The Obama Innovation Strategy: An Assessment

President Obama has released an updated strategy for US innovation. Such policy statements are frequently useful more for what they emphasize and diminish than as a signal about what might actually get accomplished. That is probably the case here, especially as the President faces a hostile Republican House of Representatives and a slender majority in the Senate. This one is pretty comprehensive and does mention longer term issues like improving education as well as more urgent priorities like providing better access to capital. All in all, it reflects the state of American thinking about what should be done - and how it might be accomplished.

Ken Jarboe of the Athena Alliance provides a thoughtful analysis in his IntangibleEconomy blog:

"The Obama Administration released their updated Strategy for American Innovation. This is part of the Administration's new push on innovation, jobs and competitiveness. As the Fact Sheet and the White House blog posting make clear, this is an expanded version of their earlier document. To quote from the fact sheet, this latest version includes 5 new initiatives:

•The Administration's proposed Wireless Initiative, helping businesses reach 98% of Americans with high-speed wireless access within five years, accelerating wireless innovations, and substantially expanding, by 500 MHz, the development of new wireless spectrum for commercial use. Expanding new commercial spectrum is critical to avoid "spectrum crunch" and facilitate the rapidly growing wireless technology revolution.

•A patent reform agenda, working to overcome the enormous backlog at the patent office and improve patent quality. Legislative and administrative initiatives can allow the USPTO to adequately fund its operations through user fees and implement new initiatives to improve patent quality. The overall agenda will reduce the average delay in patent processing times from 35 months to 20 months, and to less than 12 months where applicants prioritize their applications.

•A commitment to clean energy leadership, proposing a Clean Energy Standard that will help us reach a goal of delivering 80% of the Nation's electricity from clean sources by 2035. To accelerate innovation, the Administration's FY 2012 Budget further proposes to expand funding for the Advanced Research Projects Agency - Energy (ARPA-E), to create three new Energy Innovations Hubs to solve challenges in critical areas, and to fund research, development, and deployment initiatives that will help the U.S. reach the goal of one million advanced technology vehicles on the road by 2015.

•New commitments to improve K-12 education, emphasizing science and math skills. Administration initiatives will train 100,000 new science, technology, engineering, and mathematics (STEM) teachers over 10 years, establish ARPA-ED to drive educational innovations, build on the success of Race to the Top in spurring school reform, and expand on private-public partnerships to improve training and inspire more students - including girls and other currently underrepresented groups - to excel in STEM fields.

•The Startup America initiative, working to facilitate entrepreneurship across the country and increase the success of high-growth startups that create broad economic growth and quality jobs. Startup America will accelerate the transfer of research breakthroughs from university labs, invest $2 billion in capital for entrepreneurs, improve the regulatory environment for starting and growing new businesses, and increase connections between entrepreneurs and high-quality business mentors.
Some of these, such as Startup America, were also announced separately last week.

As I noted about the earlier version of the document, there is much to support in this strategy. But there are other proposals that should be considered. Many of these points can be found in our Athena working paper from December 2008 Crafting an Obama Innovation Strategy. Rather than reiterating all the points in that document, let me focus on the four areas that White House economist Austan Goolsbee highlights in his "white board" talk on the Startup America initiative. Those are: access to capital; regulatory barriers; business mentors; and tax cuts.

Access to capital: As I've argued for before, SBA needs to change its programs to utilize intangible assets. SBA should work with commercial lenders to develop standards for the use of intangible assets as collateral, similar to existing SBA underwriting standards. Allowing IP to be used as collateral will increase the amount of funds a company, such as one in the high-tech sector, would qualify for.

In addition, we shoud create an IP-backed loan fund. Other nations have developed special programs to encourage IP-based finance. The U.S. should set up similar programs on a pilot basis, ideally run by the SBA to take advantage of its lending expertise. Technical support could be provided by the SBA's Office of Technology, which already coordinates the Small Business Innovation Research (SBIR) program. The SBA technology office also works with the U.S. Commerce Department's National Institute of Standards and Technology (NIST) on its Technology Innovation Program and has a hand in other federal science- and technology-related initiatives. Such a direct lending program would be a step beyond SBA's current loan guarantee programs--direct lending is needed to jumpstart the process. Once the process of utilizing IP as collateral is fully established, the program could be converted to a loan guarantee structure.

Regulatory barriers: Regulations can be a barrier to small business. But, as I have argued before, regulations can create new opportunities. We need a regulatory review system that promotes these new entrepreneurial opportunities. The President's push as part of the innovation strategy for clean energy standards is a perfect example of how government push can create market openings.

Business mentors: We need to expand technical assistance to include identifying and managing intangible assets. Entrepreneurs and small business especially need help in utilizing their intangible assets. Other nations already have such programs in place, previous postings. One possibility is to expand the mission of the Manufacturing Extension Partnerships. Better yet would be to create our own equivalent of the Scottish Intellectual Assets Centre and embed the tools and activities of such a Centre in the operations of all our small business and entrepreneurship programs.

Tax incentives: In the past, starting up a new company meant building a factory, buying raw materials and equipment, and hiring workers. Starting up a company today means developing your intangible assets -- your knowledge base and the skills of your workers. Yet our tax incentives are still geared toward the old model. Some of the tax incentives proposed by the Obama Administration move in the right direction -- especially the cuts in payroll taxes to lower the cost of hiring new workers. But we need to focus more on helping companies -- especially small business -- increase the knowledge base and skill levels of their existing workers. That is way we need a knowledge tax credit that would apply to company expenditures on worker training and education -- just like the R&D tax credit applies to expenditures on research activities. It only make sense that boosting worker skill levels is a necessary compliment to any activities to raise innovation and productivity.

So -- I support the expanded version of the Strategy for American Innovation. But much more can and needs to be done. The strategy should focus on the broad range innovative activity and recognize the role of intangible assets in fueling economic prosperity.

We have a good start. Let's push it further