Yesterday, President Obama gave a speech on his innovation strategy and the National Economic Council released a white paper A Strategy for American Innovation. The speech reiterated the importance of increasing investments in education, infrastructure and scientific research – and of health care technology and clean energy/green technology. In his posting on the White House blog, Larry Summers stressed the importance of entrepreneurship (and lauded Schumpeter).
The plan itself lays out the case for innovation-led growth – as a sustainable (non-bubble) economic path – and the role of government in the process. In terms of specifics, the paper reiterates policies and programs already proposed or underway, as part of the Recovery Act , the FY 2010 Budget submission or as previous Presidential actions. One of the new actions was the President’s support for FCC Chairman Julius Genachowski’s pronouncements on “net-neutrality.” Thus, rather than a new set of initiatives, the paper seeks to promote current proposals by tying them closely into a package to boost growth through innovation – and thereby remind everyone why the proposals are important.
While it is important to keep the focus on enacting these proposals (as Congress has not yet acted on the FY2010 appropriations bills), it is also not too early to be thinking of the next set of actions. Let me suggest a couple ideas from our earlier Athena working paper from last December Crafting an Obama Innovation Strategy:
• Rename the Baldrige Quality Award the Baldrige Quality, Productivity, and Innovation Award. Over the years, the criteria for the Baldrige Award have changed with the times. As these criteria have shifted and broadened, the award has become much more productivity and innovation focused. Much of this shift, however, has not been recognized. The change in the name would both better advertise the broader nature of the award and provide an opportunity to review and modify the criteria to reflect this broader view. In addition to changing the name, the award should be given greater visibility by the President. By presenting the awards personally, the President could use it as an opportunity to showcase innovative American companies and collaborations. The National Science and Technology medal criteria could also be broadened to recognize a small number of individual contributions to innovation that are not solely technology based. .
• Expand the Manufacturing Extension Partnership (MEP) program. The MEP program has been a successful mechanism for increasing quality and productivity in small- and medium-sized manufacturing companies. We should build on that success by expanding the scope of MEP’s services to include innovation activities, including intangible asset management. Doing so would require a phased expansion of the program’s budget and staffing into areas of marketing, finance, and business model development beyond simply new product development and process adoption. .
• Enable the National Science Foundation’s (NSF) Engineering Research Centers program to support the creation of Design Research Centers as well as promote research and teaching of integrated design thinking. Innovation success is heavily reliant on design as a key component but not simply involving the physical appearance of products. A new approach to applied problem solving and innovation is emerging under the rubric of design thinking. Successful models include the Stanford Design School and the Institute of Design at the Illinois Institute of Technology (IIT), among others.
• Implement the America COMPETES Act call to study of how the federal government could support research and teaching related to the services industries and service functions in the manufacturing sector. Some suggest that there is already a well-defined discipline of “service science” that merits support and replication across more higher education institutions. Whether or not that is the case could be answered by such a study, which, like other provisions of the 2006 Act, has not been implemented.
• Endorse, operationalize, and fund the recommendations of former Commerce Secretary Gutierrez’s Advisory Committee on Innovation Measurement in the 21st Century. Among other things, this means supporting and accelerating efforts of the DOC’s Bureau of Economic Analysis to revise the national economic accounts by converting intangible business assets (R&D, software, intellectual property, human capital, brand identification, and organizational capacity) from expenses to investments with future returns. Although Federal Reserve Board staff studies–corroborated by similar analyses in the UK and Japan–find that intangible investments exceed spending on plants and equipment and account for a significant portion of economic and productivity growth, that fact is unlikely to be given full weight in economic policymaking until reflected in the nation’s official accounting.
• The Securities and Exchange Commission (SEC) should be asked to undertake a study examining barriers to disclosure of intangible assets on corporate financial statements, assess past disclosure requirements (such as the 2003 guidance on the Management’s Discussion and Analysis [MD&A] section in financial statements), and the merits of a safe harbor for limited disclosure of financial information on intangibles not currently allowed in financial statements.
• As proposed at a June 2008 conference sponsored by the Bureau of Economic Analysis (BEA) at the National Academies, a broader study of intangibles could include (1) a survey of efforts in other countries to advance the understanding of intangibles and their role in corporate performance and economic growth, promote financial investments in intangible assets, and foster the utilization of intangibles; (2) an inventory of federally owned intangible assets and how to exploit them for economic growth; and (3) recommendations of policies to accelerate private investment in and management of the types of intangible assets most likely to contribute to growth.
• To foster best practices for management of intellectual assets and intangibles in the United States, the relevant federal agencies–such as SEC, Department of the Treasury, and DOC–should establish an advisory committee to make recommendations on ways of providing investors with an improved method for assessing the impact intangibles have on the accuracy of a company’s financial picture and supporting industry trade associations in an effort to adopt guidelines for intellectual asset management and intangible disclosure appropriate to particular industry sectors.
• Undertake a budgetary cross-cut of government investments in intangible. The federal government is a major investor in intangibles, but we don’t know the size of that investment or even where it really goes. For some time the federal budget, as prepared by the Office of Management and Budget (OMB), has included a capital budget that includes physical capital, R&D, and education and training. The budget documents also include a separate analysis of funding of statistical agencies, which is not included in the investment budget. These and other budget analyses already undertaken by OBM can serve as the starting point for a cross-cutting budgetary analysis of federal investments in intangible assets.
• As part of the effort to enact a permanent R&E tax credit, adding an incumbent worker training tax credit that would transform the provision into a knowledge generation and acquisition incentive. We already support training of unemployed workers, but not for those who have a job. A corporate tax credit would reduce the incentive firms now have to lay off workers in a recession and rehire different workers with higher skills when the recovery comes, with an attendant loss of company-specific knowledge. Instead of sending some workers to the unemployment line in a recession, we could be sending them to the classroom.
Longer term actions might include:
• establishing an analyze capability for reviewing regulatory activities with an innovation impact;
• better managing the allocation of R&D spending among and within federal agencies through a joint OSTP and OMB review agency spending plans in key areas with an eye to making mid-course adjustments;
• strengthening the White House role in reviewing and balancing intellectual property policy as broadly defined;
• consider establishment of a National Foundation for Science, Technology, and Creativity patterned after the United Kingdom’s National Endowment for Science, Technology and the Arts (NESTA);
• greater use of government procurement to push new business models, including use of new collaborative work tools, such as Virtual Worlds.
These short and longer term actions would move the innovation agenda to the next level and bring in the element missing so far from the Administration’s proposals: intangible assets.
One somewhat disturbing note. When the speech was given, Senator Orrin Hatch, chair of the Senate Republican High Technology Task Force, immediately attacked it (see also Obama Innovation Plan Gets Mixed Reviews). That the Senator felt compelled to issue an attack is of concern. Innovation policy should be a bipartisan activity. If it gets caught up in the current raw politics that has seemed to grip the nation, then the chances of any meaning full action are greatly diminished. And we all lose.
In another side note, it was interesting to see the media’s coverage of the speech and the report. There have been a number of online stories, but not much in what I would call the general print media. For example, the Washington Post ran an online article Monday afternoon but didn’t have anything in the Tuesday morning print edition. Much of the coverage was on the Letterman appearance and the how the President and the New York Governor were getting along. Looks like those two stories, and Genachowski’s statements, trumped coverage of the speech.