America Needs an Innovation Policy

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Power of Ideas

America Needs an Innovation Policy

Author(s)
David H. McCormick
David H. McCormick
(CEO, Bridgewater Associates)

We must turn our minds to the long game of national renewal, even as we continue to fight the coronavirus pandemic. Long before the outbreak of the virus, our country’s future seemed in the balance. China’s ascent and the shifting balance of power raised still-unanswered questions about America’s ability to preserve its position and influence around the world. This resurgence of strategic and economic competition was compounded by challenges at home: the opportunity gap and social injustice alongside rising national debt and other pressing domestic concerns. Thus, it will not be enough to recover from the disease; we must also address our preexisting conditions.

The declining state of innovation in America should sit near the top of the agenda. Scientific and technological leadership has long been a foundation of America’s prosperity and security. We cannot take that leadership for granted. China has made clear its plans to develop first-in-class indigenous technological capabilities and to shape global technology standards to its favor. It pours funds into research and development and has been accused of using industrial espionage to help Chinese firms. Meanwhile, US federal R&D spending recently hit 60-year lows as a percentage of GDP and as a share of national R&D funding. America is in a competition for global innovation leadership but not playing to win.

We must turn our minds to the long game of national renewal, even as we continue to fight the coronavirus pandemic.

America should adopt a national innovation policy. Recognizing that government intervention risks cronyism and inefficiencies, five principles should guide this national effort: (1) support US companies in sectors with winner-take-all structures or significant first-mover advantages; (2) fund promising, early-stage technological research; (3) support indigenous development in sectors where US competitors highly subsidize their own companies; (4) prioritize technologies or capabilities with significant military or strategic implications; and (5) harness the private sector and market forces.

Even as we move carefully, we must do so urgently. The costs of falling behind would be immense. High-tech sectors are often winner-take-all, meaning global leadership goes to whoever achieves market position first. And new civilian technologies increasingly offer a military or strategic advantage, and America’s competitors are pursuing them as a means to challenge us.

The most recent budget request from the Trump administration calls for a necessary R&D boost, but we should do even more to foster innovation. The US government should identify national R&D priorities, then support them with the dedication that drove the early space program. It should at least double funding for both basic science and applied R&D and expand access to data and cloud computing resources. It should also encourage greater coordination across academia and the private sector.

At every turn, policymakers should look to engage America’s unrivaled capital markets and private investment ecosystem. The government should establish investment funds where it bears the first loss to fund the development of strategic technologies, including artificial intelligence and quantum sciences. It should also raise R&D tax credits, especially for tech-related research. We could also take a lesson from the policy response to COVID-19 and try to lower barriers to private activity and entrepreneurship through continued deregulation, including occupational licensing reform.

US allies, such as Japan and the Five Eyes countries—Australia, Canada, New Zealand, and the UK—and other partners should play a leading role in this effort. The US could work with them to promote alternatives to Huawei’s 5G equipment, as the British have discussed, or to support semiconductor production. Together, we can conduct multinational R&D projects and better promote innovation through standard-setting bodies, such as the International Telecommunication Union.

To secure US innovation, Washington should continue to strengthen and target its use of export controls, investment screening, and other tools of economic statecraft. We must invest in our homegrown talent and work to attract overseas talent while guarding against intellectual property theft and security threats.

Post-pandemic, fiscal belt-tightening may be in order to narrow the deficit and contain debt levels, but lawmakers should recognize that the cost of losing America’s innovative edge far exceeds the investment required to keep it. Recovering from COVID-19 is only the first step. We must also keep our eyes on the horizon and make the investments now to ensure US economic might and national security in the decades ahead.

Published September 30, 2020