Author Interview: “Innovation Economics: The Race for Global Advantage”

In this interview, Intellectual Property Watch‘s Julia Fraser sat down with Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington, DC-based policy think tank, to talk about his book, “Innovation Economics: The Race for Global Advantage,” co-authored with Stephen Ezell.

The book addresses US economic strategies and policies, or lack thereof, relating to innovation and technology, in comparison with past and present policies of other nations. It identifies “good” and “bad” national policies, the latter promoting national innovation at the expense of other countries and global efforts for innovation. The authors argue the US is falling behind in the innovation race, and sets out a road map for recovery.

The book was published by Yale University Press in 2012, and is available here.

Intellectual Property Watch (IPW): What is your book about and what are the key points to highlight?

ROBERT ATKINSON: We wrote the book in part because we would get delegations from other countries coming through Washington meeting with us and asking, “What’s the US miracle, tell us what to do, how did you do it?” We would hear them talk about all of the very interesting things that they’re doing to get innovation happening in their country. And we would tell them we’re not doing very much in the US. The US doesn’t really have a national innovation policy, a lot of it is serendipity, historical, cultural – we also take risks and we like entrepreneurs.

Out of that realisation was that there was this emerging race for what we call innovation advantage now. That’s the focus of the title: the race for global advantage. Then there are two types of policy: good and bad. There is an amazing array of good policies that a wide range of countries are putting in place. Policies like research parks,engineering research centers, STEM[science, technology, engineering, mathematics] education, R&D tax incentives.

But at the same time some countries are putting in place what we would call “innovation mercantilist” policies. In other words, trying to win at the expense of other countries. Trying to win at the expense of global innovation.

A good example of that was what the Chinese were trying to do with their indigenous innovation product catalogue system. This is a programme several years ago that the Chinese wanted to put in place where they would essential tie government procurement, including state-owned enterprises – at 50 percent of the Chinese economy – to these catalogues. The idea was well intentioned, and others have done a similar thing to think of government procurement as a way to drive innovation. But when Chinese decided to do that, they put a little twist on it, which is to say: you can only buy in the catalogue and only companies in China are allowed to be in the catalogue. And if you’re a foreign company you can be in the catalogue but you have to produce in China, and you have to give your IP to the Chinese companies. This was really unprecedented; no country has ever tried to do this.

The second thing we argued in the book was that the US is not doing what it needs to do to win in the race. We did a review of books and scholarly articles on explaining UK industrial decline from the late 1960s to the mid-80s.

Our analysis of that was that we’re following in the UK’s path, we’re making many of the mistakes the UK made: not supporting innovation, labour-management conflicts, a corporate focus on short-term investments, defending the currency, etcetera. Our argument is that now in this second decade of the 21^st century, the global competition is not just about routine production; it’s about countries wanting to move up the value chain with innovation. But there’s a good way to do that globally and a bad way, and if countries like the US and Europe don’t respond adequately they’ll get left behind.

IPW: What recommendations are set out in the book for the US?

ATKINSON: There’s a whole chapter on recommendations for the US, what we call the four T’s: trade, technology, talent and tax.

On talent, for example, we don’t have anything like the Swiss or the German technical educational system. We’ve got real deficiencies in middle technology skill levels. We’re not doing a very good job on STEM education. We have fewer BS [bachelor of science degree] level engineers than we did 25 years ago. The only reason we’re not doing worse if because there are so many foreign STEM students who come to the US and stay. Which is fine but not necessarily sustainable as a lot of them, as countries develop, come to the US less and less.

On technology, we don’t really have a national technology policy like many other countries do. For example, the Germans have a Fraunhofer system with over 60 public-private institutes that work with companies and universities collaboratively on pre-competitive research.

Tax policy: we used to have the most generous research and development tax credit in the world 25 years ago, now we’re 27^th. The UK’s got a better policy, China’s got a better policy. There are also tax incentives in Australia, France.

On trade policy, our argument is that we not only need to do market opening things like TTIP [Transatlantic Trade and Investment Partnership], but we need to do a much better job of trade enforcement.

IPW: Has there been any progress since the book was published?

ATKINSON: Slowly. US politics are very contentious, which makes it hard to get things done. Congress has been able to pass some things like a patent reform bill, which among other things gave the PTO [US Patent and Trademark Office] authority to keep fees. But for example we had a bill about “patent trolls” that passed the House but has not passed the Senate, not so much for partisan reasons but interest group reasons.

The House just passed a permanent expansion of the R&D credit, which is a good thing, but it’s not clear the Senate will pass it for budget reasons. Obama has proposed Fraunhofer-type institutes – a national network of manufacturing innovation. The Senate will pass the bill I believe and give it funding. The House may also pass the bill on this, but it may not give it much funding.

I don’t think, compared to other countries, the prospects are strong for the US to respond adequately over the next 5 years.

IPW: Is there widespread realisation that the US is falling behind on innovation competitiveness?

ATKINSON: In the US, the consensus view is that the US is number one, and always is, always has been, and always will. There’s a reassuring mythology that’s emerged that companies are moving back to the US and that while the Chinese may be good at commodity production, we’re still the innovation leader. We obviously reject those views.

I think the US is not doing anywhere near as well as the consensus. However, there’s more awareness that we have a problem. It’s still in the minority but it’s closer to being the majority than it was 5 years ago. And the financial crisis helped make that more of a reality.

The second step is what should we do about this. Largely we have the Republicans that say we should be thinking about tax reform and regulatory reforms, which are needed. Then you have the view of the Democrats which are no way are we going to cut taxes on companies and we don’t really want to make the regulatory system more streamlined, but we do want to increase public investment which is also needed. If you look at what other countries are doing, they’re trying to do all of the above.

IPW: Which countries are doing better on policy or performance?

ATKINSON: One of the things we talked about in the book is the “innovation success triangle” – to do well you’ve got to do well on all three components. One is the business environment: entrepreneurial risk-taking, business financing, finance innovation, good management. The US does really well on those things, better than almost any other country in the world.

Then you’ve got tax/regulatory/trade factor conditions. Compared to Europe, the US is doing better although we’re getting worse slowly. Europe has many more problems there.

The third component is the innovation policy : are you putting in place creative policies to spur technology transfer, commercialisation. That’s where the US is falling down dramatically. We just released a study where we looked at who is funding R&D at universities. The US now ranks 22^nd on a per GDP basis. The other countries have put a lot of money into universities because they think it will translate into good jobs, fast growing industries.

The problem is that there’s no country that’s doing all of those things right. The closest you get are the Scandinavian countries. Chile is also very interesting.

If you take who’s going to be leading in the next 10 years, I think the Scandinavians will do well. China, just because they’re putting so many resources behind trying to win, they will continue to do well. I’m very dismissive of the view that China can’t be innovative. They’ve got a lot of innovation that’s industrial innovation. South Korea as well, and Austria, Germany and Switzerland.

IPW: Thank you.

Julia Fraser is an intern at Intellectual Property Watch. She is currently training to be a solicitor and will start work at an international law firm in London in 2015. She has a BSc Honours in Biology from Edinburgh University where she developed an interest in public health related intellectual property issues.