Competitiveness

Innovation, including the diffusion of information technology throughout the economy, is key to boosting productivity, which in turn is at the heart of increasing living standards.

Reforming Regulation to Drive International Competitiveness

March 16, 2015
| Reports

Poor regulation is especially damaging when applied to industries that face international competition. Unlike firms in other industries, these companies are more likely to move their production to jurisdictions where the cost of regulation is lower. Failing that, they may find themselves losing global market share to less burdened rivals in other nations. In either case, the U.S. economy suffers.

This report shows why regulatory reform focused on traded sector industries can substantially reduce costs and boost competitiveness while maintaining, or even increasing, social benefits. The paper analyzes some of the general policy issues associated with regulatory reform. It first looks at the regulatory process to show why it is unreasonable to expect that regulation will always maximize social welfare. In fact, it is not unreasonable to expect that some regulations will become significantly out of date or that the regulatory process imposes significant costs. The paper then looks at case studies in three areas—medical devices, aircraft production, and export controls of high-tech productions—in which regulation affects the competitiveness of specific industries that face global competition. It could have easily looked at other industries as well, including information industries, semiconductors, and life sciences.

The paper then lists general principles that regulators should follow:

  1. Anticipate innovation.
  2. Embrace transparency.
  3. Concentrate on metagoals.
  4. Place more trust in the consumer.
  5. Place more emphasis on reducing the cost of over regulation.
  6. Recognize the value of time to industry.
  7. Adhere to cost/benefit analysis.
  8. Take into account the competitiveness impacts of regulation.

The paper concludes by proposing specific institutional reforms to ensure agencies follow these principles, especially with regard to industries facing international competition:

  1. The National Economic Council should create inter-agency regulatory councils to examine the regulatory environment facing particular traded sector industries and use that analysis to guide reform.
  2. The Administration should create an Office of Innovation Policy.
  3. Agencies should open up the regulatory review process even further by making it easier for industry and the public to monitor rulemaking, “crowdsource” regulatory approaches, and initiate reviews of existing rules.
  4. Congress should update authorizing legislation and conduct more detailed oversight of the regulatory process.
  5. Congress should provide agencies with the resources they need to regulate effectively.

Innovation Officers Popular with States, Local Governments; Some Question Their Value

Chicago Tribune
In addition to seeking breakthrough solutions to civic problems, innovation officers are catalysts in trying to transform how government operates.

American Innovation Under Structural Erosion and Global Pressures

February 9, 2015
| Reports

For most of the postwar era, the United States has enjoyed superior leadership in innovation, whether measured by student skills, research and development spending, patents, or high-technology industry output. However, as Western European economies caught up with the global innovation frontier and Japan followed, this superiority began to erode. The U.S.-led IT revolution of the 1990s seemed to slow down this innovation convergence, but only until the bubble burst in the early 2000s. While America has recovered faster from the global financial crisis than other nations, structural trends in innovation convergence have not disappeared. On the contrary, the technological advancement of large emerging economies, such as China, has even more clearly delineated different nations’ impacts in global innovation.

In the absence of significant government investment in innovation (from both direct spending and tax incentives for business to invest more in innovation), the current budget sequestration is likely to pave the way for further relative decline in innovation with accompanying slower economic growth. It is not an inevitable scenario, however. The United States could once again lead in the race for global innovation advantage with an appropriate innovation strategy — one that’s credible, bipartisan and medium- to long-term in nature.

This report assesses the current state of the American innovation ecosystem, compares it to the systems of our top global competitors and argues that we need a comprehensive national innovation strategy, backed by significant government investment, to restore the United States to global leadership.

Efforts to Block Tesla Win ITIF’s Luddite of the Year

R&D Credits Essential for Competitiveness: New Evidence

February 2, 2015
| Blogs & Op-eds

New research shows how tax breaks stimulate R&D, and that R&D in turn helped U.S. manufacturers stay ahead of Chinese competitors.

ITIF Supports the Immigration Innovation Act of 2015

January 14, 2015
| Testimony and Filings

ITIF expresses strong support of the Immigration Innovation Act of 2015 in a letter to Chuck Grassley, Chair of the U.S. Senate Judiciary Committee. The Immigration Innovation Act of 2015 would greatly improve the system regulating high-skilled immigration and promote recruitment and retention of the workforce skills and intellectual capacity that are imperative to enhancing innovation in the United States.

The Myth of America’s Manufacturing Renaissance: The Real State of U.S. Manufacturing

January 12, 2015
| Reports

To listen to most pundits and commentators, U.S. manufacturing has turned a corner and is roaring back after the precipitous decline during the 2000s. Long gone are the dismal days when manufacturing jobs and output were lost due to foreign competition. Higher foreign labor costs, cheap oil and gas here at home and automation are combining to make America the new global manufacturing hub: at least according the now dominant narrative. Indeed, the term “manufacturing renaissance” is used to describe this new state of affairs.

However, as a new ITIF report shows, the data do not support such a rosy scenario.  In fact, at the end of 2013 (the most recent year available) real manufacturing value added (the best measure of the health of U.S. manufacturing) was still 3.2 percent below 2007 levels, despite GDP growth of 5.6 percent. Moreover, there are still two million fewer jobs and 15,000 fewer manufacturing establishments than there were in 2007. Much of the growth since 2010 appears to be caused by a cyclical recovery as demand, particularly for motor vehicles and other durable goods, returns. In fact, 72 percent of jobs gained and 187 percent of the heralded real value added growth in manufacturing between 2010 and 2013 came from transportation sector or primary and fabricated metals.

