in the form of total factor productivity — we aren’t because we can’t separate out the innovation (I would say intangibles) embedded in out machinery and products.
The second point had to do with patents. Michael Katz made the useful distinction between stronger patents and broader patents. In the current debate, we tend to confuse the two. A patent that has more coverage (broader) is automatically assumed to be stronger, especially by the more-is-better crowd, since it extends patent rights. I think that we need to strengthen patents rights by making patents better, not broader. As Jonathan Baker pointed out, the recent trends in broadening of patent rights played almost no role in the rise of Silicon Valley, for example (as the broadening came after the creation of the innovations, not before). Other mechanisms of appropriability — such as first mover advantage, speed to market, and tacit knowledge — were far more important.
The importance of these other mechanisms should our focus — if we are to truly understand the innovation process in the I-Cubed Economy.

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