Reports

The Rise of Data Poverty in America

September 10, 2014
| Reports

 

Data-driven innovations offer enormous opportunities to 
advance important societal goals. However, to take 
advantage of these opportunities, individuals must have 
access to high-quality data about themselves and their 
communities. If certain groups routinely do not have data 
collected about them, their problems may be overlooked 
and their communities held back in spite of progress 
elsewhere. Given this risk, policymakers should begin a 
concerted effort to address the “data divide”—the social 
and economic inequalities that may result from a lack of 
collection or use of data about individuals or communities. 

Data-driven innovations offer enormous opportunities to advance important societal goals. However, to take advantage of these opportunities, individuals must have access to high-quality data about themselves and their communities. If certain groups routinely do not have data collected about them, their problems may be overlooked and their communities held back in spite of progress elsewhere. Given this risk, policymakers should begin a concerted effort to address the “data divide”—the social and economic inequalities that may result from a lack of collection or use of data about individuals or communities. 

Going Local: Connecting the National Labs to their Regions for Innovation and Growth

September 10, 2014
| Reports

Since their inception in the 1940s, the Department of Energy (DOE) national laboratories have been in the vanguard of America’s global research and development leadership. However, the national innovation system has changed in the past 70 years. Today, much technology development and application occurs in the context of synergistic regional clusters of firms, trade associations, educational institutions, private labs, and regional economic development organizations. Unfortunately, legacy operating procedures limit the DOE labs’ ability to engage fully with the regional economies in which they are located. This lack of consistent engagement with regional technology clusters has likely limited the labs’ overall contributions to U.S. economic growth.

Beyond Internet Universalism: A Framework for Addressing Cross-Border Internet Policy

September 9, 2014
| Reports

 

In 1995, Bavarian authorities raided the German offices of CompuServe and charged Felix Somm, the president of CompuServe’s German subsidiary, with violating the law because the company did not block access to certain websites, including some sites containing child pornography and Nazi propaganda. In response to these charges, CompuServe subsequently blocked access to two hundred online messaging boards for all four million of its customers worldwide, outraging many of its Internet users who were angry that German law could dictate what content was available to those outside its borders when other countries had more permissive laws about indecent and offensive content.
In 1998, a German court convicted Somm and gave him a suspended two-year sentence and a fine, but the ruling was overturned a year later. This case set off an international debate about the appropriateness of applying domestic laws to a global network—a debate which is even more heated, more important, and still unresolved to this day.
The Internet is a global network that is fundamental to commerce, communication, and culture. The ability to use the Internet to purchase products and services from halfway around the world, to talk to friends and strangers in other countries, and to share and discover new ideas, is what has made the Internet the defining technology of the 21st century. But the same capabilities that make the Internet the incredible powerhouse that contributes trillions of dollars annually to the global economy—the ability to transfer data seamlessly across geographic borders—has exacerbated the international conflicts that arise between nations with different laws and values.
Even though the importance of the Internet to the global economy and society continues to grow each day, collectively nations have made little substantive progress in creating a framework for resolving the many conflicts over Internet policy that inevitably occur between sovereign nations. These conflicts arise over a myriad of issues, such as free speech, intellectual property, privacy, cybercrime, consumer protection, taxation, commerce regulation, and others. To date, despite many attempts, no framework has been successful at providing a practical and widely-accepted model for policymakers to resolve cross-border Internet policy conflicts in ways that respect both the global nature of the Internet and national laws and norms. 
One reason for the lack of progress is that different nations have different sets of values and priorities, and attempts at resolving policy disputes inevitably falter because the various parties lack a common basis for dialogue. Another reason is that many proposed frameworks tend to apply a particular nation’s worldview on the rest of the world, such as promoting democracy and freedom of expression (as in the case of the United States) or maintaining political control (as in the case of nations like China and Russia). But despite their appeal (e.g., they would be relatively easy to administer if everyone would just agree to one universal framework), such frameworks simply cannot work because nations have significantly different cultural values, policy priorities, and legal systems. It is highly unlikely Europe will agree to a U.S. privacy framework (or that the United States will agree to an EU privacy framework), or that Saudi Arabia will agree to U.S. free speech framework, especially when it comes to Internet pornography. But the alternative, a Balkanized, fragmented global Internet that gives nations the right to act on the Internet with impunity cannot be the answer either.
What is needed is a framework that allows nations the right to customize Internet policy to their own national needs and rules, while at the same time constraining those rights in ways that enable global Internet commerce and digital free trade while also preserving the underlying global Internet architecture, like the global domain name system. While nations will not always agree unanimously on specific policy proposals, appropriate solutions, or even the relevant evidence, a common framework of understanding cross-border Internet policy issues will allow for healthier Internet policy debates, better cooperation and coordination between nations, and fewer policy conflicts.
This report explores the nature of cross-border Internet policy conflicts and provides a sample of the types of conflicts that have been seen in recent years. It also discusses the limitations of existing Internet policy frameworks, offers an alternative perspective and outlines a specific set of rules that should be used for evaluating cross-border Internet policy conflicts. Finally, it operationalizes this framework using various examples to show the method in action.

