continue to benefit from this innovation while also encouraging regional development and much higher levels of employment.3

AMERICA’S INNOVATION CHALLENGES

America is a world leader in innovation capacity, according to several rankings.4 While not as pre-eminent as in the decades following World War II, the U.S. still leads the world in research spending and patents. U.S. universities and research laboratories continue to produce technological breakthroughs and spin off dynamic start-ups. U.S. companies still create products and business models that transform entire industries.5 Concern is mounting, however, that America is not capturing enough of value of that innovation in terms of economic growth and employment.6

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Solow estimated that technological progress accounted for seven-eighths of the increase in real GNP per man-hour from 1909 to 1949 in the United States. “It is possible to argue that about one-eighth of the total increase is traceable to increased capital per man hour, and the remaining seven-eighths to technical change.” Robert M. Solow, “Technical Change and the Aggregate Production Function,” The Review of Economics and Statistics, 1957, 39 (3): 312-320. Often, as Richard Nelson and others point out, this technological progress has been based on a framework of supporting national policies. See Richard Nelson, Technology, Institutions and Economic Growth, Cambridge MA: Harvard University Press, 2005. In addition, Harvard’s Dale Jorgenson documented that the pervasive use of information technologies, developed through the nation’s investments in semiconductor research and early procurement, have actually pushed upwards the nation’s long term growth trajectory. See Dale W. Jorgenson et al., Productivity: Information Technology and the American Growth Resurgence, Cambridge MA: MIT Press, 2005.

3 The Honolulu Declaration of the November 2011 APEC meeting affirmed the importance of promoting effective, non-discriminatory, and market-driven innovation policy. The agreement text notes that “Encouraging innovation – the process by which individuals and businesses generate and commercialize new ideas – is critical to the current and future prosperity of APEC economies. Our collective economic growth and competitiveness depend on all our peoples’ and economies’ capacity to innovate. Open and non-discriminatory trade and investment policies that foster competition, promote access to technology, and encourage the creation of innovations and capacity to innovate necessary for growth are critical aspects of any successful innovation strategy.”

4 The World Economic Forum ranks the United States as fifth in innovation capacity. See Center for Global Competitiveness and Performance, “The Global Competitiveness Report: 2011-2012,” World Economic Forum (http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf). Insead’s latest global innovation index ranks the United States seventh, down from number one in 2009. Insead, “The Global Innovation Index 2011,” (http://www.globalinnovationindex.org/gii/GII%20COMPLETE_PRINTWEB.pdf).

5 While the U.S. still leads the world in R&D spending, the growth of Chinese R&D spending has shifted the share of global R&D spending over the past ten years with China overtaking Japan in 2010. The U.S. accounted for 32.8 percent of global R&D spending in 2010, compared to 24.8 percent for Europe, 12.0 percent for China and 11.8 percent for Japan. Battelle and R&D Magazine, 2012 Global R&D Funding Forecast, December 2011.

6 See Tyler Cowen, The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better. New York: Dutton, 2011. Cowen argues that on the margin, innovation no longer produces as much additional GDP growth as it used to. In part, this may be an issue of not adequately measuring the contributions of modern information and communications in the national accounts. See National Research Council, Enhancing Productivity Growth in the Information Age, D. Jorgenson and C. Wessner, eds., Washington, DC: The National



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