As I’ve mentioned before, there is talk in Washington about a new jobs bill and possibly a new look at innovation policies. Should there be a new round of policy initiatives, here are a few suggestions (many of which I’ve discussed in the past).
Review and implement the America COMPETES Act. Parts of the Act were never implemented. Two parts specifically should be implemented immediately:
• convene the President’s Council on Innovation and Competitiveness as a mechanism to highlight Cabinet-level attention to innovation and coordinate government action
• fund the study of how the federal government could support research and teaching related to the services industries and service functions in the manufacturing sector.
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.
MEP and innovation. Double the budget for Manufacturing Extension Partnership (MEP) – and explicitly expanding the scope of MEP’s services to include innovation, new product development and utilization of intellectual capital. This should be 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.
EDA and innovation. Increase the Economic Development Administration (EDA) budget for incubators and allow funds to be used for entrepreneur support programs in those incubators, not just brick and mortar.
Create a knowledge tax credit to pay workers to take training. This could be a part of the proposed job sharing program where unemployment insurance funds are used for part of a workers salary to compensate for lost hours. Or the tax credit could be changed to a payment in lieu so companies receive an up-front payment. This would have the dual effect: It would increase our human capital — a major input to the innovation ecosystem. And it would immediately increase consumer demand as companies would use the funds to pay workers to take classes (thereby creating more employments slots for others to fill the working hours of those in the classes).
Expand the R&D tax credit to include process R&D. Currently expenditures on product R&D are eligible for the credit tax law but not expenditure to develop new production machines or processes to increase productivity. Offer a bonus credit for expenditures over next two years.
Up front funding for clean manufacturing. Modify the current tax credit for clean energy technology manufacturing facilities to be an up front payment in lieu so that companies who are trying to build facilities like wind turbine manufacturing facilities can get the start-up cash they need. Such a payment in lieu of tax credits was already created for alternative energy production facilities in Section 1603 of the America Recovery and Reinvestment Act.
SBA loans to fund innovation. Explicitly change Small Business Administration (SBA) underwriting to allow companies to use their IP as collateral on loans. SBA already allows funds to be used to buy intangibles as part of the acquisition of a company by a new owner. Allowing IP to be used as collateral will increase the amount of funds a high-tech company would qualify for.
Create an IP-back loan fund. China has developed a special program to encourage IP-based finance. A similar program in the U.S. should be set up on a pilot bases. The program could be run by the SBA, to take advantage of their lending expertise. Technical support could be provided by the SBA’s Office of Technology, which coordinated the Small Business Innovation Research (SBIR) program and the Commerce Department’s National Institute of Standards and Technology (NIST), which runs the Technology Innovation Program along with other science and technology related activities. Such a direct lending program would be a step beyond SBA’s current loan guarantee programs. Direct lending is necessary, however, to jump start the process. Once the process of utilizing IP as collateral was fully established, the program could be converted to a loan guarantee program.
Improve technology transfer. Review the technology transfer laws, including Bayh-Dole, to make sure that they support spin off companies from universities and federal labs, not just licensing of intellectual property.
Support “design thinking.” 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.
Improve innovation metrics. 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.
Foster intellectual capital management. Intangible assets are the fuel for innovation. 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.
Increase disclosure of intangible assets. 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.
Fund National Academies study on intangibles. 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.
Manage government intangible assets. 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.
Put in place a process for assessing longer term actions, including:
• 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.