Dissecting America's Big Issues

Jan 2, 2013

I had the opportunity to lead a discussion with the current crop of scholars and fellows at the U.S. Chamber's Forum for Innovation. They spoke about their research projects on issues impacting free enterprise, the U.S. economy, and the business community. Here is an edited version of that conversation.

FreeEnterprise.com: Nick, tell us a little bit about the program and what you’re working on these days.

Nick Schulz, Editor-in-Chief, The American; DeWitt-Wallace Fellow, American Enterprise Institute: My initial project is looking at innovation in the agriculture sector. I’ve done some work on this in the past, in part, for a book I wrote a few years ago called From Poverty to Prosperity. It looked at why some countries grow rich and others don’t.

I looked at the nature of innovation and what drives the farming and agriculture sector, which is critical as a first stage of growth for a lot of developing countries. But in this lens, I’m looking at innovation in the agriculture sector in the United States. We’re very good at growing food, feeding a large nation, and trading our goods. But there’s a lot of interesting innovation going on in the industrial application of agriculture and food stuffs.

FreeEnterprise.com: What’s an example of industrial application of agriculture?

Schulz: The obvious example is biofuels. Plant products are being used to create foams for seat cushions in automobiles. There’s research being done in agriculture that will have health care applications.

We have become so productive in the production of food stuffs that we can feed the entire nation. A genuine problem in the United States even less than 100 years ago was that we didn’t have enough food to feed people. We’re so good at producing calories that obesity is actually a problem. Universities and companies are saying, “How can we take these products that grow out of the ground and use them for something other than just breakfast, lunch, and dinner?”

Jim Slutz, President and Managing Director, Global Energy Strategies LLC: I’m looking at both abundance and innovation in the area of energy. We’re in an era of incredible energy abundance, which I don’t think is completely recognized. We’ve tended to approach energy from a standpoint of scarcity going back to the challenges of oil supply in the 1970s. Also, we’ve had a number of energy policy failures over the last few years by trying to force new types of energy into the system.

So let’s throw the list of different possible energy sources on the table and sort out which ones we should develop. Let’s start looking at our past successes and failures and develop a set of principles that we should agree on in moving forward with energy policy.

FreeEnterprise.com: What do you mean by a set of principles?

Slutz:  For instance, we should look at relying on the market rather than mandating a certain type of energy. We should provide a clear long-term tax policy on the energy sources upon which we rely. We need better regulatory performance so that industry can make good decisions.

FreeEnterprise.com: John, what are you working on this year?

John Raidt, Senior Fellow, Atlantic Council: I’m looking at the role of patents and intellectual property in spurring innovation. What are the obstacles presented by the patent process, the enormous increase in litigation, and the length of patents? Patent protection and intellectual property protection overseas are important elements of trade.

I’m also working on a book called the Eight Factors of American Competitiveness, a self-assessment through the eyes of job creators. We look to international institutions, whether it’s the World Economic Forum, the World Bank, IMF, or McKinsey, to tell us actually how we’re doing compared with other countries in these eight factors. The final chapter of the book addresses those things that we ought to do to measure and benchmark our own success relative to other economies.

FreeEnterprise.com: And what would that look like?

Raidt: It would boil down to metrics in each of the eight factors. One example is the corporate tax rate. Europe as a whole, Asia as a whole, South America as a whole have reduced their corporate tax rates substantially, and ours hasn’t budged.

Countries are dropping their corporate tax rates to spur new job creation, to spur entrepreneurship. Meanwhile, we sit at the 40% level. We just took over Japan’s spot as owner of the highest corporate tax rate.

Most of the literature compares the rate today in the United States with what it was 10 years ago or 50 years ago. We haven’t looked at the rate in the context of what other nations are doing and the effect that has in drawing companies and entrepreneurs and innovators to other shores.

FreeEnterprise.com: So you’re focused on external as opposed to internal comparisons of U.S. competitiveness?

Raidt: That’s right. And that goes for other things like infrastructure. We’ve got to pay attention to what other countries are doing to attract and keep multinational corporations. Because of demographic shifts and the center of economic gravity shifting to Asia, the inclination is for many companies to be closer to expanding markets.

FreeEnterprise.com: How does our infrastructure compare with Asia’s?

