The Case for Innovation: Thoughts from Phil Weiser and Jon Sallet

The United States economy cannot grow without continued innovation.  By boosting productivity and stimulating long-term job creation, innovation supplies the X-factor that facilitates economic prosperity.  Yet we currently struggle with the twin macroeconomic needs of preventing a new recession and creating fiscal stability through long-term deficit reduction, making it difficult to focus on innovation policy.  Consequently, the claims of tomorrow’s industries, which promise to create robust economic growth and high paying jobs, are harder to address.

Even if innovation is, by its nature, hard to predict, we know how to spur it on.  The commercial success of important technologies like GPS, speech translation technology, and CAD tools were made possible by federal programs.  Perhaps the most noteworthy success is the Internet, which enjoyed robust federal support from its origins as ARPANET in 1969 to full-fledged commercialization in 1995.  This policy—planting seed corn and encouraging the private sector to commercialize the harvest—has changed the everyday lives of Americans in countless ways.

Certain innovation policies deserve particular attention in tough fiscal times.  Those include: support for basic research, immigration reform for highly skilled workers, encouragement of bottom-up regional economic strategies, and using innovation to advance national priorities such as supported by the Department of Energy’s ARPA-E program.  These priorities illustrate the key tenets of an overall approach to innovation: Empower talent and the foundation of basic research, then put them to work supporting bottom-up strategies and commercialization of technologies that will boost regional growth and work to solve national priorities.

Basic research—research to learn unknowns—is essential to enabling innovation because it advances the scientific knowledge base of the country and contributes practical advances that can help people and create economic opportunity.  Unfortunately, market failure is a barrier to basic research.  Reluctance by the private sector to invest in this type of research when immediate returns are unavailable necessitates federal government attention.  After all, “if history is [a guide], long-term economic growth will be fueled by waves of technologies that may very well originate from ideas that are driven by curiosity rather than profit.”

Talented, high-skilled individuals wish to come to the United States to help build our economy and we say “No, thanks.”  That must change.  Despite demand for individuals skilled in science, technology, engineering, and medicine (STEM), high-skilled immigrants with domestic and foreign educations have difficulty obtaining the limited number of available temporary and permanent visas.  The StartUp Visa Act of 2011 and related efforts provide a powerful example of an immigration reform measure that can catalyze entrepreneurship.  In its current form, the Startup Visa bill broadens opportunities for startups, as well as their founders and investors, to receive permanent visas for their entrepreneurial initiatives.  Enacting this bill—and pursuing related measures—can catalyze innovation and job growth at no cost to the federal budget.

Research has demonstrated that industries in a geographic cluster create new sectors, register higher employment, higher wage growth, more businesses, and more patents.  Such engines of economic growth must be empowered—their strengths enhanced through federal support of regional innovation clusters.   Building on local strengths, public policy can remove friction to success in such communities, incent the implementation of strategies that build on comparative advantages, and look for opportunities to support key elements of a vibrant ecosystem.

Government programs can also catalyze innovation in service of addressing national priorities, such as energy security.  Consider, for example, ARPA-E, which seeks to bridge that valley of death, the gap between the discovery of a breakthrough technology and its mainstream adoption.  Late-stage funding by the venture capital community is limited and cannot fill this need by itself.  Of course, innovation is a chancy business, and it is likely that a large proportion of ARPA-E’s experimental energy ideas—like many of DARPA’s ideas—won’t make it out of the lab.  But, as MIT’s Donald Sadoway put it, “if just a few of them pay off, the impact [will be] enormous.”  In short, ARPA-E can help support breakthrough technologies that are too risky for the private sector to take on alone.

Good governmental policy is the critical path toward sustained economic growth, job creation, and American economic success in the 21st century.  The four areas emphasized—basic R&D, immigration reform for highly skilled workers, regional innovation clusters, and support for national priorities through innovation along the lines of ARPA-E—are important in and of themselves as well as because they represent the basic American formula for innovation.  Taken together, these strategies set forth the parameters of sound innovation policy as a whole:  Empower talent and the foundation of basic research, then put it to work supporting bottom-up strategies and commercialization of technologies that will boost regional growth and work to solve national priorities.

Phil Weiser, Dean of the University of Colorado Law School, and Jon Sallet, Senior Adjunct Fellow at Silicon Flatirons Center and partner at O’Melveny & Myers, wrote a paper in anticipation of the Silicon Flatirons Innovation Policy and National Competitiveness conference. The paper succinctly summarizes the innovation issues the United States is facing and suggests focusing policy initiatives on four areas that can spur economic growth and create opportunities. This is an excerpt of a longer the paper available here.