 

In 1995, Bavarian authorities raided the German offices of CompuServe and charged Felix Somm, the president of CompuServe’s German subsidiary, with violating the law because the company did not block access to certain websites, including some sites containing child pornography and Nazi propaganda. In response to these charges, CompuServe subsequently blocked access to two hundred online messaging boards for all four million of its customers worldwide, outraging many of its Internet users who were angry that German law could dictate what content was available to those outside its borders when other countries had more permissive laws about indecent and offensive content.

In 1998, a German court convicted Somm and gave him a suspended two-year sentence and a fine, but the ruling was overturned a year later. This case set off an international debate about the appropriateness of applying domestic laws to a global network—a debate which is even more heated, more important, and still unresolved to this day.

The Internet is a global network that is fundamental to commerce, communication, and culture. The ability to use the Internet to purchase products and services from halfway around the world, to talk to friends and strangers in other countries, and to share and discover new ideas, is what has made the Internet the defining technology of the 21st century. But the same capabilities that make the Internet the incredible powerhouse that contributes trillions of dollars annually to the global economy—the ability to transfer data seamlessly across geographic borders—has exacerbated the international conflicts that arise between nations with different laws and values.

Even though the importance of the Internet to the global economy and society continues to grow each day, collectively nations have made little substantive progress in creating a framework for resolving the many conflicts over Internet policy that inevitably occur between sovereign nations. These conflicts arise over a myriad of issues, such as free speech, intellectual property, privacy, cybercrime, consumer protection, taxation, commerce regulation, and others. To date, despite many attempts, no framework has been successful at providing a practical and widely-accepted model for policymakers to resolve cross-border Internet policy conflicts in ways that respect both the global nature of the Internet and national laws and norms. 

One reason for the lack of progress is that different nations have different sets of values and priorities, and attempts at resolving policy disputes inevitably falter because the various parties lack a common basis for dialogue. Another reason is that many proposed frameworks tend to apply a particular nation’s worldview on the rest of the world, such as promoting democracy and freedom of expression (as in the case of the United States) or maintaining political control (as in the case of nations like China and Russia). But despite their appeal (e.g., they would be relatively easy to administer if everyone would just agree to one universal framework), such frameworks simply cannot work because nations have significantly different cultural values, policy priorities, and legal systems. It is highly unlikely Europe will agree to a U.S. privacy framework (or that the United States will agree to an EU privacy framework), or that Saudi Arabia will agree to U.S. free speech framework, especially when it comes to Internet pornography. But the alternative, a Balkanized, fragmented global Internet that gives nations the right to act on the Internet with impunity cannot be the answer either.

What is needed is a framework that allows nations the right to customize Internet policy to their own national needs and rules, while at the same time constraining those rights in ways that enable global Internet commerce and digital free trade while also preserving the underlying global Internet architecture, like the global domain name system. While nations will not always agree unanimously on specific policy proposals, appropriate solutions, or even the relevant evidence, a common framework of understanding cross-border Internet policy issues will allow for healthier Internet policy debates, better cooperation and coordination between nations, and fewer policy conflicts.

This report explores the nature of cross-border Internet policy conflicts and provides a sample of the types of conflicts that have been seen in recent years. It also discusses the limitations of existing Internet policy frameworks, offers an alternative perspective and outlines a specific set of rules that should be used for evaluating cross-border Internet policy conflicts. Finally, it operationalizes this framework using various examples to show the method in action.

State Open Data Policies and Portals

August 18, 2014
| Reports

This report provides a snapshot of states’ efforts to create open data policies and portals and ranks states on their progress. The six top-scoring states are Hawaii, Illinois, Maryland, New York, Oklahoma, and Utah. Each of these states has established an open data policy that requires basic government data, such as expenditure information, as well as other agency data, to be published on their open data portals in a machine-readable format. These portals contain extensive catalogs of open data, are relatively simple to navigate, and provide data in machine-readable formats as required. The next highest-ranked state, Connecticut, offers a similarly serviceable, machine-readable open data portal that provides wide varieties of information, but its policy does not require machine readability. Of the next three top-ranking states, Texas’s and Rhode Island’s policies require neither machine readability nor government data beyond expenditures; New Hampshire’s policy requires machine readability and many types of data, but its open data portal is not yet fully functional. States creating new open data policies or portals, or refreshing old ones, have many opportunities to learn from the experiences of early adopters in order to fully realize the benefits of data-driven innovation.

The Export-Import Bank's Vital Role in Supporting U.S. Traded Sector Competitiveness

July 28, 2014
| Reports

As the official export credit agency of the United States, the U.S. Export-Import (Ex-Im) Bank plays a vital role in fostering U.S. traded sector competitiveness and facilitating exports of innovative U.S. products and services to foreign markets. The bank provides financing for export transactions that might not otherwise occur when private commercial lenders are unable or unwilling to provide financing to foreign purchasers of U.S. exports and plays a key role in leveling the playing field for America’s exporters by matching the credit support that other nations provide, ensuring that U.S. exporters are able to compete based upon the price and performance features of their products. In 2013, the Ex-Im Bank supported over $37 billion in U.S. exports—many of which would not have been possible without Ex-Im assistance—which supported over 200,000 jobs at more than 33,000 firms or their suppliers.

