According to press reports, the President’s State of the Union address on Tuesday will focus on the economy and the middle class. Pundits are noting the difference with Obama’s Inaugural Address, but I would point out the different purpose of each occasion. I would point out that the State of the Union usually includes economic issues, as the economy is a major part of the state of the union.
Last year’s State of the Union also focused on the economy. Before that speech, I pointed out what I would like to hear in the President’s remarks. Here is an updated version:
America is coming back from a devastating economic recession. The recovery of the economy is taking hold. But our job is not done yet. Recovery must be followed by sustained growth and improved economic competitiveness.
We’ve faced this challenge a number of times before. And every time, America has risen to the occasion. But confronting today’s economic challenges requires understanding what is different about our economy today — and crafting tools that fit this new environment in which we find ourselves.
Today, while manufacturing is coming back to the United States, it is different from the manufacturing that left our shores. It is leaner and smarter — requiring higher levels of workers skills. To keep our competitive edge requires fostering an educational enterprise that can provide the constantly changing skills required in a knowledge- and information-intensive economy.
We now see the fusion of manufacturing and services where companies provide solutions not just products. Customization, speed, and responsiveness to customer needs are the keys to success in this new environment. And as the linkage between goods and services grows, we are seeing international competition in services once thought immune to such challenges.
In confronting these new challenges, we cannot rely on simply repeating the policies of the past. We need a combination both new and old solution.
For example, basic research helped sustain America’s economy growth in the 20th Century. But basic research is not enough. It is one part of a larger mix that fuels the economy. We moving to a post-scientific economy where, to quote Dr. Christopher Hill, former Vice Provost for Research at George Mason University, “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.”
Education needs to move from the classroom to the living room. Life-long learning should not be a slogan but an ingrained part of everyday life. And as important as STEM is, our economic future is not solely in the hands of our scientists and engineers. Our future prosperity rest on raising the skills and knowledge level of everyone. Productivity no longer comes just from new machines, but from new ways of organizing work. And as Professor Jamie Galbraith once said “American competitiveness depends at least as much on style, design, creativity and art – and especially on the liaison between technology and art.”
And let us be clear. The manufacturing jobs of our father and grandfather are not coming back. But we can create the manufacturing jobs for our children and grandchildren. We cannot — we will not — compete on the basis of a race to the bottom where wages and living standards are lowered to keep jobs from moving elsewhere. We can – and will — compete based on raising the knowledge content of our products — both goods and services.
Government can play a major role in innovation and the development and diffusion of new products. But, innovation policy needs to catch up to the innovation process.
In crafting a new policy, we must recognize three points:
• the innovation model has changed,
• it’s all about people and organizations, and
• 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.
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 hierarchical systems of the industrial age are no longer adequate or appropriate. New adaptive organizations which encourage innovation are needed. What we use to be called “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.
Take the analogy of 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. 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.
So here are some policies I plan to put forward. The new demand driven model innovation shows that government procurement and regulations can drive innovation. Government as a demanding customer can create the “thin opening wedge” — new products and services that have a specialized use. Once that specialized use is established, the product or service can be refined and adopted to a broader customer base. The demanding customer in fact becomes a co-creator. Smart regulations can serve the same function by creating demanding customers.
Here is another example of how we can expand our thinking on innovation. We have a program to create and fund Engineering Research Centers (ERCs) in a number of areas. We should create one for design thinking. We should expanding the ERC model to funding research on and demonstration of new business methods and organizational mechanisms as part of our “Catalyze Breakthroughs for National Priorities” element of the innovation strategy. And we should fund more organizationally-focused challenges, such as the famous DARPA “Red Balloon” challenge.
These are but few of the types of new policies we will pursue — beyond the status quo and conventional thinking that government should confine itself to basic research, education and infrastructure. That might be uncomfortable for some to hear. But it is where we need to go if we are to restore long term economic prosperity in this highly competitive global economy.