It is true that some jobs are being brought back to the United States. However, reshoring numbers are modest and the manufacturing sector is also still sending jobs overseas, roughly at the same rate. While this new equilibrium between companies coming and going is certainly an improvement over rapid off-shoring, it is hardly indicative of a renaissance.

At the end of the day, much of the renaissance story is based around several misconceptions about U.S. cost advantages, including incorrect assumptions surrounding Chinese wage growth and productivity, global shipping costs, the role of the U.S. dollar, the importance of the shale gas-driven energy boom, and American productivity growth. The pervasive belief that these factors will drive production back to the United States with little real assistance constrains the possibility of real legislative action to support American manufacturing. The report addresses and refutes the following misconceptions: 

Myth: China’s rising labor costs will soon match U.S. wage

Fact: Chinese wages, while rising rapidly, are still estimated to be just 12 percent of average U.S. wages in 2015. Chinese labor productivity growth and its infrastructure push to open the interior for production reduce the impact of Chinese wage growth.

Myth: Global shipping costs are unusually high, making it easier for the United States to produce more for U.S. and European markets.

Fact: Undersupply led to skyrocketing global shipping costs in 2008. However, today shipping costs are back to normal after falling by 93 percent in a six month period in 2009.

Myth: The Shale Gas boom gives U.S. manufacturing a substantial advantage

Fact: Reduced costs for shale energy has had an impact only on energy intensive industries, and then only a minor one. For 90 percent of the manufacturing sector, energy costs are lower than 5 percent of shipment value. The benefits are largely restricted to the petrochemical sector and drilling operations.

Myth: Currency fluctuations will fix the trade deficit

Fact: In the long-term, macroeconomic theory states that currency valuation should fix trade deficits. However, the United States has been running a trade deficit since 1975, and the trade imbalance is wider than ever. The dollar is currently at a comparable level to where it was during the 2000s, when job losses accelerated, and has proven unable to fix the United States’ persistent trade deficit.

Myth: Superior U.S. productivity growth will restore jobs

Fact: U.S. productivity is not increasing faster than that of other industrialized countries, and is growing much slower than China and South Korea.

In summary, to realistically assess U.S. manufacturing, it is important to have a clear idea of where we are. The debate on U.S. manufacturing should not be informed by anecdotal evidence, promotional consulting reports, or reports from think tanks with an agenda of keeping bad news from dampening support for further global integration. From an in depth analysis of available data on U.S. manufacturing workforce, value added, and productivity, U.S. manufacturing is shown to be in state of moderate, cyclical growth and not experiencing a renaissance.

The 2014 ITIF Luddite Awards

January 5, 2015
| Reports

Technological innovation is the wellspring of human progress. Despite this, a growing array of interests – some economic, some ideological – now stand resolutely in opposition to innovation.  Inspired by Englishman Ned Ludd, who led a social movement in the early 19th Century to destroy mechanized looms out of fear that the Industrial Revolution was going to ruin his way of life, today’s “neo-Luddites” likewise want to “smash” current technology. However, while for the most part these advocates no longer wield sledgehammers, they do wield something much more powerful: bad ideas. Neo-Luddites have worked to convince the public and policy makers alike that technological innovation is something to be thwarted. Indeed, the their target is broad, including genetically modified organisms, new Internet apps, smart electric meters, health IT, big data, and increasingly productivity itself. In short, they want a world in which risk is close to zero, losers from innovation are few, and change is glacial and managed.

These aren’t just interesting social and political developments. Rather they go to a central challenge of our time: the need to rapidly increase living standards and quality of life. For without society supporting risk taking and the constant and rapid introduction of new technologies neither goal will be accomplished. Fostering an environment in which innovation can thrive means first and foremost actively rejecting the increasingly vocal chorus of “neo-Ludditism” that pervades Western societies today. Indeed, if we want a society in which innovation thrives, replacing neo-Ludditism with an attitude of risk taking and faith in the future needs to be at the top of the agenda. (To determine how friendly you are toward technological innovation, go to www.doyoulikeprogress.org and take the test).

To highlight the worst neo-Luddite ideas that if followed would lead to reduced human progress, ITIF released the first annual Luddite Award nominations to recognize the ten organizations and or individuals that in 2014 did the most to smash the engines of innovation. Based on a public vote the top Luddite of the year went to multiple states that blocked Tesla from selling vehicles within their borders.

The ten nominees were: 

The National Rifle Association Opposes Smart Guns

The Vermont Legislature Passes Law Requiring GMO Food Labeling

Arizona, Michigan, New Jersey, and Texas Take Action to Prevent Tesla From Opening Stores to Sell Cars Directly to Consumers

The French Government Stops Amazon From Providing Free Shipping on Books

“Stop Smart Meters” Seeks To Stop Smart Innovation in Meters and Cars

Free Press Lobbies for Rules to Stop Innovation in Broadband Networks

New York State Cracks Down on Airbnb and its Hosts

Virginia and Nevada Take On Ride Sharing

The Media and Pundits Claiming That “Robots” Are Killing Jobs

The Electronic Frontier Foundation’s Opposition to Health IT

ITIF Announces 2014 Luddite Awards

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