Yet the Ex-Im Bank is under heavy attack from a variety of ideological and special interest critics who oppose the Banks’ very existence. Populist opponents, from both the left and right, oppose the Bank as mere big business “crony capitalism” and a manifestation of unnecessary government intervention into market forces. Other groups have made unsubstantiated claims that the bank’s export credit assistance distorts capacity in markets such as the global aviation industry. Yet there is scant evidence that the global aviation industry suffers from sustained structural overcapacity or that export credit finance contributes to overcapacity in any meaningful way. This report debunks the fallacious claims of both the Bank’s ideological and special interest opponents, which have been designed to obscure the instrumental role the Ex-Im Bank plays in supporting U.S. manufacturing and services exports.

The reality is that the export credit finance the U.S. Ex-Im Bank provides is needed now more than ever, especially as foreign export credit competition continues to intensify. For example, in 2013, China issued three times as much new medium- and long-term export credit than the United States did (China’s $45.5 billion compared to America’s $14.5 billion) and over the past five years China and Germany issued four and five times much export credit as a share of GDP, respectively. If the Ex-Im Bank were disbanded as critics desire, leaving the United States unable to provide export credit assistance to foreign purchasers of U.S. products and services in situations where private sector lenders are unable to do so, the simple reality is that U.S. exports of aircraft, locomotives, power-generation equipment, and thousands of other products and services would be replaced by those of Asian or European producers, whose still-operating export credit agencies would step in to fill the void.

In short, failure to reauthorize the Ex-Im Bank will have far reaching negative results, including fewer U.S. exports, fewer U.S. jobs, and higher U.S. trade deficits. Therefore:

  1. With Congressional authorization of the U.S. Export-Import Bank set to expire on September 30, 2014, Congress should move expeditiously to reauthorize the Ex-Im Bank for a new five-year term.

  2. Congress should raise the Ex-Im Bank’s current exposure limit (i.e., lending cap) of $140 billion to at least $160 billion by 2018, ensuring that American exporters don’t fall behind foreign competitors, whose countries are investing substantially more in export credit finance as a share of their GDP than the United States. 

ICT Innovation Policy in China: A Review

July 21, 2014
| Reports

China is not only a producer of manufactured goods, but it is increasingly a nexus for technological innovation as a growing share of home grown, high-tech companies compete in the global marketplace. The Chinese government sees information and communications technology (ICT) both as a key catalyst for China’s transition from a manufacturing to a knowledge-based economy and as a positive influence in boosting across the board productivity and overall quality of life in China. That is why a decade ago China designated “informatization,” the adoption and enhancement of ICT in every aspect of the economy and society, as a central facet of the nation’s economic modernization strategy.

This report reviews the long-term, mid-term and industry-specific ICT policies China is utilizing to implement informatization and improve its overall international economic competitiveness. This includes the frameworks to enhance innovation and development in the “Internet of Things,” cloud computing and data innovation.

The report concludes by noting that while Chinese policy is moving in the right direction, the nation still has a long way to go to match the ICT policy framework of the United States or Europe. This would include creating policies to attract, rather than compel, ICT foreign direct investment, while reforming existing regulations and requirements to ensure domestic and foreign firms are operating on a level playing field.

Understanding the U.S. National Innovation System

June 30, 2014
| Reports

The conventional view of innovation is that it is something that just takes place idiosyncratically in “Silicon Valley garages” and R&D laboratories. But in fact, innovation in any nation is best understood as being embedded in a national innovation system (NIS). Just as innovation is more than science and technology, an innovation system is more than those elements directly related to the promotion of science and technology. Rather, it also includes all economic, political and other social institutions affecting innovation (e.g., a nation’s financial system; organization of private firms; the pre-university educational system; labor markets; culture, regulatory policies and institutions, etc.). Indeed, as Christopher Freeman defined it, a national innovation system is “the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies.”

This report identifies the broad elements that make up a national innovation system, including a description of the innovation success triangle, which measures the business environment, regulatory environment, and innovation environment of a nation, and is used to predict the success of an innovation system in promoting technological development and economic growth. It then uses this framework to analyze the U.S. national innovation system and assess the strengths and weaknesses of individual components  and whether those components  are improving, stable or deteriorating relative to our competitors. Unfortunately, in many areas the U.S. national innovation system falls behind our global competitors, hampering our ability to foster the innovation that is imperative for success in the 21st century economy.

As nations compete to win the global innovation race, the effectiveness of their national innovation systems will be a key factor in deciding the winners and the losers. Thus, the challenge for the United States going forward is whether it can make the needed changes to its innovation system to keep up with the international innovation leaders and remain a key player in the innovation economy. The future health of our nation will depend on the answer.

Setting the Record Straight: De-Identification Does Work

June 16, 2014
| Reports

In the coming years, analytics will offer an enormous opportunity to generate economic and social value from data. But much of the success of data analytics will depend on the ability to ensure that individuals’ privacy is respected. One of the most effective ways in which to do this is through strong “de-identification” of the data – in essence, storing and sharing the data without revealing the identity of the individuals involved.

A number of researchers have been investigating techniques to re-identify de-identified datasets. Unfortunately, some commentators have misconstrued their findings to suggest that de-identification is ineffective. Contrary to what misleading headlines and pronouncements in the media almost regularly suggest, datasets containing personal information may be de-identified in a manner that minimizes the risk of re-identification, often while maintaining a high level of data quality.

