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Innovation Economics: The Race for Global Advantage Hardcover – September 4, 2012
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"For those of us who believe America's brightest days are ahead of us, Atkinson and Ezell offer important insights about how we can insure that innovation is at the core of our country's progress."—Jack Markell, Governor of Delaware (Jack Markell)
About the Author
Stephen J. Ezell is senior analyst at ITIF.
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If the U.S. does not want to follow in the footsteps of the United Kingdom, it needs to acknowledge the gravity of the situation and acts decisively and boldly before it is too late (pp. 31-32; 62; 85-127; 162-163; 234; 250; 252; 263). Therefore, Messrs. Atkinson and Ezell call for a new Washington Economic Consensus based on the following ten principles:
1. Although the U.S. still has important strengths in sectors such as advanced aerospace and medical devices, it is no longer leading in innovation-based competitiveness. Think for example about the fast declining manufacturing sector, the more rapid growth of R&D overseas, or the relative decline in the number of scientists and engineers. This decline is expected to continue unless business, labor, academia, and the government work together (pp. 9; 17; 25; 34-46; 49-54; 59; 82; 89; 95; 97; 103; 109-124; 181-187; 227; 233; 236-237; 312).
2. The major economic role for the government is to organize societal resources (research, finances, knowledge, skills, and entrepreneurial effort) to generate new products, processes, and business models. The key to success for innovation is to combine flexibility for organizations to restructure and to innovate with security for workers. The security of workers should be tied to employability, not to employment (pp. 233; 300; 315-316).
3. Fiscal discipline is important, but funding for policies to spur innovation and competitiveness should not be subordinated to the short-term individualistic orientation of both the Left and the Right. The U.S. business community and society do not seem to be able to summon the will to invest for the long term and to grow wealth anew (pp. 13; 27; 66-68; 71-72; 75-76; 80-81; 233; 242-245; 312; 319; 359-360).
4. Globalization can be beneficial to the U.S. under two conditions. First, the country needs to systematically bring cases whenever U.S. interests are being hurt, even if U.S. companies do not want them to proceed. This policy would make clear to mercantilist nations, especially China, that threatening to punish U.S. firms for bringing cases is futile. Secondly, the U.S. has to correctly structure the three sides of the innovation success triangle, i.e., an effective business environment, an effective regulatory environment, and a strong innovation policy system. The U.S. innovation policy environment falls short in the areas of tax, trade, technology, and talent (pp. 10-11; 13; 31; 134-135; 141; 209; 215-216; 218; 233; 245; 251; 254; 259-263; 316-318; 320).
5. More and more nations have adopted a zero-sum, beggar-thy-neighbor innovation mercantilism to attract or to grow high-wage industries and jobs at the expense of the U.S., and in violation of the spirit and / or letter of the law of the global trading system. However, the export-led growth model pioneered by Japan and abundantly copied thereafter is hitting a wall due to the increasing inability of the U.S. and Europe to import at high enough levels (pp. 6; 11; 77-78; 90; 159; 191-225; 233; 259-263; 327; 331-332; 334; 356-357).
6. America's role in the global economy is to be a tough competitor that looks after its own economic interests first. The U.S. foreign policy has been focused mainly on military, not economic issues since the end of WWII. Furthermore, the U.S. needs to take the lead in working with other liked-minded nations committed to enforcing the global rules of fairly growing an innovation economy (pp. 46-49; 76-77; 100; 104-108; 159; 192-209; 210-211; 218; 224-225; 230; 233; 319; 346-348; 350; 352; 356; 359; 365-366).
7. Firms in traded sectors, high-growth entrepreneurial companies, and U.S.-headquartered multinational corporations are the jobs, innovation, productivity, and export engines of the U.S., which need to be encouraged by policy. Contrary to popular belief, Wall Street and Main Street play a secondary role in these areas (pp. 14-15; 27; 130-133; 142-159; 233; 274-275).
8. The best tax code is one that offers more incentives to invest in the U.S. Therefore, the U.S. Congress should take measures such as making the R&D credit permanent and more generous, recognizing the importance of high-skill immigration, and giving the Office of the United States Trade Representative more resources for trade enforcement. At a combined state-federal rate of 32 percent, the U.S. effective corporate tax rate is one of the highest in the developed world (pp. 171-176; 234; 238-239; 241; 298).
9. The federal government needs to not only support what the authors call "factor conditions" (e.g., basic scientific research and education), but also key broad industries and technologies (pp. 99; 134-141; 234-235; 245-249).
10. The government should pick winners by identifying general industries and broad technology areas of national economic importance and play a decisive role in mobilizing public and private resources to meet clear opportunities and challenges. Firm size should not be a criterion to pick winners. More and more U.S. companies realize that they are competing against foreign companies that are backed by their states (pp. 14-15; 69; 91-101; 124-127; 133-141; 158; 176-181; 192-209; 234; 275; 279; 291).
In summary, Messrs. Atkinson and Ezell invite Americans to recognize that the U.S. is no longer in pole position in the innovation race and to act decisively and boldly before the ongoing decline becomes irreversible.
The book disused on how the US stumbled into the great recession (2007-2009) and went on to explain how the US is no longer the global innovation leader (and how England declined as well).
The authors went on and warned that the global race for innovation is current under way, and unless the US government implements public policies to embrace innovation and the current mindset, we may lower our standard of living (they provide a powerful case in support of increasing R & D initiatives to support innovation).
After discussing the challenges, the authors lays out a plan (if successful) could regain its global advantages in the next 10 years.
The book was 440 pages, but was a quick read. The book was jammed with fresh ideas and relates greatly to what is currently happening in the US and is a MUST READ for anyone interested in innovation or economics in general.
On the other hand, to embrace innovation, policymakers need to abandon the ideology of market fundamentalism espoused by neoclassical economics. In reality, innovating activities need a lot of support and coordination from government. When left alone, private firms tend to underinvest in innovating since they are unable to appropriate full benefits from their own innovative activities. However, social returns in terms of knowledge spillovers from innovating benefit the society at large. The differences between private and social returns arising from innovating activities call for right national innovation policy.
The authors identify seven broad areas that a national innovation strategy or policy must get right. They are ‘the seven “I’s” of innovation policy: Inspiration, Intention, Insight, Incentives, Institutions, Investment, and IT (information technology).’ (P.163)
Unfortunately, ‘many countries are increasingly adopting a negative-sum, beggar-thy-neighbor, “innovation mercantilist” approach that seeks to realize innovation-based growth by manipulating global trade to boost their exports and reduce imports while forcing foreign technology and innovative activity to come to their shores.’ (P.191) These mercantilist practices, with the sole aim of gaining unfair trade and innovation advantage for countries practising them may include currency manipulation, tax and export subsidies, tariffs, intellectual property theft and industrial espionage to steal trade secrets, discriminatory procurement and regulatory practices to block foreign competition, mandatory technology transfer from foreign multinationals and setting local technology standards to avoid paying royalties. China is named by the authors as ‘the largest and most pernicious innovation mercantilist.’ However, supporting overall productivity growth is the key to long-term success.
By and large, the authors are able to deliver in plain and non-technical language the concept, the practice and the significance of innovation in both local and global economic activities. The text is systematic, informative and accessible to a wide range of audience.