What I want to hear in the State of the Union – 2015

According to press accounts (and comments by President Obama himself), tonight’s State of the Union address will focus on the economy and the middle class. Much of what the President is expected to propose has already been announced. But there may still be some initiatives that have not been made public yet. In case there is still an opportunity for additional proposals, here is what I would like to hear in the State of the Union address:

America is coming back from a devastating economic recession. Over the past year, despite ups and down, we have see the recovery of the American economy taking hold. But our job is not done yet. Recovery must be followed by sustained growth and improved economic competitiveness – especially if we expect that rising tide to lift all boats.
Our first task is to make sure the tide continues to rise. Our second is to make sure that the tide does in fact lift all boats. Both of these will require understanding the fundamental changes that are occurring in our economy — and crafting tools that fit this new environment in which we find ourselves.
Let us look more closely one part of that change: the current manufacturing renaissance. More and more, companies are finding it to their benefit to open production facilities in the U.S. as opposed to abroad. But, 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 solutions.
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 activity. 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.
So 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. By doing so, we can also raise the living standards for all.
Government can play a major role in raising living standards through increased economic competitiveness via 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. To both improve our competitiveness and provide for a more shared economic prosperity, we need to continually upgrade the skills of our worker and our workforce. Highly skills workers contribution more to, and benefit more from increased productivity and economic growth.
To create more highly skilled workers, we need to fundamentally upgrade our workforce training programs. Too many of these programs are focused on helping worker upgrade their skills only after they lose their jobs. Don’t get me wrong, job re-training for the unemployed is very important. But we need to also focus more on upgrading work skills (and thereby company competitiveness) so they don’t lose their jobs in the first place. Continual training on-the-jobs training need to become the backbone of our worker training programs – not an afterthought.
That said, we need to recognize that there will be times of slower demand where even the most competitive of companies may need to cut back on production. Rather than using these slowdowns as time of cut backs on training, we should embrace them as an opportunity. One way we can do this is by tying the concept of “job sharing” with worker training. Under a job sharing program, workers cut back on their hours (meaning that the company does not have to lay off workers completely) and the government picks up the cost of those lost hours through a program similar to unemployment insurance. This concept has been credited as one of the reasons Germany was able to weather the Great Recession. But we need to take the idea one step further. Rather than simply reduce workers hours, we should use those hours for training. In other words, when companies need to cut back on production, let’s pay workers to spend that slack time in the classroom or on-the-job training.
Besides continually upgrading workers skills, we need to continually upgrade the workforce itself. America has long been the destination of choice for the brightest and most ambitious. We need to make sure that America remains open and welcoming to those who would seek to improve their lives – and thereby enrich and improve ours. Immigrants have fueled the U.S. economy for generations – from the brightest Ph.D.s to the hard working entrepreneur and employee. We need comprehensive immigration reform to make sure that we can continue to rely on this source of economic growth and vitality.
But upgrading skills in not enough. 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.
Such organizations also play a large role in ensuring that the benefits of increased competitiveness are widely shared.
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 little 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.

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