The idea for an invention or a new technology may strike unexpectedly, but innovation — putting those ideas to work in our society and our economy — is no accident. It doesn’t just happen. It must be cultivated. It requires the right elements, working in concert.
At the national level, we can and must do more to foster innovation. It will keep our economy humming, our businesses competitive and hiring, our manufacturers producing, our standard of living rising and our wages high.
There are five essential ingredients for innovation:
Human capital is the primary driver of innovation. We need the brightest minds to generate ideas and inventions. We need entrepreneurs to help bring life to these ideas and ultimately bring products and services to market. And we need skilled workers to do the knowledge work necessary to support the innovation industries, such as software, advanced manufacturing and health technology.
A competitive workforce is essential to staying ahead in a global economy. The United States must continue efforts to overhaul public K-12 schools, emphasize fundamental disciplines like reading and math as well as the STEM (science, technology, engineering and math) fields, and promoting lifelong learning and continuous job-training. Reforming our immigration system would also help us attract and retain more of the world’s best talent and hard workers and allow them to contribute to our economy, and not those of our competitors
Inventors and entrepreneurs need access to capital to help breathe life into their ideas and bring them to the market. Many startups rely on seed capital from family members, wealthy individuals, local banks, credit unions and even credit cards to help get off the ground. Large established firms also routinely turn to America’s vast pools of capital so they can invest in new products or services to satisfy market demand. This capital investment creates a virtuous cycle — ideas that are transformed into products or services generate revenue that is often poured back into research, development and discovery, leading to even more innovation, jobs and growth. This is the process that yields cutting-edge industrial techniques and more efficient business operations.
It’s critical that we keep our markets open and efficient and provide investors with predictable rules of the road so they can take appropriate risks. Any measures that strangle capital formation or choke off the flow of financing must be revised or repealed.
3. Competitive Business Environment
A tax, regulatory and legal climate that allows companies to continuously innovate — unshackled by needless delays and burdensome costs — is essential. But when the federal government’s tax and regulatory policies are excessive, it breeds uncertainty, slows investment, depresses new technologies, drives manufacturing overseas and puts businesses at a competitive disadvantage.
Our antiquated tax system needs reform. Both the individual and corporate tax rates need to be lowered, and we must adopt a territorial system so our businesses aren’t taxed twice on revenue they earn overseas. We need to make the vital R&D tax credit permanent so the private sector can continue to drive innovation.
We need a rational regulatory regime that balances costs and benefits, avoids redundant and duplicative rules and eliminates needless regulations. We also need legal reform to bring down litigation costs and reduce precautionary expenses related to tort risk.
4. Strong Intellectual Property
In a global knowledge-based economy, strong intellectual property (IP) protections are essential to ongoing innovation and competitiveness. The entrepreneurs and inventors who drive innovation must have assurances that their ideas and their investments will be rewarded with rights and protections.Without that assurance, the incentive to innovate will decline.
The United States should lead by example, by promoting adequate and effective IP rules and enforcement at home and abroad. We also need to crack down on IP theft, piracy and rogue websites; fully fund IP enforcement; and negotiate strong IP protections in trade and investment treaties.
5. Fiscally Responsible Government
A government that can responsibly manage its finances is important to a society poised for continued advancement. And America’s looming entitlement crisis poses a great threat to innovation and competitiveness.
Without reform, Medicare, Medicaid and Social Security are headed for bankruptcy. We’re using every dollar of federal tax revenue to try and sustain the programs, but we’re eventually going to run out of cash. And as long as federal revenue goes entirely toward mandatory spending, we won’t be able to invest in national priorities. There will be no money left for things like education, science, technology and the basic research that lays the groundwork for much of our innovation.
Meanwhile, our competitors are growing their investments by leaps and bounds. The Chinese government increased its yearly R&D investment by 500 percent between 1991 and 2002, and Beijing plans to increase R&D spending four-fold by 2020.
To keep the United States at the head of the global competition, we need to cultivate an innovation ecosystem that will allow ideas to percolate, enable inventions to be commercialized, help industries to advance and businesses to grow and create a steady stream of good jobs. The federal government can help by setting the right conditions for innovation.
David C. Chavern is Executive Vice President of the U.S. Chamber of Commerce and President of its Center for Advanced Technology & Innovation.