Despite previous efforts to dispel the myth that datasets cannot be reliably de-identified no matter the methods employed to de-identify the data, this view continues to be promulgated. It is increasingly apparent that one of the reasons for the staying power of this myth is not factual inaccuracies or errors within the primary literature, but rather a tendency on the part of commentators on that literature to overstate the findings. While nothing is perfect, the risk of re-identification of individuals from properly de-identified data is significantly lower than indicated by commentators on the primary literature.

At the same time, advancements in data analytics are unlocking opportunities to use de-identified datasets in ways never before possible. Where appropriate safeguards exist, the evidence-based insights and innovations made possible through such analysis create substantial social and economic benefits. However, the continued lack of trust in de-identification and focus on re-identification risks may make data custodians less inclined to provide researchers with access to much needed information, even if it has been strongly de-identified; or worse, to believe that they should not waste their time even attempting to de-identify personal information before making it available for secondary research purposes. This could have a highly negative impact on the availability of de-identified information for potentially beneficial secondary uses. 

The 2014 State New Economy Index

June 11, 2014
| Reports

The conventional view of the U.S. economy, and of state economies, is as static entities which change principally in size (growing in normal times and contracting during recessions). But in fact, state economies are constantly evolving complex ecosystems. Indeed, U.S. state economies of 2014 are not just larger but different than the state economies of 2013. On any given day this year each state will on average be home to businesses that receive 12 patents, release nine new products and introduce nine new production processes, while about 32 firms will go out of business and another 32 will be launched. Firms in some industries will get bigger (the average number of workers in non-store retailers—e.g., the Amazon.coms of the world—grew 0.03 percent every day in 2013) while some will get smaller (the average size of data processing, hosting, and related services shrank 0.07 percent every day in 2013, despite the emergence of cloud computing). Understanding that we are dealing with evolving rather than static state economies has significant implications for state economic policy.

The challenge for state economic development is to encourage evolution. This means helping the states’ traded sector companies to both win in advanced technology sectors and to slow the loss of more mature industries to lower cost locations. But evolution also means that government should not only not erect barriers to natural evolutionary loss (e.g., the loss of output of some firms and industries coming from disruptive technological change), it should actively remove barriers to such disruption. This means reducing the regulation and other protections that incumbents (big or small) face vis-à-vis more entrepreneurial (big or small) innovators. And it means both encouraging innovation through smart state technology-based economic development strategies and programs while also ensuring a tax and regulatory environment that supports state competitive advantage. In short, to be well positioned to drive economic evolution, state economies need to be firmly grounded in what can be called “New Economy” success factors, which assess states’ fundamental capacities to successfully navigate the shoals of economic evolution.

The 2014 State New Economy Index builds on six prior State New Economy Indexes published in 1999, 2002, 2007, 2008, 2010 and 2012. Overall, the report uses 25 indicators broken up into five key areas that best capture what is new about the New Economy:

  1. Knowledge Jobs
  2. Globalization
  3. Economic Dynamism
  4. The Digital Economy
  5. Innovation Capacity

The state that is farthest along on the path to the New Economy is Massachusetts, as it has been in all previous editions of the State New Economy Index. Boasting a concentration of software, hardware, and biotech firms supported by world-class universities such as MIT and Harvard, Massachusetts survived the early 2000s downturn and was less hard hit than the nation as a whole during the Great Recession in terms of job growth and per-capita income growth. As in the 2012 Index, Massachusetts shares the top quartile with Delaware, California, Washington, and Maryland. Second-place Delaware is perhaps the most globalized of states, with business-friendly corporate law that attracts both domestic and foreign companies and supports a high-wage traded service sector. The state has moved up four ranks since 2010, driven by top rankings in high-wage traded services, foreign direct investment, and industry investment in R&D. Third-ranked California thrives on innovation capacity, due in no small part to Silicon Valley and high-tech clusters in Southern California. California still dominates in venture capital, receiving 55 percent of U.S. venture investments, and also scores extremely well across the board on R&D, patents, entrepreneurship and skilled workforce indicators.  Washington State, in fourth place, ranks in the top five due not only to its strength in software and aviation, but also because of the entrepreneurial activity that has developed in the Puget Sound region and the widespread use of digital technologies by all sectors. Maryland and Virginia, ranked fifth and seventh respectfully, have realized high rankings primarily due to high concentrations of knowledge workers, many employed with the federal government or related contractors in the suburbs of Washington, D.C. Colorado, in sixth place, maintains a highly dynamic economy along with the second-most highly educated workforce in the country. The state has become a hotbed for high-tech innovation in the middle of the country and scores well on entrepreneurship and knowledge-employment indicators. Eighth-place Connecticut excels in traded services, aided by a highly educated workforce, high levels of foreign direct investment, and excellent broadband infrastructure. The state also enjoys robust R&D investment and high scores in inventor patents and fast-growing firms. Ninth-place Utah ranks first in economic dynamism. Moreover, its high-tech manufacturing cluster centered on Salt Lake City and Provo supports its second-place ranking in manufacturing value added. New Jersey’s strong pharmaceutical industry, coupled with a high-tech agglomeration around Princeton, an advanced services sector in Northern New Jersey, and high levels of foreign direct investment, helps put it in tenth place.

