A Foundation for Innovation
Robert Litan had a short, hard-hitting, pragmatic editorial in yesterday’s WSJ titled “Innovators Matter Most.” There is a lot of high-level talk about what fosters innovation in a society, but Mr. Litan does a particularly good job laying out the issues in plain english that should make us wake up and take notice. As someone who has built and run high-performance teams on Wall Street and in start-up environments, I can really appreciate the points made in the editorial and know the prescriptives mentioned to be right and true.
While many elements of Litan’s piece specifically relate to the issues raised by Thomas Friedman in his book The World is Flat, one is able to get much of Friedman’s essence in a 500-world editorial. Is it certainly worth a quick read. The editorial’s issues and recommendations are pulled from a survey co-sponsored by the Kauffman Foundation and Inc. Magazine:
Recently, the Kauffman Foundation, with the assistance
of Inc. magazine, asked some of the nation’s most successful
entrepreneurs what they needed to grow. They cited four challenges, and
academic research has helped to pinpoint the policies that best respond
to each of them.Ensuring a skilled work force. Entrepreneurs say that
the biggest constraint on growth is finding “talent” — highly skilled,
entrepreneurial workers. Thus we will need major improvements in K-12
education, which are unlikely to come about without more charter
schools: parents and students being able to choose their schools, and
principals and teachers with more freedom, and accountability.We also can use as many skilled immigrants as are
willing to come here. Recent surveys indicate that immigrants have been
essential in forming a quarter of our rapidly growing high-tech
companies. We ought to be encouraging, not limiting, the entry of such
people. How about giving permanent residency to any foreign student who
obtains a math or science degree at one of our universities — since
these skills are key to the formation and growth of high-growth
companies of the future?Reforming health care. Escalating health-care costs
rank high on entrepreneurs’ lists of concerns. They’re not alone.
Workers are anxious about losing their own health insurance, especially
if they take the risk to leave their stable jobs to form their own
businesses.The obvious answer to both challenges: Phase out
current tax linking employment with health care, using the revenue to
subsidize the purchase of health insurance by those of limited means.
President Bush has offered one approach, surely there are others.
Whatever is done, prohibit insurers from discriminating or refusing to
insure based on an individual’s pre-existing health conditions (as we
do for genetic conditions).Promoting innovation. We already do a great job
innovating and commercializing. But we can do better, by enhancing
government funding of research in basic science and engineering;
reforming patent law so that protections are not so overly broad that
they inhibit the creation of innovative, new firms; improving ways for
university-developed ideas to be commercialized; and funding efforts to
identify and take advantage of innovations developed abroad, just as
foreign companies have been doing with U.S.-based innovations for
decades.Limiting costly regulation and liability litigation.
Because of their small size, entrepreneurial firms are especially
vulnerable to excessive regulation and liability litigation.
Accordingly, entrepreneurs have the most to gain from sensible reforms
requiring all major federal (and state) regulations to be implemented
only if estimated benefits exceed costs, and by adopting further
liability law reforms (without reducing incentives for all companies to
make safe products). Two reforms would help curb frivolous litigation:
adopting the “English rule” — loser pays — on attorneys’ fees for
litigation with commercial parties on both sides; and limiting the
award of punitive damages where defendants have complied with
prevailing regulatory standards.
Amen. While the issue of creating the optimal environment for innovation is multi-faceted and complex, I think the four issues raised here address at least 90% of the problem. Ane while I was not specifically surveyed on these issues, I think I may well have answered exactly the same way. Mr. Litan finishes his piece with the following thought:
These proposals are quite different from the ones policy makers in
Washington and elsewhere traditionally discuss when trying to promote
entrepreneurship — such as increasing the budget of the Small Business
Administration, or reserving a certain percentage of federal contracts
for small business. Entrepreneurship Week USA begins this weekend. What
better time to begin a serious debate on these larger issues so vital
to our economic future?
What better time, indeed. Given the increasingly global market for talent, well-heeled and upwardly mobile competitors like China and India, rising standards of living across much of the world and relative complacency among Western nations, these are issues that require attention from every branch of U.S. Government - now. Time is a wasting. Hopefully we won’t be by ignoring a problem when in possession of solutions for a new, brighter and increasingly innovative future.
