Driving Innovation in the U.S.

Driving Innovation in the U.S.

by Heleigh Bostwick, August 2013

Innovation is the cornerstone of competitiveness in a global marketplace. It's what keeps our economy moving—driving the growth of jobs that lead to higher wages and an increasingly higher standard of living for all.

For most of the twentieth century, the U.S. has held the number one spot when it comes to innovation. But in 2010, the U.S. slipped to eleventh place (out of 133 countries) in the Global Innovation Index (GII) as reported by Insead.

The U.S. still ranked number two for global competitiveness, however, and in 2011 there was a slight uptick to seventh place in innovation. But the optimism was short-lived. In 2012, the U.S. slipped once again, barely making it into tenth place out of 141 countries.

The Scope of the Problem

The recession of 2008 hit the economy hard, but that doesn't explain why wages have been stagnant for years, jobs have been drying up, and education—especially in science, technology, engineering, and mathematics (STEM)—has been in decline.

What has caused this decline in U.S. innovation? Some believe that the influx of foreign students on F-1 visas in the late 1990s into STEM graduate and Ph.D. programs suppressed wages in those industries, driving U.S. students into more lucrative fields. U.S. education programs in general may have also played a role, emphasizing literacy in elementary education, for example, instead of math and the sciences. Another contributing factor may be the high cost of a U.S. college education. At the corporate level, an emphasis on profit at the expense of research and development may be another factor contributing to the decline in innovation.

Getting Back on the Innovation Track

The U.S. Chamber of Commerce report identifies three factors as key to getting the U.S. back on track:

  1. federally funded research and development in concert with universities, institutions and the private sector,
  2. an education system that prepares students with the necessary skills to pursue higher education in the STEM fields, and
  3. ensuring adequate infrastructure to deliver goods and services.

A U.S. Department of Commerce Report, The Competitiveness and Innovative Capacity of the United States (January 2012), estimates that a STEM workforce earns about 26 percent more than their counterparts in non-STEM occupations. They are also less likely to experience joblessness. In addition, STEM jobs over the past 10 years grew at three times the rate of non-STEM jobs.

To meet the educational challenges of poor classroom preparation in STEM, the federal government is striving to make college and postgraduate education more affordable through initiatives that include, among others, expanding the size and quality of the STEM teacher ranks and mentoring students and workers to encourage continuation of their STEM education.

Just as important are the legal steps that have been taken to address the decline of innovation in the U.S., such as the Leahy-Smith America Invents Act, signed into law by President Obama in late 2011. In addition, the American Taxpayer Relief Act of 2012 extended the Research and Development Tax Credit, which had expired at the end of 2011, through 2013. The R&D tax credit is widely believed to be a catalyst for innovation. Legislation has also been introduced to help startup companies, which generally cannot take advantage of a credit against tax liability (as it generally takes time before they turn a profit). The Startup Innovation Credit Act of 2013 seeks to provide startup companies with a credit to be applied toward employment taxes. 

Decline or Transition?

Innovation holds the key to long-term economic growth and has created many new industries, such as the wireless technology, software and information technology industries. These industries, in turn, employ more people earning above-average wages. The renewed emphasis on innovation may help the  U.S. reemerge as a leader in innovation. Or it may be that, in a truly global economy, an increase in innovation abroad is the new normal. Welcome to the twenty-first century.

For more information on the America Invents Act, click here.