Goal: To lead in Research and Development, drive towards a low-carbon economy, and ignite new entrepreneurial activity and investment.

Rationale: R&D is the fuel of innovation and growth. Economists agree that technological advance accounts for at least 50% of long-term economic growth. In the 1990s, three-quarters of the papers cited in patents were publicly funded science. Because of these massive payoffs, economists argue that overall investment in R&D should be 2 to 4 times higher to get optimal economic growth. The private sector has limited incentives to undertake this level of R&D on its own because of risk, longer time-scale to payoff, and inability to capture all of the economic benefits of a technological advance. In addition, our support for private sector R&D investment has fallen apart as our tax credit support has dropped to 17th internationally. The shift from a post industrial economy to the “next” economy requires, above all, as a recent report from CAP notes “remaking the vast energy systems that power the nation and the world. We must fundamentally change the way we produce and consume energy and dramatically reduce our dependence on oil. The economic opportunities provided by such a transformation are vast, not to mention the national security benefits of reducing oil dependence and the pressing need to fight global warming.

Encourage entrepreneurship by expanding Small Business Administration credit for start-ups.

Policy Initiatives:

Research and Development: Government investment in basic R&D has paid the highest return on investment of federal dollars, according to studies. We should increase federal R&D overall, particularly in areas of market failure where the private sector under-invests, such as long-term scientific work and basic science. In the private sector, we should increase the value of the R&D tax credit, and make it permanent. Add incentives for research done with federally funded institutions like national labs, to foster public-private partnerships aimed at discovering new technologies and making them commercially viable. We should also expand federal partnerships with the private sector and philanthropic organizations to create prizes for achieving new technological breakthroughs across technological sectors, like the X Prize that promoted a breakthrough in suborbital space flight.

Low Carbon Economy: Adopting the plan proposed by CAP from September of 2011, we should create an independently run, government-overseen Green Bank to focus on commercializing clean energy and innovative business practices, and to get clean energy companies through the “valley of death.” We can expect at least a 10-to-1 leverage of private investment brought in for every public dollar put in, based on similar programs. Fund a National Efficiency Program for both residential and commercial structures. According to CAP and a McKinsey study, a comprehensive efficiency strategy could reduce the nation’s energy costs by more than $41.2 trillion by 2020, and every $1 million invested in energy efficiency retrofits will create 17.36 jobs. Adopt a combination of the Home Star, Building Star and Rural Star plans to create incentives for widespread retrofitting by consumers and investments in efficiency. Adopt the Green Act (HR 2336) to provide policy incentives to leverage the financial system to accelerate adoption of energy efficiency measures. Support the Waxman-Whitehouse carbon tax proposal: Representative Henry Waxman (D-CA) and Senator Sheldon Whitehouse (D-RI), along with Representative Earl Blumenauer (D-OR) and Senator Brian Schatz (D-HI), have proposed legislation that would require polluters to pay for their pollution. The proposal would charge the nation’s largest polluters a set fee for every ton of pollution they release. The revenue generated by the proposal can be used to lower corporate and personal tax rates.

Reforming Patent Reform: The passage of recent patent reform legislation has not ended concern about the state of the American Patent system. The U.S patent system is critical to the economy and innovation in America. In 2008, venture capital-backed companies employed more than 12 million people and generated nearly $3 trillion in revenue. Respectively, these figures accounted for 11% of private sector employment and represented the equivalent of 21% of U.S. GDP during that same year. Small companies and Venture Capital are concerned that provisions of recently enacted Patent reform will discourage investment in new innovation-based small businesses, and impair economic growth. Congress should consider amendments that address these concerns and address fee diversion from the PTO. The patent office must have sufficient, consistent multi-year funding to make timely and correct decisions on patent applications, and move away from a disruptive boom-bust funding system. Fixing the PTO’s funding will allow the office to focus on addressing the critical problem of the backlog of patents that is stifling innovation.

Recent changes to the Small Business Administration’s SBIR program threaten help for start-ups. Re-establish a cap on how much money can be given to venture capital-backed companies, capping the National Institutes of Health at 15%, and other agencies at 5 percent. Reverse the recent increase in Phase 1 and Phase 2 funding levels, which stifle early stage entrepreneurial activity. At the very least, monitor closely whether a huge increase in venture-capital backed firms causes a major drop in new projects.


Economic Innovation Institute and Action Fund , 2012.
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