The INOV8 blog tracks the latest news and trends in technology and innovation throughout the world
This being America, what better way to parse President Obama’s proposed 2011 budget — (Is gazillion an actual number? We’ll find out soon enough) — than with winners and losers.
Reuters did just that, and research and development — trusty, ol’ R&D — came out a big winner:
Research and Development – The Obama administration likes R&D. The budget includes $3.7 billion in additional funds for civilian research & development, a 6.4 percent increase to $61.6 billion.
Obama consistently has cited innovation as vital to the country’s economic health. More from Obama on innovation:
We need to encourage American innovation. Last year, we made the largest investment in basic research funding in history, an investment — an investment that could lead to the world’s cheapest solar cells or treatment that kills cancer cells but leaves healthy ones untouched.
That last line makes us think of the nanotech research being done at UALR and UAMS.
Obama talks the talk on innovation. Does his budget proposal prove he can walk the walk? Better still, can we afford to walk that walk? Can we afford not to?
Give us your thoughts in comments.
The other incredibly important part of this has to be the path to commercialization. That path requires a vibrant venture capital sector. The venture capital sector has been under attack on two key fronts post 2001. Virtually no IPO-driven exit opportunities exist for a variety of reasons (including SOX) and M&A of early-stage companies has slowed. More recently proposed changes in tax law will treat VC fund managers carried interest as ordinary income. This second piece is part of a sweeping change intended to subdue some of the silliness in the hedge fund arena, but the splash is hitting VCs as well. VCs take necessary risks, have few real winners in their portfolios, and need appropriate rewards when their portfolio companies do succeed.
Venture capital is the grease that keeps the innovation machine from grinding to a halt. If the high risk capital does not have the opportunity for lucrative exits in 5-7 years, and is penalized by the government, the VCs will move to more conservative later stage companies for their investments. That will broaden the valley of death that typically kills the commercialization of most important yet high risk innovation.
In general, the risk takers involved with early stage tech companies have not been helped by additional funding of fundamental research. This funding is important without question, but allowing free market dynamics and early-stage capital to have rewards in line with the risk they take, is absolutely crucial. When the mindset is to penalize success, and to limit high reward for successful risk taking, the innovation machine fails regardless of how much fundamental research the government funds.
Hi Dale, thanks for your informed input. Admittedly, I am pretty unaware of the impediments associated with with newer regulatory laws, but it sounds like it will be pretty relevant once (if) I start moving in that direction.
Interesting that you mention the difficulty in attracting human capital in startups due to newer FASB rules. I have heard in a roundabout manner what you talked about–i.e., compsci grads at schools like Stanford have been plucked up by major companies like Google with significant salaries, making it difficult for startups to attract human capital through a combo of salary/stock benefits. (via TechCrunch, in the comments – http://tcrn.ch/bHICyz )
I would be interested as to what extent technological innovation of the nineties was simply dictated by circumstance–i.e., that’s when the internet first came along, and that’s when computer sort of passed a threshold in terms of power. Could this partially explain a drop-off in innovation? Can it be assumed that all periods of time will have roughly the same levels of innovation if the same regulatory laws are in place, or are the specific circumstances, like the dawn of the Internet, that change the character of progress? Similarly, if you look at the growth of labor productivity over time, there was a productivity slowdown from the late 60s to early 80s. What factors played into this. whether circumstances, laws, or whatever? I’m just asking–I don’t know enough on the issue.
As far as the University research/entrepreneurship, I tend to think of it more as a complete system. The very general foundations of knowledge are built up at the University, and practical applications utilizing this knowledge are developed in the private sector. Though I tend to view the pursuit of knowledge as an end in itself, I think there are many examples of the practical applications of new science revealing themselves only after many years: Einstein’s theory of general relativity did not have any bearing on practical applications until several decades after it was formulated, and common technology caught up. But as far as which has the more “direct” linkage to economic prosperity–university research or entrepreneurship–it’s certainly entrepreneurship, so the incentives for startups need to be there.
Seems to me that economic growth means that which is created and brought to market that has not existed before, a positive change created by innovators not afraid to make waves and wakes, as cited in Save Pebble Droppers & Prosperity on Amazon.com and claysamerica.com
John, you are correct that technological innovation is the only way to grow real per capita income. However, University research is not the only or even necessarily the most important way to spur innovation. Since 2000 we have passed a number of laws and regulations that are killing private sector innovation in the US. (see http://www.hallingblog.com) The incredible innovation of the 90s was based on technology start-up companies built on intellectual capital, financial capital, and human capital. All three of the pillars have been under attack since 2000. Our patent laws have been weakened reducing the value of intellectual capital. Sarbanes Oxley has made it impossible to go public reducing financial capital for start-ups and the FASB rules on stock options have made it harder to attract human capital to start-ups. The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation http://www.amazon.com/Decline-Fall-American-Entrepreneur-Regulations/dp/1439261369/ref=sr_1_1?ie=UTF8&s=books&qid=1262124667&sr=8-1, explains these problems in more detail.
It’s no secret that long term economic growth is dictated by technological progress, which is predicated on scientific knowledge. Basically, it increases productivity, which is the root of wealth.
My U. has already seen funding grow several fold under the Obama administration with the stimulus ($80M+ as of October). I have linked an article to my school citing many professors who attest to the importance of research funding (duh), and how it waned under the last administration.
It all depends on if Congress passes it.