The two states whose economies have lagged the most in making the transition to the New Economy are Mississippi and West Virginia. Oklahoma, Arkansas, Louisiana, Wyoming, Kentucky, Hawaii, South Dakota and Alabama round out the bottom 10. Historically, the economies of many of these states depended on natural resources, on tourism, or on mass-production manufacturing, and relied on low costs rather than innovative capacity to gain a competitive advantage. In the New Economy, however, innovative capacity (derived through universities, R&D investments, scientists and engineers, highly skilled workers, and entrepreneurial capabilities) is increasingly the driver of competitive success, while states only offering low costs are being undercut by cheaper producers abroad. Regionally, the New Economy has taken hold most strongly in the Northeast, the mid-Atlantic, the Mountain West, and the Pacific regions.

 

Overall Ranking:  
   
1. Massachusetts18. Michigan35. Nebraska
2. Delaware19. Rhode Island36. North Dakota
3. California20. Texas37. Iowa
4. Washington        21. Georgia38. Indiana
5. Maryland22. Pennsylvania39. Montana
6. Colorado23. North Carolina40. Tennessee
7. Virginia24. Idaho41. Alabama
8. Connecticut25. Florida42. South Dakota
9. Utah      26. New Mexico      43. Hawaii 
10. New Jersey27. Nevada44. Kentucky
11. New Hampshire28. Maine45. Wyoming
12. New York29. Ohio46. Louisiana
13. Minnesota30. Wisconsin47. Arkansas
14. Vermont31. Kansas48. Oklahoma
15. Oregon32. Alaska49. West Virginia
16. Illinois33. Missouri50. Mississippi
17. Arizona34. South Carolina 
   

States that score highly on the State New Economy Index are best able to face the challenges brought on by the New Economy transformation, while lower-scoring states have significant ground to make up. While low-scoring states would perhaps benefit most from implementing comprehensive and cogent innovation strategies, even the high-scoring states have room for improvement. Indeed, all of the states, and perhaps most importantly, the federal government, need innovation strategies in order to compete in the New Economy. Successful strategies will incentivize, among other things: having a workforce and jobs based on higher skills; strong global connections; dynamic firms, including strong, high-growth startups, industries, and individuals embracing digital technologies; and strong capabilities in technological innovation.

Other nations and sub-national governments have shown increased interest in technology-based economic development (TBED). With the rise of the Internet, regions around the globe can now easily and quickly learn from each other and pick from best-in-class policies and programs to institute at home, often with appropriate customization to fit local conditions and policy frameworks. U.S. state and local economic development officials would be well advised to track what their competitors are doing abroad, for there are many interesting and effective models for spurring TBED that may be adopted within the United States, especially in four key areas: 1) economic development analysis and strategy; 2) financial incentives for innovation; 3) education reform; 4) and startup support. Adopting these policies would help reconfirm the United States’ position as a global innovation leader in this period of intense evolutionary competition.

Download the 2014 Data Files:

Download the 2014 Indicator Ranks (CSV).
Download the 2014 Indicator Scores (CSV).
Download the 2014 Master Table (PDF).

Download the 2014 Indicator Ranks and Scores (XLSX).
Download the 2014 Master Table (PDF).

ITIF Summer Reading List 2014

June 9, 2014
| Reports

To assist those looking for good beach reading, ITIF presents its annual summer innovation policy reading list. The list identifies 14 recent books that do the best job of informing the innovation and competitiveness policy debates. To also save readers time and money, the list also includes books ITIF does not recommend.

Books We Recommend (Alphabetical by Author’s Last Name)

Uncharted: Big Data as a Lens on Human Culture by Erez Aiden and Jean-Baptiste Michel

While many of the most important big data applications, such as numerical weather prediction and high-throughput genomic analysis may be esoteric to much of the public, human culture can serve as an immediate and accessible example of big data's power and breadth of applicability. Aiden and Michel's book does just that. Inspired by their research as applied mathematics graduate students at Harvard, they detail the emerging discipline of "culturomics," the attempt to address sociological questions through quantitative analysis. In addition to its insights about the human condition, from the way language evolves to the ebbs and flows of different research disciplines, culturomics has long-term implications for economics, education, and the law. Aiden and Michel situate big data as a crucial tool for studying human culture and attitudes, and in doing so give another example of how big data will touch all aspects of human life.

Innovation Economics: The Race for Global Advantage (Paperback Edition) by Robert Atkinson and Stephen Ezell

Yes, we plead guilty of self-promotion. This book, written by ITIF President Robert Atkinson and Senior Analyst Stephen Ezell, was released in paperback in 2014. McKinsey Director Emeritus Lenny Mendonca describes the book as follows: “As a long-time analyst of the trends shaping the global economy, I am struck by the increasing number of economic and political leaders that do not grasp how serious the structural economic problems facing America are. I hope they read Innovation Economics. It ‘speaks truth power’ with candor, reason and wit and offers fresh thinking and a path forward. Rob Atkinson and Stephen Ezell have been making important contributions and better ideas about economic policy for years. Their new book is eye-opening and alarming and arrives at a critical time.”

Average Is Over: Powering America Beyond the Age of the Great Stagnation by Tyler Cowen

Tyler Cowen’s e-book generated a great deal of press regarding America’s future economic health and the distribution of wealth. Cowen believes a large share of income will continue to go to a relatively small elite of educated people as middle class jobs continue to erode due to the loss of industrial competitiveness. Technology will make it easier for anyone to break into this elite, but Cowen is not optimistic about the chances for those regions and individuals that either cannot or do not add value to capital. If this fraction of the population is to enjoy rising living standards, it will have to depend upon explicit public policy rather than the value they are able to create in the private market. While the book does make some far reaching assumptions common to the techno-utopians, it does provide a needed assessment of the far reaching implications of our continuously stagnant economy. 

