Neither the Great Recession nor the painstakingly slow recovery can be attributed simply to a random ﬁnancial crisis caused by the burst housing bubble. Rather, a major contributing factor to both has been the United States falling behind in the race for global innovation advantage.
If Manufacturing Employment is Dead Then Take a Look at China’s Zombie Apocalypse
A number of prominent economists have used job losses in China's manufacturing sector as justification for abandoning hope for U.S. manufacturing. But these "job losses" never really existed: they were due to statistical changes and the massive restructuring and privatization of China's economy. Recent data indicate that employment in China's manufacturing sector is growing, not shrinking.
While America Sleeps Other Nations Bolster Manufacturing Sector
In recent years, many U.S. competitors have established strategic, well-funded advanced manufacturing support systems that have proven vital to expanding technology creation, supporting the development of innovative new products, improving manufacturing productivity, and bettering trade performance. From Germany and Japan to the United Kingdom, a focus of these strategies has been support for investments in public-private partnerships focused on industrially relevant applied R&D activities. Their goal is to ensure that research discoveries or inventions made in their countries’ universities and national laboratories are commercialized into products that are manufactured at scale by local industry. The United States has not kept pace. But legislation working its way through Congress now via the Revitalize American Manufacturing and Innovation Act could help rectify this situation and revitalize U.S. industrial competitiveness by establishing a National Network for Manufacturing Innovation (NNMI)—a network of 15 Institutes of Manufacturing Innovation focused on innovation in advanced manufacturing product and process technologies.
Innovation Economics and the Future of American Competitiveness
Today, nations compete fiercely to grow and attract the highest-value-added economic activity, the high-wage, knowledge-intensive manufacturing, research, software, information technology (IT), and services jobs that power today’s global, innovation-based economy. Unless the United States develops a comprehensive innovation strategy designed to spur development in these knowledge-based industries we risk further economic stagnation and job loss.
Understanding U.S. S&T Competitiveness: Rethinking NSF's S&E Indicators Report
For 42 years the U.S. National Science Foundation has been producing its biennial "Science and Engineering Indicators" report, and since 1998 it has included a chapter “Industry, Technology and the Global Marketplace.” The NSF report is seen by many as an unbiased source for where the United States stands in technology-based competitiveness. The media reports the findings and many in the economic and technology policy communities look to the report to assess how United States global technology-based competitiveness. So when the report concludes that, “The strong competitive position of the U.S. economy overall is tied to continued U.S. global leadership in many KTI [knowledge- and technology-intensive] industries,” and “The US has the highest KTI share of GDP of any large economy,” it is not unreasonable for official Washington to take this as a good housekeeping seal of approval that all is well and to view any calls of alarm regarding the state of U.S. tech-based competitiveness as the “boy crying wolf.”
But while the NSF report contains valuable information, its analysis of U.S. technology-based economic competitiveness is seriously flawed and misleading. There are a number of problems. First, the report relies on an overbroad definition of KTI industries, most of which are neither in global competition or technology-based. For example, the fact that the health care and financial services industries have grown much faster in the United States than in our competitor nations is seen by NSF as evidence of U.S. economic competitiveness, when in fact it is just the opposite. Second, the report conflates the absolute size of sectors with U.S. national competitiveness. Third, the report measures output using dollar denominated exchange rates which makes accurate international comparisons difficult. And fourth, the report fails to provide sufficient transparency for much of its key data, preventing outside analysts from knowing exactly what is included and excluded in the NSF analysis.When these first three limitations are controlled for the result is actually quite different than the official NSF findings. In fact, U.S. science and technology-based (S&T) competitiveness has declined significantly as other nations have put in place policies to make gains while the United States has not.
If the NSF is going to provide accurate and useful analysis of science and technology data related to U.S. competitiveness, it would be well served to significantly restructure the makeup and structure of the analysis in this key chapter to focus solely on science and technology-based, globally traded sectors. Doing so will provide policy makers with a more accurate assessment of the true competitive position of the U.S. S&T-based economy
Assessing U.S. Corporate Tax Reform in an Age of Global Competition
Over the past two decades other nations have steadily lowered their corporate tax rates to the point where the United States now has the highest statutory rate in the world. But we also have a very high effective rate relative to our competitors. Moreover, unlike most nations, the United States taxes companies on world-wide income. To top it off, we ranks 27th in the generosity of our research and development tax credit. This report explains the basic issues involved in tax reform and documents how the United States has fallen behind in the global competition to attract and retain business activity. It summarizes the growing literature on the link between tax rates and investment and economic growth as well as the effectiveness of the R&D tax credit in incentivizing additional private research with large social spill-over benefits. Corporate tax reform is one of the most important things Congress can do to grow the economy.
The report makes the following points and recommendations:
- The United States faces intense competitive pressure in keeping and attracting corporate investment and the jobs that come with it. This new competition limits the degrees of freedom policymakers have in crafting corporate tax policy.
- Both U.S. statutory and effective corporate tax rates are significantly higher than those of most other countries.
- The current policy of taxing the worldwide profits of U.S. companies puts them at a disadvantage when competing for world markets.
- Although lowering the statutory rate is important, it is even more important to lower the effective rate. This is best done by expanding the few tax provisions, such as the R&D tax credit and accelerated depreciation, which clearly cause companies to expand investment, while also lowering the statutory rates.
- Congress can pay for a reduction in the effective corporate tax by raising taxes on the individual side, through means such as a carbon tax, a value added tax, and/or taxing dividends, carried interest, and capital gains as normal income.