Is the US Losing its Lead in Innovation?

The OECD has just released its Economic Survey of the United States, and once the word gets out, the report is likely to spark a lot of interest among the chattering class. The argument will focus on the report’s statement that “fissures have begun to appear” in the US lead in innovation.

Here’s a bit from the report’s overview:

To foster innovation and economic growth, reductions in the federal R&D budget should be as limited as possible. Ideally, funds would be appropriated to continue on the path approved in the 2007 America COMPETES Act of doubling the budgets for three key science agencies within a decade. Patent reform should be taken further than in the America Invents Act by ensuring that the legal standards for granting injunctive relief and damages awards for patent infringement reflect realistic business practices and the relative contributions of patented components of complex products. In light of spillover benefits from manufacturing activity, the measures proposed by the Administration to strengthen manufacturing competitiveness should be implemented. Education reform is needed to strengthen achievement and to address lagging tertiary attainment in the fields of science, technology, engineering and mathematics (STEM).

Does anyone believe that any of these things will occur? The US Congress can’t even agree on what day of the week it is, much less on a strategy to foster US innovation.

And spend more money? Now there’s a non-starter. Or support the Obama administration’s plan to strengthen manufacturing competitiveness? Not in this lifetime. Or more funding for education? Just the opposite is the order of the day.

The report also has some harsh things to say about the rise of income inequality in the US:

To reduce both income inequality and distortions in resource allocation, tax expenditures that disproportionately benefit high earners should be limited over time. In particular, effective tax rates on debt-financed corporate investment and housing should be equalized at the higher rate on equity-financed corporate investment while simultaneously lowering the corporate tax rate.

Perhaps the OECD doesn’t understand the full implications of the current political stand-off in the US. Sometimes it seems that technocrats live in a parallel universe, and this is one of those times.

Here’s a link to the survey overview.

Paul Ausick