During the Presidential race, both campaigns put together lists of technology policy recommendations. Candidate Obama talked about the need to restore adequate funding for R&D, increase STEM education, make the R&D tax credit permanent, streamlining our patent system, promote the deployment of next-generation broadband networks, and develop next generation manufacturing technologies, among other things. He even proposed creation of a Chief Technology Officer (CTO) for the United States. (see Fact Sheet Innovation and Technology and Obama Science Plan)
But now President Obama has the opportunity to broaden the view from a technology policy to an innovation policy. That is not to say the Obama technology policy is wrong – it isn’t. It is just incomplete.
As I argued four years ago in National Innovation Policy: An Urgent U.S. Need:
To use a sports analogy, imagine an NFL coach who concentrates solely on the passing game–working only with the quarterback and the wide receivers. Granted, these are the players that produce many of the TV-highlights plays. But as any football fan can tell you, you don’t get to the Super Bowl if you neglect the running game, defense, the kicking game, and special teams.
We have equated innovation only with S&T and have neglected other parts of the game. Is S&T necessary? Yes. Is it sufficient? No.
In a number of postings over the years, I’ve highlight examples of what a broader innovation policy would look like. Two most recent posting highlight this point: the FT Climate Change Challenge and Husick’s Top 25 Innovations.
The FT Climate Change Challenge stated:
The innovation need not be technological, although such entries are certainly eligible. Creativity could equally come in marketing, financing, analysis or in an entire business model.
According to Husick’s From Stone to Silicon: A Brief Survey of Innovation:
“Innovation” is not just inventions; it is a process of making changes by introducing valuable new methods, ideas, or products. “Innovations” are the things themselves—the ideas, methods, and processes. It’s not simply that better mousetrap; it’s different ways of thinking and doing. Innovations may of course be inventions, but they may also be beliefs, organizational methods, and discoveries. An innovation is a value-creation mechanism. It is the way we humans manage to extract more value, generate more economic surplus and therefore more leisure time, and manage to get away from just hunting and gathering.
To help craft this broad innovation policy, the new Obama Administration will have a mechanism created for it by the previous Congress and Administration. Section 1006 of the America COMPETES Act creates a President’s Council on Innovation and Competitiveness (PCIC). Made up of the heads of the departments and agencies involved in the innovation and competitiveness agenda, it is chaired by the Secretary of Commerce. The purpose of the Council is to develop a comprehensive strategy and oversee the implementation of that strategy.
To seize this opportunity, it is important that this Council be given standing in its own right. While the legislation contains an “out” to allow the President to designate some other organization to handle the Council’s responsibilities, this would be a complete negation of the purpose of the proposal. As importantly, the Council needs to be staffed out of the White House, and specifically the National Economic Council (NEC). The NEC is the economic equivalent of the National Security Council and is the President’s mechanism for coordinating economic policy. PCIC should serve as its innovation policy compliment.
The America COMPETES Act very explicitly outlines a broad the innovation and competitiveness agenda for the Council. This agenda cuts across numerous departments and agencies; 16 are listed as members of the Council. Only staffing out of the White House can effectively manage this crosscutting agenda.
In addition, the broad nature of the Council’s mandate argues for staffing out of the NEC. There have been suggestions that the Council should be part of the Office of Science and Technology Policy (OSTP). I would argue that such a placement would seriously narrow the scope of the Innovation Council – and run the risk of turning it into a Technology Council. We already have a National Science and Technology Council as part of OSTP:
The National Science and Technology Council (NSTC) was established by Executive Order on November 23, 1993. This Cabinet-level Council is the principal means within the executive branch to coordinate science and technology policy across the diverse entities that make up the Federal research and development enterprise.
In fact, the America COMPETES Act specifically calls for the PCIC to coordinate with the NSTC, and obviously not duplicate it.
The Obama Administration may also wish to upgrade the status of the PCIC. Both the NEC and NSTC are Chaired by the President and included the Vice President as a member. The PCIC should have the same status. This could be done through Executive Order.
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The task before the Council is daunting. As it goes about its work, it must not only pull together the existing policies, programs and resources. The Council must also craft and innovation and competitiveness policy for the 21st Century. I have argued before (see “Competitiveness Revisited”) that we are in a very different situation than when competitiveness policy was created in the 1980:
Twenty years ago, the U.S. faced global competition in goods and loss of domestic manufacturing firms; now it faces the fusion of manufacturing and services and the opening to international competition of services sectors once thought immune to such challenges. Then, the operating issues were quality and productivity; now they are customization, speed, and responsiveness to customer needs. Then, a key concern was creating a flexible and educated workforce; now, in addition, we must foster an educational enterprise that can provide the constantly changing skills required in a knowledge- and information-intensive economy. Then, the main financial challenge was reducing the cost of capital; today’s equivalent challenge is unlocking the value of underutilized knowledge assets and ensuring the efficiency and stability of the global financial system. Then, the policy problem was raising awareness of the importance of international trade; now it is crafting policy appropriate to an increasingly globalized and interconnected economy.
In the 1980s our focus was on individual firms and industries; now we must find ways of sustaining networks of firms and of adopting new business models. Finally, these problems and challenges, as well as myriad new ideas and technologies, are rapidly sweeping across the domestic and international economy. Their speed requires that U.S. industry, both manufacturing and services—as well as the suppliers of financial, scientific, and human capital—have the capabilities and resources necessary to prosper and grow in this new environment.
In crafting a new policy, we must recognize three points:
1. the innovation model has changed,
2. its all about people and organizations, and
3. technology plays multiple roles.
