Jay O. Light

To spur prosperity, nurture innovation

By Jay O. Light
November 29, 2009

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EVEN AS RECENT economic indicators begin to move in a positive direction, the US economy continues to struggle. Unemployment has crossed the worrisome 10 percent mark and is likely to recede slowly. It will take many years to regain the $14 trillion of wealth lost by American households. Our faith and finances have been shaken to the core.

Among the policy prescriptions emanating from Washington, investments in new areas of clean technology, infrastructure, and manufacturing deserve support. But while government should enact broad stimulus programs, it cannot be the driving force out of this recession. Indeed, if America is to recapture its position as a leader in the new economic order, it must be the new ideas coming from the private sector that shape our future.

And that should give us confidence. If one attribute has characterized the resilience and unprecedented success of American business over the years, it is the ability to innovate. That means the ability to see new opportunities and the courage to pursue them, the ability to harness the ingenuity and industriousness of the workforce, and the drive and commitment to bring a vision to life. Relative to other nations, we will not have a strategic advantage in terms of low-cost labor. Nor will we have a strategic advantage in terms of natural resources. But we do have a strategic advantage in terms of technology, creativity, and innovativeness.

Data show that this country’s capacity for innovation remains strong. We are home to the largest number of patents and patent applications. We represent the largest share of high-technology manufacturing and R&D investment among knowledge-intensive industries. And on the S&P/BusinessWeek Global Innovation Index, 13 of the 25 companies are US firms, with the nearest competitor being Japan with four. Across the board - from electric car technology and business process solutions to biomedical products and next-generation batteries - the United States is still recognized as a first mover in the innovation sweepstakes.

These signs are all encouraging, but this is no time to rest. There are still areas where we, as a nation, hinder our ability to innovate and inhibit our economic competitiveness.

A prime example surfaced last year in language written into the stimulus package. Buried innocuously in the thousand pages of text were provisions to limit H-1B visas for highly educated workers from other countries. Designed to affect companies receiving TARP funds, these restrictions were in fact job protection policy for US workers - a worthy goal, but one that will have harmful consequences to international students, universities, businesses, the economy, and the US standing in the world. Talent is a global commodity. If we are to win in the innovation race, government cannot erect barriers to the individuals that might create the next Microsoft, Google, or Infosys.

There is a constructive role for government to play in stoking innovation, but it will call for thinking outside the beltway. As my colleagues Gary Pisano and Willy Shih have argued, reforming the way the government funds and supports scientific research to create greater collaboration between business, academia, and the public sector would create incentives for cooperative approaches to important problems such as identifying and manufacturing alternative sources of energy or new medical devices. Approaching the problem from another angle, venture capital expert Josh Lerner proposes tax reform, like lowering capital gains taxes for entrepreneurs, or direct public sector funding of innovative activity. With a supportive regulatory framework and collaboration that enhances our competitiveness, such investments can pay dividends in the future.

As Fareed Zakaria recently noted, Silicon Valley’s rise came about not by chance, but by choice. Government policies created a world-class public education system and supported infrastructure and incentives that drew private sector investment and jobs. When the right formula was put in place, America innovated and thrived.

The intellectual wherewithal is readily available. Despite the troublesome economic outlook, the spirit of entrepreneurship thrives on business school campuses, where the recession may actually be a catalyst for innovation. Last year a record 93 teams and almost 600 students competed in our annual business plan competition with the prize going to a Web security venture that will enable advanced websites to protect themselves from online attacks. Winners in prior years have produced programs to screen and treat people for heart disease in rural China, developed simple low-cost diagnostic tests for underserved populations in developing countries, and created new technologies for a host of high-tech and consumer markets. This is the stuff of America’s competitive advantage and the source of its future economic strength.

The road out of recession has many more twists and turns, but the long-term strength of our economy and national prosperity will lie importantly in the inventiveness of a new generation of entrepreneurs, skilled employees, and firms, and a public policy designed specifically to foster these critical determinants of our future position in the world economy.

Jay O. Light is dean of Harvard Business School.

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