Innovation-related comments on the SOTU

From the Christian Science Monitor:

‘America’s greatest economic strength, compared to its competitors, is its commitment to liberty, or the freedom to innovate and compete. Communist-run China adopted that economic model in 1979 and still hasn’t quite absorbed it with its state capitalism.

From Ezra Klein:

And without knowing what Obama is actually asking from Congress, it’s hard to know what his vision amounts to. Yes, it would be good “to out-innovate, out-educate, and out-build the rest of the world,” and yes, public policy has a role in helping us do that. But a small commitment to public investment is very different than a big commitment to public investment.

From Congressman Rob Bishop (R-UT):

However, while the President is calling for ‘new levels of research and development that haven’t been seen since the Space Race’ his Administration is also calling for the termination of our nation’s manned space program- a program whose science and technology research is an essential component of our nation’s missile defense program.  Terminating this program, including the Constellation program, would cede our leadership in space exploration over to countries like China, Russia and India.  Again, ironically, these are the same countries that, as he noted tonight, are rising as global leaders in innovation and technology.  It would be counterproductive to abandon our role as leaders in space exploration.

From Rob Atkinson of ITIF:

ITIF applauds the President’s call for tax reform but urges the Administration and Congress not be lulled into the simpler-is-better trap. ITIF has long argued that effective corporate rates are too high and that valuable credits, such as the R&D credit are too stingy. However, a complex economy sometimes benefits from a complex tax system. Computer chips are different from potato chips and they shouldn’t be taxed the same way. New machinery and equipment is different from housing and they shouldn’t be taxed the same way. ITIF has urged the creation of a new corporate competitiveness tax credit that would include a much more generous credit for research and development, and a credit for business investments in workforce training and new capital equipment, especially software

 

From Marshall Auerback:

Consider the solar industry, which represents a perfect microcosm of the challenges the US now faces in regard to China. Beijing’s command economy policy makers are piling subsidy on top of subsidy to make China’s domestic market and domestic production the largest in the world. Its state-controlled banking system under government directive is financing capacity equal to a multiple of world demand on lending terms that make no sense for an industry with this much competition and flux.

The Chinese solar industry has been able to drive down solar product prices to levels that are too competitive for the most automated U.S. producers using the most advanced technology. As a result, the U.S. solar industry, including Evergreen, upon which President Obama has placed such high hopes, is departing the U.S. for facilities elsewhere, including facilities joint ventured with favored Chinese companies.

This encroachment by the Chinese into the global market for solar products is not occurring because China has especially low labor costs. It is not occurring because China has more advanced technology. It is occurring because China’s command economy can force fixed investment in priority industries through a broad array of non-market means.

 

From Bruce Nussbaum, “What’s Wrong With America’s Innovation Policies

China’s brilliant “Fast Follower” innovation policy is generating the biggest transfer of technology in history. A combination of state-driven policies is driving this policy — requiring Western companies to partner with Chinese firms to do business; demanding transfer of the latest technologies in exchange for access to markets; favoring “indigenous innovation” in government purchasing; fencing off green and other industries from foreign competition; offering low-interest state-bank loans to local champions. This industrial policy is at odds with WTO standards, but is a boon to Chinese economic growth and a long-term threat to U.S. global competitiveness.

Comments

  1. Excellent quotes.

  2. I’ll second the previous commenter’s sentiment.

    Marshall Auerback is someone whose work I have slowly but surely come to view as demonstrating particular clarity.

  3. Speaking of solar, I have begun to contemplate whether we as a nation are needlessly resisting the looming bargain of the century. That is, if China wants to commandeer the solar business by offering product practically at a loss, and with currency pegging distortion as well, then perhaps we should exploit it to the hilt, post-haste. If I am not mistaken, the jobs lost or gained are not that significant. The rather substantial installation labor will remain strictly domestic. Transportation and handling costs might even dictate domestic panelizing.

    It seems to me to be quite a different story than forfeiting the ability to clothe or equip ourselves, because solar panels generate a return on investment, and if the investment is shrunk by China’s manipulations, then so much the better for us. Granted, we are left vulnerable as the wave of replacements begin 25 or so years out, but a great deal can change in 25 years that even great planners cannot anticipate.

    There is plenty of other work to be done.

    • Mike Mandel says:

      Interesting pont.

    • There is always plenty of other work to be done. The problem is who will pay for it. Are you going to pay for it or are you going to do your share of all that work for free?

      • I would like to think that there is a frame of mind that just needs more time to take hold. Look what the cell phone industry did by making war on current drain — haven’t they been paid for their great strides in duty cycle and small size? Has this way of thinking even begun to pervade our lives to the extent possible? May be simplistic on my part.

      • When generalizing your argument, it becomes something like this: Invest in developing a field, when some things have been figured out, offshore it. Then move on to developing the next field, after having made headway there offshore that too, etc. The combined loss (and non-realization) of jobs is going to be (has been) substantial. For some time this was compensated for by credit expansion. Lately I’ve been hearing that everybody making things that end up in discretionary spending and consumer products is under extreme cost and schedule pressure.

        This paradigm also leads to churn and premature obsolescence of specialized skill sets. In several industry sectors we have been hearing complaints about skilled/experienced workers being scarce, which largely means “at the rates we want to pay”, but also in part that young people, and those advising them, are understandably reluctant to invest in skill sets where there are few gainful job opportunities at the entry level, because of offshoring.

        It is a matter of sunk costs being hard to recoup when the money is not flowing through well paid domestic jobs that constitute a robust consumer market.

    • It will be like the Internet. Just because all of that started and was sold here doesn’t mean the rest of the world can’t reap the benefits of the efficiencies. If China wants to sell at a loss to burn their reserves on jobs, we should take advantage of it (though the return on investment for solar panels right now is still pitiful). If we can’t export it, we’ll find a way to spend the savings, maybe on better drugs, funding disease discovery, etc.

      • I’m pretty sure that individuals can get a better return on solar than on a current certificate of deposit, although tax incentives are a necessary part of that. Surely volume will eventually hit a level that makes it stand on its own.

      • The internet was developed in the US at taxpayer expense. Back in those days there was still substantial equipment manufacturing in the US and other Western nations. Since the 90’s manufacturing of most components and system assembly have been offshored, and are being offshored pretty much from day 1, when the prototype leaves the lab. There has been a lot of consolidation in tech, leading to a limited number of MNC behemoths all of whom are offshoring. Now part of the design has started to be offshored. This is affecting all industry sectors, also outside IT. Starting after 2000, tech VCs have been requiring an early offshoring roadmap from startups, popularized under the moniker “what’s your India story” (in the case of IT/software startups). That is founders were expected to offshore part of the work from day 1. There is no longer a useful concept of domestic bleeding edge R&D. The days when you could have thriving domestic growth based on technology innovation are over. US tech jobs have not been growing when adjusting for population, and the employment/population ratio has steadily declined.

      • If you are comparing a solar investment to a certificate of deposit, than you’re obviously not considering the solar panels as a serious !investment. I just Googled a few stories in the news just now for “solar return on investment”, the results are opaque at best.

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