First, we all need to recognize that the innovation model has changed. It is not the linear process of flowing from basic research to final product that sticks in everyone mind. It is a network process. There are many points on the network where innovation can come from. We have used a number of terms to try to describe parts of the new model: “open innovation,” “user-driven innovation,” and even “design thinking.”
It is also not solely about technology. Technology remains an important component. But, as noted earlier, social innovations, marketing, finance, design and business models are also key sources of innovation as well. As Christopher Hill points out in “The Post-Scientific Society”:
In the post-scientific society, the creation of wealth and jobs based on innovation and new ideas will tend to draw less on the natural sciences and engineering and more on the organizational and social sciences, on the arts, on new business processes, and on meeting consumer needs based on niche production of specialized products and services in which interesting design and appeal to individual tastes matter more than low cost or radical new technologies.
Suffice it to say that innovation policy needs embraced this broader concept.
Second, innovation is about people and organizations. Skills, not just education, are critical. Likewise, both tacit and experiential knowledge, not just codified and science-based knowledge, are also important. In order to put those skills and knowledge to proper use, organizational structure comes into play. The old hierarchal systems of the industrial age are no longer adequate or appropriate. New adaptive organizations which encourage innovation are needed. What we used to call “High Performance Work Organizations” are needed to effectively utilize worker skills and knowledge.
Finally, any innovation policy needs to understand that there are multiple roles for technology. Technology can be a driver of innovation, a tool of innovation, and even sometimes not all that that relevant to innovation. As a driver, the creation of new technology is a major source of innovation – the kind we normally think of when we use the word “innovation.”
But technology is also a tool in the innovation process. Technology as innovation tool works in two ways. One is innovation as the absorption and utilization of technology. For example, the iPod contained no new technology. It utilized the technology in a new way. The other is technology as an enabler. This is especially true in the information technology (IT) area, where IT allows for a myriad of new applications and innovations.
The analogy I like to use is the railroad. The marrying of the steam engine to a carriage on iron rails brought about far reaching changes in many difference areas. The railroads spurred on development of a number of other industries, most notably the steel industry. They changed opened up vast new markets and changed the retail and wholesale industries. They even gave rise to new management practices and the shift from ownership capitalism to managerial capitalism.
And sometimes technology plays a very minor role in innovation, if at all. I often ask, which was more important in creating the American suburbs: the automobile, Levittown or the 30 year mortgage. One was technological; one was design; one was financial. All were important. As a nation we need to recognize and promote multiple forms of innovation.
This last point on financial innovation brings up an important issue left out of the talk on promoting innovation. Not all innovation is necessary beneficial. One of the tasks of the Council needs to be the encouragement of the study of innovation’s consequences. Some, such as Jagdish Bhagwati have called for a group of wisemen to vet financial innovations. I have noted that we used to have such a function:
the idea of analyzing the pluses and minus of innovation has a long history — which has fallen out of favor. It is called “technology assessment”.
In fact, for 23 years until 1995, Congress had its own Office of Technology Assessment (where I once worked). It was closed by the new GOP Congressional majority who, I guess, felt such activities were not needed. Over the past decade, a number of people have called for the re-creation of this function, if not the actual organization.
I’m not suggesting that the PCIC taken on the role of OTA. But it can be a catalyst and customer for this type of analysis.
Likewise, the Council will have to create an atmosphere that breaks through the “not invented here” syndrome. In an earlier posting, I described the importance of having an ability to absorb and utilize knowledge from outside. This open innovation model has been adopted by leading companies. But the concept is just as applicable to nations as well. As the UK’s NESTA (National Endowment for Science, Technology and the Arts) notes in a recent report Innovation by Adoption:
The capacity to absorb external knowledge was identified as early as the 1950s as playing a major role in bridging economic development gaps between places. The new ideas and innovations brought by migration, trade and foreign investment networks cannot be fully captured and exploited if a place lacks the internal ability to absorb external knowledge.
So, the capacity of places to innovate depends on internal and external sources of knowledge, which complement each other. Traditional innovation policy has ignored the importance of external knowledge in developing local innovation capacity. But a place needs both to be able to draw in good ideas from elsewhere – an innovation absorptive capacity (AC) – and to use them to create new products and services – an innovation development capacity (DC). This is what the report describes as the AC/DC model. Absorptive capacity allows a place to identify, value and assimilate new knowledge. The development capacity of a place allows it to exploit that knowledge. The extent to which different places draw on ‘AC’ or ‘DC’ to create new value differs across economic sectors.
Five main components are essential to any innovation system. Three of these elements form the ‘absorptive capacity’ components of the AC/DC model: (1) the capacity to access international networks of knowledge and innovation; (2) the capacity to anchor external knowledge from people, institutions and firms; and (3) the capacity to diffuse new innovation and knowledge in the wider economy. The two components of the ‘development capacities’ element of the AC/DC model are (1) knowledge creation and (2) knowledge exploitation.
The United States needs to embrace this concept of absorption and development as well as a key feature of our National Innovation System.
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These are some of the challenges in moving from a technology policy to an innovation policy. They are challenges that must, however, be overcome if we are to create a globally competitive economy. Other nations are not standing still. They understand that innovation is the driving force in economic prosperity. They also understand that innovation is more than technology.
Give these challenges, the President’s Council on Innovation and Competitiveness can be a potent tool in making America more prosperous. It is a tool that must be used to its fullest capability. The Obama Administration has a unique opportunity to set a new path for this country. Part of that path should be an innovation policy. But creating such a policy will only come about if the Administration embraces the true concept of innovation and commits the resources to making it happen. Making the President’s Council on Innovation and Competitiveness a working White House operation is essential to that undertaking.