A Foundation for Innovation

Robert Litan had a short, hard-hitting, pragmatic editorial in yesterday's WSJ titled "Innovators Matter Most." There is a lot of high-level talk about what fosters innovation in a society, but Mr. Litan does a particularly good job laying out the issues in plain english that should make us wake up and take notice. As someone who has built and run high-performance teams on Wall Street and in start-up environments, I can really appreciate the points made in the editorial and know the prescriptives mentioned to be right and true.

While many elements of Litan's piece specifically relate to the issues raised by Thomas Friedman in his book The World is Flat, one is able to get much of Friedman's essence in a 500-world editorial. Is it certainly worth a quick read. The editorial's issues and recommendations are pulled from a survey co-sponsored by the Kauffman Foundation and Inc. Magazine:

Recently, the Kauffman Foundation, with the assistance of Inc. magazine, asked some of the nation's most successful entrepreneurs what they needed to grow. They cited four challenges, and academic research has helped to pinpoint the policies that best respond to each of them.

Ensuring a skilled work force. Entrepreneurs say that the biggest constraint on growth is finding "talent" -- highly skilled, entrepreneurial workers. Thus we will need major improvements in K-12 education, which are unlikely to come about without more charter schools: parents and students being able to choose their schools, and principals and teachers with more freedom, and accountability.

We also can use as many skilled immigrants as are willing to come here. Recent surveys indicate that immigrants have been essential in forming a quarter of our rapidly growing high-tech companies. We ought to be encouraging, not limiting, the entry of such people. How about giving permanent residency to any foreign student who obtains a math or science degree at one of our universities -- since these skills are key to the formation and growth of high-growth companies of the future?

Reforming health care. Escalating health-care costs rank high on entrepreneurs' lists of concerns. They're not alone. Workers are anxious about losing their own health insurance, especially if they take the risk to leave their stable jobs to form their own businesses.

The obvious answer to both challenges: Phase out current tax linking employment with health care, using the revenue to subsidize the purchase of health insurance by those of limited means. President Bush has offered one approach, surely there are others. Whatever is done, prohibit insurers from discriminating or refusing to insure based on an individual's pre-existing health conditions (as we do for genetic conditions).

Promoting innovation. We already do a great job innovating and commercializing. But we can do better, by enhancing government funding of research in basic science and engineering; reforming patent law so that protections are not so overly broad that they inhibit the creation of innovative, new firms; improving ways for university-developed ideas to be commercialized; and funding efforts to identify and take advantage of innovations developed abroad, just as foreign companies have been doing with U.S.-based innovations for decades.

Limiting costly regulation and liability litigation. Because of their small size, entrepreneurial firms are especially vulnerable to excessive regulation and liability litigation. Accordingly, entrepreneurs have the most to gain from sensible reforms requiring all major federal (and state) regulations to be implemented only if estimated benefits exceed costs, and by adopting further liability law reforms (without reducing incentives for all companies to make safe products). Two reforms would help curb frivolous litigation: adopting the "English rule" -- loser pays -- on attorneys' fees for litigation with commercial parties on both sides; and limiting the award of punitive damages where defendants have complied with prevailing regulatory standards.

Amen. While the issue of creating the optimal environment for innovation is multi-faceted and complex, I think the four issues raised here address at least 90% of the problem. Ane while I was not specifically surveyed on these issues, I think I may well have answered exactly the same way. Mr. Litan finishes his piece with the following thought:

These proposals are quite different from the ones policy makers in Washington and elsewhere traditionally discuss when trying to promote entrepreneurship -- such as increasing the budget of the Small Business Administration, or reserving a certain percentage of federal contracts for small business. Entrepreneurship Week USA begins this weekend. What better time to begin a serious debate on these larger issues so vital to our economic future?

What better time, indeed. Given the increasingly global market for talent, well-heeled and upwardly mobile competitors like China and India, rising standards of living across much of the world and relative complacency among Western nations, these are issues that require attention from every branch of U.S. Government - now. Time is a wasting. Hopefully we won't be by ignoring a problem when in possession of solutions for a new, brighter and increasingly innovative future.

Comments

[Yaser Anwar]

Besides the key points mentioned above I think this should also be done:

Creating a 'Centre of Innovation' that encourages Innovation.

This centre would be the home to a bustling community of nonprofits, charities, social enterprises, to artists, for profit businesses, and individual innovators.

Working together, costs will be lowered, synergies will be created, and spark new ideas for advancing shared interests.

The Centre for Innovation would always be exploring new ideas in collaboration, entrepreneurship and systems change.

In my opinion, these are the interests that should also guide our approach to developing the foundation for innovation.