I argued in a previous article why, despite America's current obsession with government budget issues, the real key to bringing back our economy lies in a) fixing our trade deficit and b) restoring our capacity for innovation.
Although the former problem has now grabbed significant public attention, most Americans seem to think that our national capacity for innovation is healthy and without problems.
After all, we're the home of Silicon Valley. So things must be going great, right?
Unfortunately, no, and for the same reason that, as I explained elsewhere, our manufacturing sector isn't healthy. While it's true that there's an enormous amount of innovation (and manufacturing) going on in this country, "enormous" is not, in and of itself, an adequate quantity.
To figure out how much innovation (or manufacturing) is enough for America, the quantity must be measured against how much we need to maintain our living standard. And we are, in reality, falling short in both areas.
As long as our manufacturing output is so small that we must run a trade deficit with foreign nations in order to satisfy our consumption desires, we aren't manufacturing enough.
As long as our innovation output is so small that American industry can't keep pace with its foreign rivals and continues to inexorably surrender market share and technological superiority to them, we aren't innovating enough.
Yes, it's nice that we have iPhones and other innovative American products. But for our economy to be truly healthy, we would have to be exhibiting that level of innovation in products across the board. Our cars would have to be as innovative as our iPhones. And our consumer electronics. And all the other by-no-means-low-tech products that increasingly aren't even made in this country.
Having a few superstar sectors in our economy simply isn't enough to deliver the living standard that Americans want. To deliver this, we need an economy in which dozens of major metropolitan areas have the same sheen of prosperity, productivity, innovation and all-round economic sophistication that the San Francisco Bay Area has.
That's the vision to keep in your mind. Detroit as San Francisco.
People forget how small Silicon Valley really is. According to the Labor Department, it only employs 225,000 people -- in a U.S. economy with a labor force of 139 million. Unfortunately, the media in this country give so much excess attention to it -- and the other fancy sectors of our economy, like Hollywood and Wall Street -- that people mistakenly that think it, and industries like it, dominate the U.S. economy.
Nice work if you can get it, but they don't.
What would it take to restore innovation to those sectors of the American economy that are deficient in it? The best analysis of this problem I know is by Gregory Tassey, the chief economist of the National Institute of Standards and Technologies, America's only serious civilian industrial policy agency. In his book The Technology Imperative, and also in his essay, "Rationales and Mechanisms For Revitalizing U.S. Manufacturing R&D Strategies," he argues that the key problem for U.S. innovation is what he calls the "valley of death" between pure science and commercialization.
America remains strong (though in relative decline, compared to other nations) in pure science. We remain good at commercializing discoveries and inventions that can be sold for a profit. But we are weak at the vast area of research that falls between these two extremes.
Before a new scientific discovery can reach fruition in actual products sold to customers, it must pass through many stages of research. And, crucially, much of this research cannot itself be turned to profit.
But profiting from new discoveries is impossible unless this research is done.
Because it is unprofitable, companies won't, as a rule, engage in enough of this intermediate research. Therefore an economy that relies wholly upon private profit to finance innovation will fall short.
This research isn't academic science either, so don't expect the professors to fill in.
One way to look at this research is to call it useful but unpatentable ideas. Anybody who has ever talked to creative engineers, or patent lawyers, knows that a great many important ideas cannot be patented. Some are more discoveries than inventions. Others are too generic, or too easy to copy. Others consist simply in the painful process of trying and ruling out a hundred ways to implement some new fundamental principle in order to find the one or two ways that have a future.
Other ideas are not the sort of things for which patents would be even relevant. In their case, one would ideally capture their value by means of proprietary technologies, first-mover advantage, or other commercial methods. But, for any of a dozen different reasons, one cannot. So if you do this research, somebody else can harvest the profits as easily as you can.
The problem is a kind of "tragedy of the commons" applied to ideas.
Historically, the only companies that engaged in this sort of research were very large companies with monopoly or quasi-monopoly power over their ultimate product markets: companies like the old AT&T with its Bell Labs, the old IBM with its Watson Laboratory, the old RCA with its Sarnoff Research Center, or the old Xerox with its Palo Alto Research Center. Because of their oligopolistic power, they were assured of a) capturing the value of whatever they discover, rather than having it swiped by a competitor, and b) bringing in enough money, over a long-enough time frame, to pay for expensive laboratories that may take years to produce results.
There are still a few companies like this around, but not nearly enough to bridge the valley of death to the extent we need. So government has a legitimate role.
This fact, of course, drives laissez-faire ideologues crazy. But it was recognized as far back as founding father Alexander Hamilton, whose Report on Manufactures, submitted to Congress in 1791, was partly about this very topic. (What constitutes high technology changes over time, but technological innovation has been the key to economic growth since the dawn of the industrial revolution.)
During the Cold War, hundreds of billions of dollars, from the jet plane to the Internet, went into this sort of research. But because it was justified in terms of national security, not industrial innovation per se, we never really reached a solid understanding of what we was doing. So we never properly institutionalized it as a policy with an economic purpose.
As a result, our efforts today in this area are pathetically small.
For example, the Federal government's Manufacturing Extension Partnership maintains a network of centers in every state designed to help American manufacturers adopt innovative technologies. One evaluation found that it generated $1.3 billion a year in cost savings for manufacturers and $6.25 billion in increased or retained sales -- all for an annual federal outlay of only $89 million.
A single Boeing 747 costs four times that.
Another good but underfunded program is the Technology Innovation Program. An audit by the respected National Academy of Sciences vindicated its claim to generate economic benefits far exceeding its cost. One single $5.5 million grant, for example, seeded development of the small disk drive industry, which enabled creation of the iPod, the iPhone, TiVo and the Xbox.