The Global War for Internet Governance by Laura DeNardis

With the recently proposed transition of U.S. oversight of the IANA function to ICANN, Internet governance is a hot topic these days. For those new to the issue, this book is an accessible (and timely) overview of the major debates on Internet policy. DeNardis takes an inclusive view of how both state and non-state actors contribute to Internet governance. Over the course of the book, she introduces over one hundred technological or institutional control points and discusses how each may be used to govern at least one aspect of the Internet. In general, the book’s tone is fairly neutral, and the author focuses more on laying out the facts than critically examining different arguments.

Big Bang Disruption: Strategy in the Age of Devastating Innovation by Larry Downes and Paul Nunes

Business books about corporate innovation tend to be a dime a dozen, but Downes and Nunes’ offering provides useful, practical, and accessible insights and recommendations for practitioners of corporate innovation. While those looking for a well-developed theory of corporate innovation, a la Clayton Christensen’s The Innovator’s Dilemma or The Innovator’s Solution may be disappointed, the case studies and analysis presented in the book effectively convey the accelerated pace of innovation in the modern business environment and the urgency and alacrity enterprises must display. While unfortunately the book is a bit too prone to hyping the techno-exponentialism that ITIF has previously lamented, there is little doubt that emerging technologies—particularly information and communications technologies (ICTs)—have directly accelerated rates of innovation in a range of downstream industries well beyond the ICT sector itself. For example, computer-aided design [CAD] technologies have played a major role in reducing design cycles for everything from vehicles, buildings, medical devices, and semiconductors themselves from years to a matter of months. The authors are also spot-on to argue that this means that all businesses must now innovate at the pace established by the information technology industry.

In summary, while Big Bang Disruption isn’t flawless, it’s a fairly quick read that inspires readers to think about the challenges and new approaches needed to bring innovation to their enterprises and industries, effectively conveying the urgent pace of modern corporate competition and the need to innovate rapidly yet deliberately.

Open Data Now: The Secret to Hot Startups, Smart Investing, Savvy Marketing, and Fast Innovation by Joel Gurin

Open data went from a niche topic among a few computer scientists and activists to a subject of national debate and a presidential executive order in a few short years. This is due in no small part to the work of open data evangelists like Gurin, a senior advisor at New York University's GovLab. This book is at once a primer on what open data is and how it can be used, as well as a call to action for government to embrace open data and make these applications more accessible. The book contains innumerable examples of present and future applications for open data, which are sure to prove inspiring for entrepreneurs, scientists, and tech companies alike, but the book’s real value will be in convincing policymakers that the demand for government data is massive and not to be ignored.

Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy by Usha Haley and George Haley

As ITIF previously noted in a post for The Breakthrough, this book is an essential read for American business leaders and trade policymakers. The Haleys argue that a vast system of subsidies to Chinese industries plays a more important role in their mercantilist policy than currency manipulation. This strategy largely results from a particular view of success: that technology acquisition provides a key goal in Chinese business operations, even at the expense of profits. But another possible explanation is China’s “shift strategy,” where growth is believed to come by shifting from low-productivity industries to high-productivity ones. Why does it matter? Chinese mercantilism has not only cost the United States a significant share of manufacturing job loss, but also has distorted the global location of and nature of production systems. The authors conclude by noting that the only real solution to the problem of Chinese mercantilism and massive industrial subsidies in particular, is for the world trading community to say enough is enough.

The Cure in the Code: How 20th Century Law is Undermining 21st Century Medicine by Peter Huber

Peter Huber is one of the nation’s best students of government regulation and technology. The Cure in the Code applies this expertise to the growing swell of information about the interaction of drugs and disease at the molecular level of individual patients. He concludes that the traditional approach to drug licensing is incapable of regulating new drug discoveries. Increasingly, the diseases that plague America depend on an intricate dance between the molecular makeup of an individual’s biome and a particular drug. The interactions can differ between patients, change within the same patient over time, and involve more than one molecular interaction. The most useful information will be generated by laboratory experiments to identify relevant biomarkers and an on-going process of trial and error by individual doctors treating individual patients. Luckily, computer science has developed the ability to collect and analyze the unprecedented amounts of data needed to tease out interactions that might previously have gone unnoticed. Unfortunately, FDA’s standard practice of double-blind clinical trials is increasingly incapable of keeping up with the science at an acceptable cost either in money or lives lost waiting for a cure. Anyone wanting to understand how medical science is progressing and what government needs to do to advance it should read this book.

The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato

Mariana Mazzucato’s The Entrepreneurial State is an ambitious book with an important goal: to turn the way we think about the government’s role in the economy on its head. Mazzucato argues that the state is an innovative, entrepreneurial actor in ways that the private sector cannot be, because only the state possesses the vision, resources, and long-term commitment necessary to facilitate large-scale innovation. The core of the book presents convincing evidence of this dynamic, the risk/reward tradeoffs faced by governments, taxpayers, and private-sector actors as well as what the implications of this system are for fairness and equality. All in all, this is a must-read book in the field of innovation policy—and indeed for anyone interested in political economy or income inequality.

Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change by Edmund Phelps

These days, it’s usually pretty easy to tell when reading a book on the economy what is the author’s political orientation. Conservatives praise markets and promote growth; liberals praise government and promote fairness. It’s in this context that Phelps’ Mass Flourishing is different and confusing, since we  couldn’t really identify his political orientation. What Phelps attempts to do is explain, in the broader sense, why some societies “flourish” in terms of both material wellbeing and the good life. He rightly points to innovation as the driver and indeed defines a modern economy as one “with a considerable degree of dynamism—that is the will and capacity and aspiration to innovate…and to leave aside current conditions and obstacles.” In other words, the willingness to take and embrace risks and organize government to support innovation, but for Phelps, all is not well. He argues that America has turned away from those values, increasingly preferring stasis and comfort, not dynamism and change. Phelps notes that as more and more Americans “became interested in making a quick buck,” they gravitated to wealth seeking sectors like finance, and not the innovation sectors that are necessary to promote economic health. Thus, he makes an important point that conservatives need to take to heart: making money and seeking wealth are not synonymous with a society that enjoys mass flourishing.

While this book is deeply insightful, we were in strong agreement with some and disagreement with other parts. When Phelps writes that mass flourishing depends on acceptance of risk and willingness to not protect incumbent or past businesses, we are in strong agreement. America seems increasingly less willing to “leave aside current conditions and obstacles.” But when he generalizes that most public efforts to support innovation have not been successful, we disagree. As ITIF has written, the U.S. government has played a key role in supporting the development of many of the most transformative technologies responsible for our mass flourishing Yet, all in all, this is an important book in helping to understand the path to revitalize American innovation.

Wealth and Power: China's Long March to the Twenty-first Century by Orville Schell and John Delury

Anyone who is interested in understanding the path of innovation and innovation economies in the 21st  century will have to pay attention to China. This new book, by two long-time China scholars, is a key resource for gaining a better understanding of the history of China’s economic and political development over the last 200 years and what it means for current global policy. One particularly interesting historical point is the discussion of the meeting between Lord Macartney, an emissary from Britain sent by King George III to provide the Chinese with gifts in the form of the latest in technology as a means to help open up trade relations. However, Emperor Qianlong, “dismissively informed him that the Qing Empire had no great need for England’s goods or inventions… ‘I have no use for your country’s manufacturers.’”

The authors go on to describe how the closure of the Chinese market to British exports (while Britain was running up a huge trade surplus in imported tea and silk) led the British to market opium to the Chinese in an effort to get them to buy something. The book seeks to understand the stop and start efforts of Chinese reform (opening up to the outside world and becoming more “democratic” and less imperial) through the lens of 11 key leaders in China, including Empress Dowager Cixi, Sun Yat-sen, Chaing Kai-shek, Mao, of course, and Deng Xiaoping. Their uniting theme is that reformers all shared a common goal: achieving both wealth and power for China, especially in an effort to restore national greatness after a “century of humiliation.” Clearly, China is still engaged in this task.

Just Say Yes: What I've Learned About Life, Luck, and the Pursuit of Opportunity by Bernard Schwartz

Just Say Yes is a compelling and very enjoyable read about the life and career of Bernard Schwartz, who among other titles was the Chairman and CEO of Loral Corporation, a leading defense and satellite company. The first part of the book details Mr. Schwartz's life, interesting in part because he was born during the Great Depression, so his business career spans the U.S. post-war environment, and through his experiences we get a window into how the U.S. economy evolved. While both the biographical life story and insights into management are fascinating, what is telling about this book is the ethos that Schwartz brought to business, something that he rightly complains is all too lacking in today’s short-termist driven business culture. Schwartz tells us how he ended up making a significant number of acquisitions to Loral and how in doing so, the company took great pains to not lay off workers, while also working to build value in the acquired companies, not strip it out in search of a fast buck.

The Next America: Boomers, Millennials, and the Looming Generational Showdown by Paul Taylor and the Pew Research Center

We are surrounded by change, but what does it all mean? For the last decade the Pew Research Center has been doing some of the best public polling in the world. Paul Taylor, who has overseen much of this work, puts the results of this and other research into a coordinated snapshot of how America is evolving. In separate chapters he describes how public life and opinion is changing on important issues such as marriage, the use of technology, immigration, finance and the role of government. Woven throughout this analysis is a discussion of the distinctive view of each generation of Americans, but especially the Baby Boomers and the Millennials. Overall Taylor paints a fairly optimistic view of the future clouded only by the unsustainability of the government’s commitment to the Baby Boomers, particularly in the form of unsustainable entitlement spending. The respective generations will eventually have to renegotiate this contract of spending in a way that is fair to all. Readers of this book will come away with a deep understanding of how the country is changing and the challenges before it.

Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom by Adam Thierer

Mercatus scholar Adam Theirer provides a succinct treatise on the merits of “permissionless innovation,” or the idea that policymakers should leave innovators free to create without first seeking their approval. This model of technological innovation serves as a stark contrast to the countervailing “precautionary principle”—the belief that innovators should be restrained until they can prove that they have sufficiently addressed risk—which underpins the thinking of many policymakers, particular in Europe. Theirer’s book is a compelling read, and one that is supremely relevant to a host of technology policy debates from drones to 3D printing to crypto currencies. Theirer does not dismiss risk associated with new technology, but rather shows how bottom-up solutions, such as self-regulation and social pressure, can be more useful than top-down tools, such as regulatory directives, at addressing the many facets of complex social problems. Overall, many will find this quick read a useful framework for thinking about many emerging policy issues.

