US innovation

Brooks with a very well done article on innovation. I think R+D tax credits, structured correctly and targeted at the correct industries, can actually make a lot of sense (see my “ideal healthcare reform” post). Otherwise, I agree with almost everything he says.

http://www.nytimes.com/2009/12/08/opinion/08brooks.html?ref=opinion

“…The first thing to say is, let’s not get carried away with the malaise. The U.S. remains the world’s most competitive economy, the leader in information technology, biotechnology and nearly every cutting-edge sector.

The American model remains an impressive growth engine, even allowing for the debt-fueled bubble. The U.S. economy grew by 63 percent between 1991 and 2009, compared with 35 percent for France, 22 percent for Germany and 16 percent for Japan over the same period. In 1975, the U.S. accounted for 26.3 percent of world G.D.P. Today, after the rise of the Asian tigers, the U.S. actually accounts for a slightly higher share of world output: 26.7 percent.

The U.S. has its problems, but Americans would be crazy to trade their problems with those of any other large nation.

…Governments that try to pick winners “too often end up wasting resources and stifling rather than promoting innovation.” But there are several things the government can do to improve the economic ecology….

First, push hard to fulfill the Obama administration’s education reforms. Those reforms, embraced by Republicans and Democrats, encourage charter school innovation, improve teacher quality, support community colleges and simplify finances for college students and war veterans. That’s the surest way to improve human capital.

Second, pay for basic research. Federal research money has been astonishingly productive, leading to DNA sequencing, semiconductors, lasers and many other technologies. Yet this financing has slipped, especially in physics, math and engineering. Overall research-and-development funding has slipped, too. The U.S. should aim to spend 3 percent of G.D.P. on research, as it did in the 1960s.

Third, rebuild the nation’s infrastructure. Abraham Lincoln spent the first half of his career promoting canals and railroads. Today, the updated needs are just as great, and there’s widespread agreement that decisions should be made by a National Infrastructure Bank, not pork-seeking politicians.

Fourth, find a fiscal exit strategy. If the deficits continue to surge, interest payments on the debt will be stifling. More important, the mounting deficits destroy confidence by sending the message that the American government is dysfunctional. The only way to realistically fix this problem is to appoint a binding commission, already supported by Republicans and Democrats, which would create a roadmap toward fiscal responsibility and then allow the Congress to vote on it, up or down.

Fifth, gradually address global imbalances. American consumers are now spending less and saving more. But the world economy will be out of whack if the Chinese continue to consume too little. The only solution is slow diplomacy to rebalance exchange rates and other distorting policies.

Sixth, loosen the so-called H-1B visa quotas to attract skilled immigrants.

Seventh, encourage regional innovation clusters. Innovation doesn’t happen at the national level. It happens within hot spots — places where hordes of entrepreneurs gather to compete, meet face to face, pollinate ideas. Regional authorities can’t innovate themselves, but they can encourage those who do to cluster.

Eighth, lower the corporate tax rate so it matches international norms.

Ninth, don’t be stupid. Don’t make labor markets rigid. Don’t pick trade fights with the Chinese. Don’t get infatuated with research tax credits and other gimmicks, which don’t increase overall research-and-development spending but just increase the salaries of the people who would be doing it anyway.”