Investment in Innovation Needed

There is no denying the U.S. is in an economic crisis. It seems every day brings more news of major companies laying off employees. The Chinese word for crisis is made up of the characters for danger and opportunity. Maybe just maybe innovation is the opportunity that will not only lead the U.S. out of this crisis, but lay the foundation for a stronger economy.

The website, InnovationEconomics.org defines innovation as "the development and adoption of new products and services, more efficient production process­es, and new business models," and calls for innovation to be put "at the center of our nation's economic policies."

A report titled An Innovation Economics Agenda for the Next Administration states that the Congress and President need to "take concrete steps to ensure that the economy is on a robust growth path over the next decade." The report lists eight steps that should be taken:

1. Significantly Expand the Federal Research and Development Tax Credit
2. Create a National Innovation Foundation
3. Allow Foreign Students Receiving a graduate Degree to Receive a Green card
4. Reform the Patent System to Drive Innovation
5. Let companies expense new investments in information technology in the first year
6. Establish a federal chief information officer
7. Implement a national nroadband strategy
8. Implement an Innovation-based national trade policy

A recent BusinessWeek article proclaims that there is a "daring new direction in economic strategy sweeping U.S. states." States have been investing in innovative projects, blurring the line between public and private. The areas states have invested in include renewable energy, which is needed to stop climate change.

A report by the National Governors Association and the Pew Center on the States lists steps the states can take:

1. Develop a statewide research and innovation
strategy that not only puts in place all the
components for innovation, but aligns them
in ways that provide advantages to in-state
companies;
2. Make investments to gain talent, build topnotch
research enterprises and compete for
federal dollars in those focused areas where
the state can be world-class;
3. Encourage, even mandate, collaboration
among universities, the private sector and
other institutions;
4. Put world-class professionals, not political
pals, in key positions;
5. Create an organization and consistent
funding source that facilitates a continuity
in R&D partnering and spending; and
6. Hold the recipients of public investments
accountable for delivering on promised
benefits.

The current economic crisis has hit the states hard and most of them have huge budget deficits. Clearly, federal investment is needed. The stimulus bill passed by the House this week includes funds for research and development.

A Productivity Based Economy is Needed

"We are a nation in search of an economy," the writer of Talking Points Memo blog post proclaimed. Over the last ten years U.S. economic growth has averaged 2.7 percent. BusinessWeek calculated that U.S. consumers ran up about "$3 trillion in excess borrowing and spending over the same period." In other words, the U.S. economy was based on consumption instead of productivity. The $10 trillion national debt is a good example.

BusinessWeek suggests that there are several things that can increase economic growth. The first thing that needs to happen is U.S. industries focusing on "generating more productivity gains at home." The U.S. needs less outsourcing and more manufacturing at home.

The second thing that needs to happen is investment from the federal government in "infrastructure, education and innovation rather than consumer spending."

Does the economic stimulus package passed by the House this week, contain funds for infrastructure, education and innovation? Let's start with infrastructure. The House bill provides $30 billion for highway construction. It provides $20 billion for renovating schools, and $5 billion for renovating and constructing public housing.

Now let's look at education. Over $140 billion in the House's bill goes toward education. Title I schools would receive $13 billion in two years, as would special education. The Head Start program would receive $2 billion, and the states would receive $79 billion so they can avoid lay-offs in education.

What about innovation? Research and development (R&D) would receive $16 billion: $9.9 billion for basic research, $3.4 billion for R&D facilities and equipment, $2.5 billion for science and technology related projects. Funding would have to distributed within 120 days.

Buy American plays role in stimulus plackage

The Senate stimulus bill contains a clause that would require using American made steel in all projects receiving funds. Although the clause has received much criticism, including from the European Union, Senator Sherrod Brown (D-OH) defended it saying, "It's pretty clear that American taxpayers want their tax dollars spent on projects where materials are made by Americans. I've seen across-the-board support -- with the exception of a few economists and a few newspaper publishers -- for 'made in America.' "

He added: "It is not a trade war for us to insist that products we use in this country are made in this country."

It certainly would be good news for the "Rust Belt" of America if the bill that is signed into law contains the "Buy American" clause.

For further reading:

Note to U.S. Multinationals: Be American, Produce in America

UN Secretary General Calls for Business Action on Climate Change

Today the UN Secretary General, Ban Ki-moon called for businesses to "re-orient your organizations for the economy of the future" while speaking at the UN Global Compact's World Economic Forum in Davos/Switzerland. Ban Ki-moon described a green economy as low-carbon, energy efficient, investing in sustainable technologies, and creating jobs.

Ban Ki-moon acknowledged the momentum for a "global green new deal." He urged business leaders to "develop good policies and practices in the areas of human rights, the treatment of workers, the environment and anti-corruption." He also urged business leaders to use the Global Compact's "accountability framework and disclose your progress annually." He reassured them that by "doing so" they would help "restore trust, confidence and credibility into the markets."

The Global Compact is a "leadership platform...offering a unique strategic platform for participants to advance their commitments to sustainability and corporate citizenship," according to its website. It has over 4,700 participants from 130 countries.

Ban Ki-moon called it the " world's largest corporate sustainability initiative," and urged business leaders to join in the Global Compact's "new phase."

Studies confirm green economy will create millions of jobs

A study released by the United State Conference of Mayors last fall details the advantages of a green economy. The advantages include "investments in new technologies, greater productivity, improvements in the US balance of trade, increased real disposable income across the nation…lower costs of doing business, and reduced household energy expenditures.”

The study called for investments in renewable energy, alternative fuels, and clean technology, which it describes as "critical to our competitiveness in the global economy, to our living standards, indeed, to our future."

A joint study by the Center on Wisconsin Strategy, The Workforce Alliance, and The Apollo Alliance states that a "greener American economy can and will create jobs," but the amount of jobs created "depends on the scale and terms of future investment."

For further reading:

Investing in Our Future: Support for a Clean Energy Economy

One Way to Kick-Start the Economy