US Presidential Candidates and Innovation

This article appeared in today’s Irish Times.  In it,  I try to briefly summarise Obama’s and Romney’s positions on innovation,  including R&D funding,  immigration policy,  corporate taxation and net neutrality.   There’s a tremendous amount that could be discussed,  but I was limited to only about 800 words 🙂

When Apple first launched the Mac, Steve Jobs noted that “innovation..is not about money. It’s about the people you have, how you’re led, and how much you get it.” At the time, he noted that IBM was spending at least a hundred times more on R&D. When Apple came up with the iPhone, the rest of the mobile handset industry – companies like LG, Microsoft, Motorola, Nokia, RIM, Samsung, Sony and Symbian – were investing heavily in keypad and pen-stylus phones. When Apple came up with the iPad, Microsoft had already invested heavily in PC-based tablet computers.

Innovation is fundamental to sustainable economic growth. Not only does innovation create new ventures, jobs and wealth but also it defends established ventures from withering under international competition. Which creates more advantage for an economy: building and hosting a world leader in a particular market, or merely renting to a tenuous operation of some foreign multinational ?

It seems that both US Presidential candidates, Barak Obama and Mitt Romney, agree that innovation is not so much about money. In 2008, candidate President Obama pledged to double federal funding on the basic research agencies (the NSF, NIST and DOE SC) over the ten years 2006-2016. However so far his increases have been much more modest: a 3.3% in total federal R&D funding for 2013 over 2012 figures to 141BnUS$, which is a 12% increase from the 2006 baseline figure of 124BnUS$.

Candidate Romney has pledged an immediate five percent reduction in discretionary spending, other than investment in national security. Should he become President, he has pledged that R&D programs which are unrelated to national defense will be diminished.

It would thus seem that both candidates are unlikely to actually materially increase tota federal spending in basic research, and in consequence there has been some disillusionment about “boom-bust” federal R&D funding which impacts on career paths amongst scientific researchers.

Do the two Presidential candidates then instead believe that innovation is about people ? Six of the top ten universities world wide (according to the 2012 QS rankings) are in the US, and fourteen of the top twenty-five. One would naturally expect a steady stream of new ventures generated by recent graduates of the US academic system, driving employment and growth in the US economy. Perhaps this is indeed happening, but not necessarily on US soil. American graduate entrepreneurs are increasingly under the burden of university fee debt, arguably delaying their desire to risk joining a start-up, even less launching one themselves. In the period 2005-2010, the number of start-ups in the US with more than one employee decreased by more than 25%, and consequently fewer jobs are being added to the economy than previously. Meanwhile, entrepreneurship has globalized, and governments such as those of Canada, Chile, China, Germany, India and Singapore all offer various incentives to attract the best and the brightest worldwide – many of whom were educated in the US – to found start-ups in their own jurisdiction rather than anywhere else.

In the decade from 1995, half of Silicon Valley startups had an immigrant as a founder. Andy Bechtolsheim, Sun Microsystems co-founder, is from Bavaria. Former Intel chief executive Andy Grove was born in Budapest. Yahoo co-founder Jerry Yang was born in Taipei. Google co-founder Sergey Brin was born in Moscow. The founder of eBay was Parisian Pierre Omidyar. Elon Musk, founder of PayPal, Tesla (electric cars) and SpaceX (private space vehicles), was born in Pretoria. Facebook co-founder Eduardo Saverin was born in Sao Paulo. The founders of AT&T, Kraft Foods, Honeywell, US Steel and Dupont were all “immigrants”. But well over 20,000 American-educated graduates leave the US under the national immigration caps, and so work elsewhere. If it is easier for savvy immigrants with a great US education to work outside of the US, then is the benefit for the US economy only the academic fees paid for their university courses ?

Obama has called for “fixing the immigration system for America’s 21st century economy” and has launched a number of initiatives to clarify visa requirements for those of “exceptional ability”. Romney wishes to raise the limit on visas for immigrant
holders of advanced degrees in technological fields. He would give green
cards to foreigners who graduate from U.S. universities in these fields.

What of the corporate tax system? Obama and Romney both assert they wish to simplify the US system, favoring research and development tax credits whilst eliminating business tax breaks and in both cases lowering the corporate tax rate. Romney wants to transform the US tax system to impose tax on income in the jurisdiction in which that income is earned. He would not penalize companies re-patriating profits back to the US. Obama wants to collect more taxes from US multinationals by imposing a minimum tax rate on US corporations operating in low tax jurisdictions.

How about the web, which has become a global channel for commerce ? Obama wishes to preserve “net neutrality” so that internet service providers and telecommunications networks would never favor and give precedence to the traffic for one web site over another. Romney takes an opposing view: if a corporation wishes to pay a premium to ensure its web presence has better performance and responsiveness than its competitors, then so be it – market forces should dictate the future of the internet.

Obama wishes to expand broadband access to all US citizens, regardless of their
location within the US and has been criticized for
slow progress on this issue. Romney would leave broadband access to state, city and local administrations, and the responsiveness of the private sector.

“You cannot escape the responsibility of tomorrow by evading it today” asserted President Abraham Lincoln. Political candidates, most of all those for the Presidency of the United States, owe it to their electorate to be assertive, transparent and unreservedly committed to executing their policies if elected. The future of the US economy, and in turn of many others across the planet, depend on how much – indeed, even whether
– the President gets it.

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About chrisjhorn

https://chrisjhorn.wordpress.com/about/
This entry was posted in economy, education, Enterpreneurship, USA. Bookmark the permalink.

2 Responses to US Presidential Candidates and Innovation

  1. We are no strangers to short term thinking here in Ireland either. The Research Prioritisation effort is a case in point, which ended up with a “focus” on 11 areas … seriously? Despite protests they also managed to miss software as strategic, despite each of the focus areas having identified it as a key technology for delivery of their research. And of course this was all on the back the Innovation Taskforce report, which I’m sure you’ll remember was shelved by the government soon after its publication. And what is the only area of the economy apart from agriculture to actually perform … technology of course. Like charity, R&D focus should begin at home but we continue not to reinvest with significantly lower BERD than the likes of Sweden and Finland!

  2. chrisjhorn says:

    There are some interesting observations for Ireland from the current US debate on innovation – but I was limited to about 800 words for the article 🙂

    Just for the record, the Innovation Taskforce work was being followed through after its publication by the previous administration, with a number of actions implemented and further ones planned; but much of the work seems to have stopped when the new administration took over last year.

    best wishes
    Chris

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