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Weak Innovation Policy Environment Hampers U.S. Competitiveness, Finds ITIF

July 10, 2014

In recent decades as many countries have developed sophisticated national innovation strategies, the U.S. has generally avoided attempts to introduce a coordinated innovation policy system. Instead, U.S. leaders have placed their trust in the market, rather than the government, to generate knowledge, products and businesses. A new report from the Information Technology and Innovation Foundation (ITIF) suggests that this approach ignores a major factor in the success of innovation economies. Modern, competitive nations rely on three elements that comprise an “Innovation Success Triangle” – business environment, regulatory environment and innovation policy system.

ITIF’s Robert D. Atkinson breaks down the component aspects of each of these elements, and describes how the U.S. rose to global innovation leadership without developing a strong policy apparatus to drive research and technology commercialization. In the twentieth century, massive firms, such as Ford, GE and DuPont, funded research and buoyed American competiveness through sheer scale. Corporate R&D laboratories were joined by federal labs and university research centers in the post-war era, but there remained no economic strategy behind federal spending on research. Many smaller federal offices and programs emerged in the Reagan and post-Reagan era to boost innovation, but U.S. industrial competiveness began to lag as government and private sector attention turned to the information technology sector. 

New small-scale manufacturing technologies and the recent economic crisis have renewed interest in bolstering the industrial economy, but the U.S. finds itself without the means or political will to undertake a stronger hand in the market. Atkinson faults both the political right and left for their short-sightedness in abandoning industrial policy.

ITIF presents an overview of U.S. innovation policy, such as it is, and in doing so helpfully provides a model of what a modern, national innovation strategy looks like. Atkinson outlines the various types of policies that can be undertaken by a country seeking to compete at a global level, and demonstrates where the U.S. federal government has failed to take decisive action. For example, federal R&D support as a share of GDP has fallen substantially since its peak in the 1960s. The recent budget sequester quashed some of the progress that had been made in steadily ramping up R&D spending.

The launch of the National Network for Manufacturing Innovation is an encouraging indication of the government’s willingness to support private R&D and collaboration, but its scale lags well behind similar efforts in South Korea and Germany.  Atkinson also notes that the nation’s efforts to improve knowledge flows through cluster and regional collaboration efforts remain quite limited, as do U.S. efforts to synchronize higher education and immigration policies to the needs of employers.

Atkinson concludes that the lack of a national, coordinated innovation policy system is quickly eroding the country’s innovation advantage. Despite continuing strengths in managerial talent, IT deployment and business culture, many signs indicate that the U.S. will not be able to keep pace with countries willing to engage with innovation, such as Germany, Sweden and Finland.  He points to immigration and corporate tax reform as key, achievable items for policy progress if leaders hope to take action.

Read Understanding the U.S. National Innovation System

international, manufacturing