This is not the first time an administration has unveiled an innovation policy. President Bush released a more limited plan in April 2004, but the latest effort is unquestionably the most comprehensive. This in itself is encouraging; globally, economic innovation policy is a sprawling issue deserving of thorough treatment. More immediately, though, the new American strategy is grounded in an understanding that innovation is not just a business phenomenon to be encouraged—it is central to the nation’s economic survival in an increasingly competitive global marketplace. If the United States is to compete in the twenty-first century economy, its national innovation policy must be internationally competitive.
The administration’s strategy can certainly help the United States gain on its competitors. It focuses on increasing government funding for research and development, making the research and experimentation tax credit permanent, improving the country’s technical infrastructure, and producing a better-educated workforce. It also takes a page from President Bush’s 2004 plan, singling out alternative energy and healthcare information technology for special government attention while placing a new emphasis on advanced vehicle technology.
Though its recognition of the importance of the issues is commendable, much of the National Innovation Strategy is simply a retroactive reclassification of existing policies. Last month’s report touts Recovery Act spending, education reform, and the resuscitation of the Small Business Administration (SBA) as part of the innovation policy. But in the case of the SBA, it is not entirely clear how much of that agency’s new spending went to innovation-entrepreneurs and how much may have gone to more traditional small businesses. Certainly, a functional and well-financed SBA is a key component of the nation’s innovation infrastructure. But bringing the SBA back from the deprivation of the Bush years stands in stark contrast to the United Kingdom’s Innovation Fund, which has dedicated £150 million ($240 million) solely to investment in tech startups.
Absent from the discussions surrounding Obama’s innovation policy are two conspicuous points: foreign-source income taxes and global talent flow. Foreign-source income is relevant to companies that, though headquartered in the United States, have revenue-producing operations in other countries. How they are taxed is a hot-button issue. If taxes on foreign-source income in the United States are too high, it could drive multinational firms to move their headquarters to other nations with lower tax rates. The high-skill, high-wage jobs associated with corporate headquarters would then be lost.
But the talent flow question is more significant. As of April, there were more than three million vacant job postings in the United States at a time of almost 10 percent unemployment. Clearly, the American workforce isn’t up to supplying demands for highly skilled workers, and the Obama administration’s new strategy proposes to address this through education—the preferred long-term solution. Meanwhile, restrictions on the number of H-1B visas (currently at 65,000 per year, down from over 100,000 in the early part of this decade) issued to skilled foreign-nationals mean that U.S. firms unable to find American citizens with required skills must substantially alter their business model, shut down, or leave for another country.
It is not surprising that the administration elected not to include these issues in its recent white-paper. A Democratic administration runs a serious political risk lowering corporate taxes under any circumstances, and particularly in times of economic trouble when voters are concerned about jobs going overseas.
A similar concern prevails with respect to the issue of talent flow. Immigration is a political minefield, one that Obama has said his administration will not try to navigate before 2010. The White House simply has limited resources and more pressing crises to confront. It is unrealistic to expect a complete National Innovation Policy eight months into the presidency, in the midst of recession, a deeply contentious health-care debate, and two conflicts abroad. The recent white paper is surely meant as a beginning, not an end, to this discussion.
The fact that it manages to incorporate as many key points as it does is deeply commendable. But until contentious issues like foreign-source income and talent flow, among others, are addressed, innovation still faces considerable challenges in the United States.
Consider this: an entrepreneur conceives of a marketable new product. Based in the United States, he or she faces a still-frosty capital market. It is possible to apply for assistance from the Small Business Administration, but there will be substantial competition for loans with lower-risk businesses in more traditional industries. If the entrepreneur cannot find the skilled personnel the business requires, there is no way to import talent, and if the business is dependent on manufacturing-capacity based abroad, its profit-margin is reduced or endangered by taxes. What is the entrepreneur to do?
A very real option is to go to other countries with a more flexible and realistic series of policies, such as the United Kingdom. The innovator could apply for an entrepreneur visa, become eligible for investment from the UK Innovation Fund, import talent more easily, and deal with less taxation on foreign-source income.
A competitive national innovation policy is necessary if the United States is to make that entrepreneur the same offer that Britain (or Finland or Singapore) can. The Obama administration’s new strategy is not yet a fully-realized product, but it is certainly a step in the right direction.
Frank Spring has a background in policy, politics, and non-profits, and is currently a change and innovation consultant in New York and Washington, DC.