An Environment for Innovation


The U.S. system of government and the policies developed at federal, state, and local levels collectively shape the environment in which innovation takes place. For example, federal policies affecting capital formation and corporate governance play important roles in competitive performance.1 The range and diversity of these policies are substantial. They include government policies related to taxation, especially capital gains, fiscal and monetary matters, education and training, trade promotion and expansion, regulatory policies (e.g., for antitrust and the environment), intellectual property protection, government procurement, and export control.2 These policies can all directly affect the process of innovation, sometimes decisively.3


See National Research Council, U.S. Industry in 2000: Studies in Competitive Performance, op.cit, p. 5.


See, for example, the observations of Ed Zchau, a member of Congress in the 1980s from Silicon Valley, in his article, “Government Policies for Innovation and Growth” in National Research Council, The Positive Sum Strategy, Harnessing Technology for Economic Growth, op.cit., pp. 535-539.


For example, intellectual property protection plays a key role in the continued development of the biotechnology industry. See Wesley M. Cohen and John Walsh, “Public Research, Patents and Implications for Industrial R&D in the Drug, Biotechnology, Semiconductor and Computer Industries” in National Research Council, Capitalizing on New Needs and New Opportunities: Government-Industry Partnerships in Biotechnology and Information Technologies, op. cit. Trade policy also has a major, if often unrecognized, impact on innovation. Restrictive trade policy can slow innovation (e.g., by restricting the acquisition of low-cost information technology systems and components) as in Brazil in the 1990s. See National Research Council, U.S. Industry in 2000, Studies in Competitive Performance, op. cit., pp. 4-5. It can also encourage the growth of national industries. The resurgence

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