Rising to the Challenge: The National Academies and Innovation Policy

Congressional leaders united in outrage earlier this month when they learned that the uniforms for the U.S. Olympic team had been made in China. They would have done better to save their breath and instead spend some time reading the new report from the National Academy of Sciences, "Rising to the Challenge: U.S. Innovation Policy for the Global Economy." While it was a symbolic affront to see Olympic gear carrying a “Made in China” label, the future of the U.S. economy is not in Ralph Lauren’s hands. But if America loses its position as a leader in technological innovation, the report rightly notes, it will jeopardize “the foundation of its economic vitality and military power.”

The National Academies are a national treasure. With astonishing regularity, the institution convenes many of the best minds in the country to work on solutions to the most urgent public policy problems, especially, though not exclusively, in the realm of science and technology. All of the reports are made available to the public free online. The new report is a worthy successor to what is perhaps the Academies' most famous study, "Rising Above the Gathering Storm," which five years ago warned about the growing competitive pressures facing the United States.

It is hard to distill a 573-page report into a 500-word blog post (and actually I’ve only read the summary bits anyway), but I think its most important conclusion is this: the United States remains a leader in innovation, but is losing its ability to translate those discoveries into successful commercial products that are made in the United States. In the short-run, that costs jobs and incomes for Americans; in the longer run, that could also threaten the U.S. innovation edge because new discoveries are often closely tied to the commercial production of older discoveries. Innovation is often about devising better ways to make the same things, or tweaking existing products to make them more useful and valuable. And a country that makes fewer things begins to lose that capacity.

The U.S. advantages in research and innovation remain strong, the report argues. An open innovation system, strong intellectual property laws, bankruptcy laws that protect those who fail, and worker mobility all serve to make the United States the best place in the world to pursue new discoveries and bring them to market. Until quite recently, those breakthroughs would also have been scaled up in the United States.

But now, the report notes, there are many countries that are capable of taking U.S. intellectual breakthroughs and turning them into large-scale industries. “This is an important paradigm shift,” the report says. “Whereas the commercialization of research funded by the U.S. in the postwar era took place mostly in the United States, the globalization of innovative capacity in the 21st Century means that ideas developed in the United States can now be more easily developed and commercialized overseas.”

To its credit, that insight does not lead the panel to advocate protectionist responses, which would undermine the very openness that is the source of the continued U.S. lead in innovation. But it goes beyond the usual calls for more government funding of basic research, and argues for a strategic approach to help ensure that the benefits of technological breakthroughs flow more widely to the American people. That requires focusing not on innovation in isolation – we can have the best scientists, best IP protection, and best venture capital financing in the world, but if tax policy and regulation and infrastructure and immigration policy all work against expanding businesses in the United States, the gains to the U.S. economy will be small.

The report’s recommendations fall into four broad categories:

• Monitor and learn from what the rest of the world is doing – or as I would put it indelicately, if they can steal (sorry “borrow”) from us, we can borrow from them.
• Reinforce U.S. innovation leadership. This means strengthening the research universities and national laboratories that have been the foundation of the U.S.’s technological lead.
• Capture greater value from public investment in research. This means rebuilding infrastructure, strengthening manufacturing, and fostering public-private partnerships.
• Cooperate more actively with other nations. Many of the big global problems in energy, health, and the environment are ones that can only be addressed through shared innovation.

There is much, much more in the report deserving of careful study. I would urge our congressional leaders to spend their quiet summer weeks doing just that.