Rob Atkinson Balt Tecna 2009

Innovation and Innovation and Entrepreneurship: Policy Entrepreneurship: Policy

Opportunities and ChallengesOpportunities and Challenges

Remarks at TECNARemarks at TECNABaltimore, March 19, 2009Baltimore, March 19, 2009

Rob AtkinsonRob AtkinsonPresidentPresident

Information Technology and Innovation Information Technology and Innovation FoundationFoundation

ITIF is public policy think tank committed to articulating and advancing a pro-productivity, pro-innovation and pro-technology public policy agenda internationally, in Washington and in the states.

Is There Opportunity in Crisis?

Recessions “are the means to reconstruct each time the economic system on a more efficient plan. But they inflict losses while they last, drive firms into the bankruptcy court, throw people out of employment, before the ground is clear and the way paved for new achievement of the kind which has created modern civilization and made the greatness of this country.” (Joseph Schumpeter, The Theory of Economic Development.)

IT Drove the U.S. Productivity Turnaround

(Annual rate of total factor productivity growth)

And Continues to Drive Productivity, Even in Recession

There are Innovation and Entrepreneurship Opportunities

in Downturns

Startups respond positively to growth.

But they also are promoted by a low cost of capital and higher unemployment.

Quality of startups is higher in recessions.

Cressy, 1993; Audretsch and Acs, 1994

Change in employment size for high-impact firms

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1994-1998 1998-2002 2002-2006

Ave. employees =19 Ave. employees =20-499 Ave. employee= 500-plus

Industry R&D Investment Does Not Appreciably Decline in

RecessionInvestment as Share Investment as Share of R&Dof R&D

Percent Annual Percent Annual GrowthGrowth

Average, 1953-2007Average, 1953-2007 1.22%1.22% 2.3%2.3%

Average, downturn Average, downturn yearsyears

1.19%1.19% 2.9%2.9%

But the Other Challenge is Long Term: The U.S. is Lagging in

Innovation

The Study: comparing innovation-based competiveness of 40 nations and regions

Countries: EU and NAFTA countries, Australia, Brazil, China, India, Japan, South Korea, Russia, and Singapore

Regions: EU-10, EU-15, EU-25, and NAFTA

6 Groups of 16 Indicators to Assess Global Innovation-based Competitiveness:

Economic Structure- human capital (college education; researchers)- innovation capacity (corporate R&D; government R&D;

scientific publications)- entrepreneurship (new firms; venture capital)- IT infrastructure (e-government; corporate IT

investment; broadband)

Economic Policy (corp. tax; ease of doing business)

Economic Performance (trade balance, FDI, GDP per worker, productivity)

We’re Number 1?

Actually, We’re Number 6

Now No. 6

Behind…

1. Singapore2. Sweden3. Luxembourg4. Denmark5. South Korea

Benchmarked Change from the Beginning of the

Decade

1. China2. Singapore3. Estonia4. Denmark 5. Luxembourg6. Slovenia7. Russia8. Lithuania9. Cyprus10.Japan11.Hungary12.Slovakia13.Czech Republic14.India

15.Latvia

16.Austria

17.S. Korea

18. Ireland

19.EU-10

20.Spain

21.Sweden

22.France

23.Portugal

24.Malta

25.Belgium

26.EU-25

27.Poland

The U.S. is Behind….28.UK

29.EU-15

30.Mexico

31.Netherlands

32.Australia

33.Finland

34.Canada

35.Germany

36. Italy

37.NAFTA

38.Greece

39.Brazil

40.United States

Corporate R&D

Corporate R&D Change

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

Corporate R&D Change: 2003-2007

Government R&D

Government R&D Change

Some States Are Also Lagging in Innovation

The 2008 State New Economy Index uses 5 groups of 29 indicators to map how well places are adapting to the New Economy:

Knowledge Jobs

Globalization

Economic Dynamism

Digital Economy

Technological Innovation

2008 SNEI Overall Scores

TOP 5:

MassachusettsWashingtonMarylandDelawareNew Jersey

Workforce Education

U.S. Migration of Knowledge Workers

Immigration of Knowledge Workers

Fastest-Growing Firms

Venture Capital

High-Tech Jobs

Industry Investment in R&D

So, What To Do?

An Innovation Economy Requires an Innovation-

Based Economic Development Policy

Economic Development Doctrines and State Economic Development Policy

Conventional Economic Development

Neo-classical Business Climate

Neo-Keynesian Populist

Innovation Economics






Source of growth:

Capital investment

Principal Economic Development Means

Drive down costs through firm-specific subsidies

Object of Policy

Recruitment of out-of-state firms

Quality of Life

Minor importance

Goal Get big






Source of growth:

Capital investment

Capital investment



Drive down costs through lower taxes and reduced regulations

Object of Policy



Quality of Life

Minor importance

Not important

Goal Get big Get big






Source of growth:

Capital investment

Capital investment

Worker incomes




Drive up wages and benefits and foster more progressive taxes and public spending

Object of Policy



Small business and socially- conscious business

Quality of Life

Minor importance

Not important High importance

Goal Get big Get big Get fair






Source of growth:

Capital investment

Capital investment

Worker incomes Innovation and organizational learning




Drive up wages and benefits and foster more progressive taxes and public spending

Spur firm innovation through targeted supports (e.g., research, financing, skills, etc.) and incentives for firms to produce these themselves.

Object of Policy



Small business and socially- conscious business

High growth entrepreneurs and existing firms

Quality of Life

Minor importance

Not important High importance Moderately important to attract and retain knowledge workers.

Goal Get big Get big Get fair Get more prosperous

Align incentives to innovation

Use targeted investments in knowledge infrastructure as an incentive.



Investment tax credits should include R&D and software, not just manufacturing.




Extend sales tax parity for manufacturing purchases to computers and IT equipment.




Extend sales tax parity for manufacturing purchases to computers and IT equipment.

Create, expand and align state R&D tax credits with the new Federal R&D tax credit.

Don’t Forget Institutional Innovations

Create Different and Better K-12 Schools.



Shift the Focus of Post-Secondary Education More Toward Acquiring Skills.



Shift the Focus of Post-Secondary Education More Toward Acquiring Skills.

Take Industry-University Partnerships to a New Level.

[email protected]

www.itif.org

Thank You

Economy & Finance

Rob Atkinson Balt Tecna 2009