TIP's 2012 projected budget? $75 million.
Our rivals are far ahead of us in this game. Germany, where factory wages are now higher, and unemployment lower, than here, spends roughly two billion dollars a year on its Fraunhofer Gesellschaft. They even have a substantial presence in this country, to harvest useful American ideas for commercialization in Germany!
To get our economy back on track, we need to stop dreaming that innovation is purely a self-financing private-sector game and start paying for the innovation we need. Either that, or we're not going to get the economy we want.
(Note: There is a follow-up article to this one here.)
Follow Ian Fletcher on Twitter: www.twitter.com/IanFletcher
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It's felt through a variety of policy decisions from the administration, and in each case, Obama has sided with the "dependent society" path... no innovation required.
Cut down on the science fiction peeps.
I think these two items are very much linked together. Creating trade policies that fix the trade deficit will force companies to start innovating again to stay competitive globally, and those innovations will further increase the demand for American produced goods, both domestically and abroad. It would become a self feeding cycle.
NO.
a) If the money is being spent on something that will bring in more than it costs, in the long run, it's a good thing.
b) If we spent 1% of the $700bn spent bailing out the financial sector on serious industrial policy, we'd have a whole 'nother economy. 1%!
The problem is US innovation promptly gets exported and manufactured elsewhere so only a few in the US economy fully benefit from it. If the "innovators" took less profit (but still profitable) so those gains can go back in the economy in the form of wages, benefits, etc. the US economy will be in so much better shape.
But no, the choice for many years now seems to be to amass wealth in the hands of the few at the expense of the livelihood of many.
We took it for granted that innovations created in America would always be primarily produced for American consumption. Those days are long over. We want it cheap and we want it now. We cannot deliver.
WRONG! For our economy to be truly healthy we would have to be MANUFACTURING those innovative products.
What you say is true for commodities. But of course by definition, commodities have left the realm of "innovative".
We need to cut back on regulations too. And unions.
Innovation starts with the knowledge that the usurious, speculative, monetary financial, debt based system enforced by the Federal Reserve is unsustainable, and can only operate collapse; it must be terminated or this great nation is doomed.
The stabilization of the United States demands the immediate implementation of Glass-Steagall in US banking, cancelling all obligations to the Inter Alpha Group of Banks. Put the Fed into bankruptcy protection, recover the bailout trillions, Create the US National Bank that funds the 50 states, then fund the necessary facilities that enhance our standard of living. Stop Perpetual War. No other options exist.
The US must activate its economic platforms creating the higher order of existence humanity demands via the science driven reorganization of facilities, resources, and infrastructure. Expand NASA space programs, the source of America's strength. Undergird economic recovery by starting the Nuclear Fueled Energy Economy, the Hydrogen Economy, Construct the interstate maglev rail system, Construct the continental water system proposed in the NAWAPA plan. This commitment to the redevelopment of North America will employ 8 million Americans, reversing our crisis.
Innovation starts with America realizing we have the labor and brainpower to start the renovation of government and our political economic system.
The problem is the US is not benefiting from that innovation because it it not manufacturing that innovation causing profits of said innovation to accumulate with the few innovators instead of being earned by labor, the bulk segment of our economy.
It is a great crisis when the victims of oppression, headed to extinction, can not ascertain the origin of this destructive force upon humanity. A great disinformation campaign, a mind mangling operation of/through communication in education, political and financial entities and the MSM has fostered our degradation.
Only when we terminate the disintegrating monetary financial system can America begin to lead the world via our science driven innovations. Humanity is depending on it.
Innovation goes through hoops at the local level that are the size of cheerios. The hole in the gate is so small that almost nothing gets through. For example: There is almost no local TV programming going on in our cities. The technology is there in place to create TV shows at high quality cheaply, not in New York and Hollywood only. But it does not happen. When you see the junk that is coming out of Hollywood and New York on TV surely local creators could not really do worse. And some would "innovate" and do better but the gate is small and closed.
Car design is locked in basically to the big auto makers only. Who is at fault? It is a combination of government indifference and hostility and corporate protectionism.
There is plenty of innovation but it is locked away and we never see it or hear of it or it is not-supported by government or large scale private business. Lots of innovations are a flop but it takes going through these to get to the light bulbs and mp3 players and refrigerators.
This attitude did not work for the Soviet Union and it is not working for us.
Today we are faced with the reality of Hollywood....the dumbing down of America
.................The World of Lady Gaga.......low deficit disorder.....instant gratification.......
if one can not get any of the above the only solution is to curl up in a corner with a blanket like linus
Time has always been money, before Gaga we had Madonna, America has never bothered with cross the board good education and more on elite schools for elites, and everyone has always wanted instant gratification (hedonism is a Greek word and was an Ancient Greek philosophy that the purpose to life is pleasure, regardless of from where).
http://www.globalresearch.ca/index.php?context=viewArticle
http://preview.tinyurl.com/3wjpu3u
Here in Germany the most successful innovations are implemented by research societies like Fraunhofer Gesellschaft or Max-Planck institute. They are basically contract researchers who occupy the space between academia and the business world.
Those institutes are partly government sponsored, but the bulk of their profits comes from contracted research. Fraunhofer alone employs thousands of scientists and engineers, and those are well paid and highly prestigious jobs.
If you are interested in how this works and what they do in Germany, here is a link in English. I don't see a reason why something like that wouldn't work in the US.
http://www.fraunhofer.de/en/about-fraunhofer/
Just say NO.
There are many but I want you to prove that you are at least thinking about it and give me 1 to 3.