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The State of Innovation

By 11 October 2010 No Comment

Information Week has just published a survey piece called Innovation Mandate on how the U.S. is doing in the info tech space. Its gross finding:

63% of the 624 business technology professionals who responded characterized the U.S. as “a strong player, but losing its lead on a global scale,” while 5% see the U.S. as “a former leader whose best days are behind it.” Only 32% of survey respondents still see the U.S. IT industry as “a global leader, positioned to grow its influence.”

Information Week is running a series on the issues, and writer/editor Rob Preston has some good insights and perspectives, including a note that there are some incentives for players in the game to bad mouth the U.S. so as to pressure the government for additional resources. It is easy (my parallel, not his) to get into an unhappy state such as the public schools, where resources multiply while performance declines, with every decline used to cry for more resources. Indeed, one of the big tech issues is the deficiencies in math and science education: “58% of the 427 survey respondents who think the U.S. is losing . . . technology leadership cite a failure in education as a main reason.”

Commenter and tech expert Paul McWilliams, who views things from an investor’s perspective, has some good points (capital at risk has a way of focusing the mind), such as:

Out of the ten leading reasons cited as “preventing the U.S. from growing as a global IT leader,” eight are directly tied to bad government policy and the remaining two are indirectly tied to bad bad government policy. The first problem, “short-sighted decisions that jobs and innovation aboard,” which was mentioned by nearly two thirds of the pole participants, is a great example of effect that is caused by number eight on the list, “U.S. tax and regulatory policies.”

And:

Add to this the idiotic policies of educating foreign students in the U.S. and then forcing them to leave and no long term guarantees for R&D tax credits (often passed only a couple months before year-end) and you have a recipe for the exodus of innovation.

If a company with international sales opens an R&D facility in a tax haven (take your choice from many), the company can gain a substantial benefit on not just its labor costs, but pay taxes at the tax haven rate on the profits derived from the IP developed there. To make matters much worse, not only is our tax policy shipping jobs offshore, it would penalize these companies if they brought the profits back to invest in the U.S. Therefore, there is incentive to move jobs offshore and keep offshore the capital earned by those jobs.

In response to the question what the U.S. government should do to support IT innovation and industry, Info Week’s survey participants said:

  • 63% – Provide R&D tax credits to private industry
  • 60% – Support basic and applied research at the university level
  • 58% – Support basic and applied research at the federal level
  • 51% – Reduce the regulatory burden on private industry and mostly get out of the way
  • 43% – Directly fund big technology programs (e.g., broadband; smart grid; e-medical records; etc)
  • 22% – Simply lead by example

Preston links to other interesting reports and studies as well, so the series is a worthwhile investment of time.

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