Books We Do Not Recommend (Alphabetical by Author’s Last Name)

With a topic as complex as innovation and technology policy it is important to present a reasoned and realistic picture of the issues we face and the potential policy reforms to address our challenges. However, all too often pundits misrepresent the issues or drastically oversimplify the solutions. Below are some examples of a few recent publications that are better left on the shelf.

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee

This publication, which builds on an e-book we reviewed last year, is yet another example of the “innovation optimist” approach arguing that we are entering a “second machine age,” (following the Industrial Revolution) which is “doing for mental power…what the steam engine and its descendants did for muscle power. They’re allowing us to blow past previous limitations and taking us into new territory.” However, as we chronicled in a review for Issues in Science and Technology, the evidence does not warrant such utopianism. In fact, to reach the global income levels the authors predict, the world would need to maintain productivity growth of 25 percent per year for the next 25 years, a tough prospect given that the average over the last quarter century is 3.5 percent. Moreover, the authors’ continued fanning of the flames of neo-Luddite fears of wide-scale job loss from innovation are not borne out by history or analysis and encourage the public and policymakers to want to slow, rather than accelerate innovation. This is particularly troubling given the fact that the United States is in a race for global innovation advantage and significantly more high technology development, not less, is required to remain internationally competitive. ITIF further examined the issue of technology and job loss in a debate featuring Race Against the Machine co-author Andrew McAfee and ITIF President Rob Atkinson last year.

The Pirate Organization: Lessons from the Fringes of Capitalism by Rodolphe Durand and Jean-Philippe Vergne

There’s no way that a book with the title The Pirate Organization cannot make it on ITIF’s “do not read” list. Authored by two professors of business, this tome, surprisingly published by Harvard Business School Press, provides one more data point for the assertion that too many academics have left behind any semblance of scholarly objectivity. The authors argue that “piracy could very well be the driver of capitalism’s growth and evolution,” because pirates play a key role in challenging monopoly. Indeed, “today, cyber pirates are opposing the normalization of data sharing and the monopolistic control of digital space.” But how do they define monopoly? Do they mean the fact that Harvard Business Press is the only authorized producer of their book? Should anyone be able to get a free pirate version? 

In the authors’ view, digital pirates are populists fighting monopolies and oppressive states (like the U.S. government). “These pirate organizations stand up against the state and its accompanying legitimate corporations.” This is because “from the point of view of pirates code is a language that belongs to everyone.” For example, a music record on vinyl is private property since it is analogue and not digital code, but once  it is put into 1’s and 0’s, it becomes a free good, like air or water. At that point, pirate organizations represent “legitimate expropriation on behalf of a public cause.” Wow. We guess the millionaire Kim DotCom was going to donate his ill-gotten gains to pro-piracy groups like the Electronic Freedom Foundation. Reading this kind of anarchist nonsense really made us wish we had stolen a digital copy of the book.

The Myth of America’s Decline: Politics, Economics, and a Half Century of False Prophecies by Josef Joffe

One of the most important economic policy debates the United States should have is whether the U.S. economy is losing out in international competition. There are arguments to be made on both sides, with ITIF clearly arguing that we are losing ground. However, Joffe’s book is a disappointing contribution to this debate, for he relies on broad scale analysis which does not really answer this question. First, Joffee dismisses any present concerns about U.S. economic decline (what he dismissively calls Decline 5.0) by saying that there have been concerns in the past. True there have been,but what he fails to understand is that after many of these clarion calls of decline or potential decline, including after Sputnik (decline 1.0 and after the Japanese challenge (decline 4.0), the United States responded and took actions (increasing federal support for science, reforming the tax code, changing anti-trust law, enforcing trade laws, etc.) that were critical in enabling continued economic leadership. Today, the evidence that we will do the same is not as compelling, especially as scholars like Joffe dismiss any calls as the boy “crying wolf.”

The second major flaw with his analysis is that he compares the United States to other nations only on dollar denominated GDP measures. For example, he says that in 2012 the U.S. economy was three times the size of Japan. So what? Any comparative measure has to be about hourly productivity, not GDP, and about traded sector strength, not overall economy strength. He also dismisses the use of purchasing power parity (PPP) comparisons despite the fact that these are used by international organizations like the World Bank and the OECD to compare economic performance of nations. He doesn’t like PPP because it shows, as the World Bank has noted, that China is about to surpass the United States as the world’s largest economy. This flies in the face of Joffe’s argument that China’s economy is only half as large as America’s.

All in all, this is a disappointing analysis of a topic that is important to get right.

The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism by Jeremy Rifkin

It’s become de rigueur for authors claiming to be futurists to extoll the coming technology wonders that are in store for us, painting a utopian (or depending on their view, dystopian) picture where technology proceeds exponentially and transforms the world. The latest entry to the techno-utopian club is Jeremy Rifkin’s Zero Marginal Cost Society. He argues that within less than 50 years, technology will have proceeded to the point where there will be virtually no more jobs, where the marginal cost of everything will be zero and where capitalism will cease to exist. Besides that not much will change.

He goes on to claim “’The Internet of Things’ is already boosting productivity to the point where the marginal cost of producing many goods and services is nearly zero, making them p