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Frequently Asked Questions About the Creation of a National Innovation Foundation (NIF)

July 3, 2008
| Reports

1. How does NIF differ from industrial policy?

NIF is not industrial policy because it is not about picking industrial “winners”. Rather than taking the view that some industries are more important to the U.S. than others, NIF is based on the idea that innovation and productivity growth can happen in any industry and that the nation benefits regardless of the industry in which they occur.

Moreover, NIF decisions about which proposals to fund and which firms to assist would be based on collaboration with industry rather than Washington telling industry what to do. When businesses come to NIF with proposals, NIF would evaluate them with the assistance of knowledgeable experts from the private sector and academia.

Finally, a significant share of NIF funds would go to support states in the kinds of technology-based economic development activities that transcend politics. That is, funding will be available regardless of what party controls the legislature or the governor’s office.

2. Reorganizing existing agencies into the Department of Homeland Security (DHS) was difficult and complicated. Wouldn’t the creation of NIF involve similar problems?

DHS involved bringing together a large number of long-established agencies from many different parts of the federal government with very different agency cultures and missions. By contrast, NIF would bring together the activities of just six small programs—including some that are less than a decade old—from only three federal agencies. These would be the Manufacturing Extension Program (MEP) and the Technology Innovation Program (TIP) currently in the Commerce Department; the Workforce Innovation in Regional Economic Development (WIRED) in the Labor Department; and three commercial innovation programs in the National Science Foundation (NSF). These existing programs already have much in common in their institutional cultures and missions. In NIF, they would be combined with several complementary activities that are new to the federal government

Precisely because of the DHS experience, NIF is designed not to include every federal program that remotely contributes to innovation, but only a small core of complementary activities that directly contribute to non-farm commercial innovation.

3. Why not just coordinate existing federal innovation-related activities rather than create NIF as a new entity?

A loose coordinating structure for existing programs would not achieve a federal innovation policy. As it is, existing activities are fragmented and diffuse, underfunded, pay little attention to innovation in services, and do not take advantage of state-level expertise in promoting innovation. Even if additional funding, expanded missions, and better coordination could fix these problems, there would still be no person, program, or agency with the mandate and ability to improve the nation’s capacity to innovate. As a separate entity, NIF would have the responsibility for formulating innovation policy and carrying it out through assistance to businesses.

4. Couldn’t NIF become one, big political target?

Activities that have been threatened with elimination in the past could certainly become more visible targets for budget slashers if they were all brought under one agency. But this is a risk worth taking. Under the status quo, MEP, TIP, and the other programs whose activities would be folded into NIF will remain small, underfunded, neglected, and unable to realize their full potential to contribute to the nation’s economic well being. And they would still periodically be in danger of elimination. Right now, each program has its own constituency and none of these constituencies is powerful enough to guarantee that their program continues to receive funding or to play an increasingly prominent role. If brought together by NIF, however, all these separate constituencies would have a shared stake in the new entity and could conceivably speak with one voice. In this way, NIF could actually be less politically vulnerable than the separate programs and activities that now exist.

5. Why not just fund America COMPETES?

Congress should fund America COMPETES, but funding America COMPETES is not a prerequisite for creating and funding NIF. The main emphasis of America COMPETES is on improving some of the inputs to the innovation process, including educating more scientists and engineers and funding more scientific research. NIF is about improving the way those inputs are put together at the firm level to create more new products, services, technologies, business models, and ultimately jobs. Although we should strive for both goals – more inputs to innovation and a better functioning commercial innovation process — the nation would benefit enormously if we could have the latter even without the former.

6. Can we afford NIF?

NIF would have an initial budget of $1 billion per year and an eventual budget of $2 billion per year (about one-third of NSF’s budget). We could fund NIF by using funds that are currently slated to be spent on the programs that NIF would incorporate or replace (around $400 million in FY 2010), eliminating wasteful oil and gas subsidies (estimated at $1.7 billion in FY 2010), and using general revenue. General revenue financing is justified, even at the risk of increasing the budget deficit, because NIF is an investment in the nation’s economic future. Even if we funded NIF entirely from general revenue, NIF’s eventual $2 billion budget would be less than one-twelfth of one percent of the entire federal budget.

7. Why focus on and invest in innovation at all?

Innovation is the main driver of economic growth and ultimately determines the American standard of living. To maintain the high and rapidly growing standard of living that most Americans desire (and that is within the nation’s capacity to achieve), we cannot depend solely on the private economy to produce the required degree of innovation. At a time when America’s innovation leadership is slipping in comparison to other countries, we cannot continue to rely only on our strong market environment and our public support for research and education to ensure our global competitive edge. Other nations with advanced economies, including Britain, Japan and Finland, have recognized the need for government to work in collaboration with the private sector to boost innovation. It is time for the U.S. to do the same.