Raidt: When you look at international trade infrastructure, there are much more modern ports, much more modern aviation systems, a lot more modern telecommunications systems in Asia. I’m not saying this is the case across the whole of China. But it has ports and centers that are far more efficient and far better connected to international networks. And its rate of improvement is far greater than ours.

FreeEnterprise.com:  Let’s go back to patents. Why are they important as an innovative driver?

Raidt: People aren’t going to innovate if there are only moral and social rewards but no material rewards, and that’s the purpose of the patent. {Abraham}Lincoln said, “the patent system added the fuel of interest to the fire of genius.” It’s a big problem when patent systems are clogged and subject to too much litigation.

FreeEnterprise.com: Leslie, tell me a little bit about what you’re working on.

Leslie Bradshaw, Co-Founder, President & COO, JESS3; Principal and Partner, Bradshaw Vineyards: I’m a Millennial, and I’ll be looking at what the Millennial generation means for the workforce in the next few decades—how work gets done, the perception of work. I’ll also be looking at entrepreneurship and innovation, particularly in technology.

I founded a company that is very focused on the big data problem—analyzing and visualizing the enormous amount of data. One of my favorite quotations is from the chief economist at Google, Hal Varian: “The most important jobs in the coming decades will be the people that are able to analyze, process, and really visualize and help create context around all of the data that we’re amassing.”

Organizations need an interdisciplinary approach to data, bringing in people with backgrounds in quantitative mathematics and statistics and partnering them with people who are storytellers, because ultimately data need to tell a story. The third partnership is with people who can design. I’ve worked closely with Nike to use its point-of-sale insights and social insights to develop actionable and beautiful graphical representations of its information.

FreeEnterprise.com: How do the recent elections affect any of the work that you have been doing?

Raidt: The factors of American competitiveness don’t have an etiology. They’re not red America or blue America; they simply are what they are. As much as both party platforms and both presidential candidates highlighted improving U.S. competitiveness, the greatest arbiter of what that is are the people who make the decisions about where jobs are created.

Slutz: I would second that. There may be a different area of focus, but energy is going to be crucially important to all sectors of our economy, and we’re going to have to reflect on how we do energy policy. That would have happened regardless of who won the election.

FreeEnterprise.com: Bret, you’ve been with NCF for a few years now. What are you working on for 2013?

Bret Swanson, President, Entropy Economics LLC: I’ve been working with NCF since I think 2005 in various capacities, helping with the research agenda and specializing in technology and emerging economic issues.

For the last couple years—in addition to my work on technology—I’ve really focused on the topic of economic growth and just how important it is in the lives of everyday Americans, how long-term economic growth is the key factor in raising standards of living, in providing broad opportunity across society, in creating new jobs, and—this point is often forgotten—how it is the most impactful factor in federal and state budgets.

When Washington talks about debt and deficits, it often talks about trimming this program or raising taxes here in an attempt to get a little more revenue.

But too often forgotten in this equation is the most powerful factor: the rate of economic growth. How fast we increase economic output just swamps all these other factors if you look at the math for the simple reason that compound growth is so powerful.

FreeEnterprise.com: Is there any one area that seems to count more when it comes to economic growth?

Swanson: I tend to focus on innovation and entrepreneurship as the key sources of economic growth. I look at the impact of economic policies on our ability to innovate, on new ventures and new products, on experimentation, and on the flexibility to try new things and establish or implement new technologies and new business models.

Alex Brill, Research Fellow, American Enterprise Institute: The set of issues that I’m working on tend to relate to issues around debt and growth. High debt burdens can raise borrowing costs both for the federal government and for private citizens and businesses, making borrowing and investing more expensive across the economy.

I’m looking at another fiscal cliff that’s much further out in the future but still very real—the day that Social Security can’t pay all beneficiaries the benefits that they’ve earned and the day that Medicare can’t pay physicians the rates they’ve been promised. We have intergenerational issues in the sense that we are enjoying government services today that will be paid for by future generations, not by us.

I’m also looking at international issues related to who we’re borrowing from, who owns the U.S. debt.

FreeEnterprise.com: How does the tax code figure in economic growth?

Brill: There’s more than one way to raise $2 trillion in tax revenues. There are ways that promote savings and investment, and there are ways to raise the same amount of revenue but hinder economic growth. A lot of my research focuses less on what the total tax burden is and rather more on what’s the most efficient or most pro-growth way to raise a given amount of revenue.

Similarly, the same is true regarding the deficit in general. Borrowing to build an asset or acquire an asset could have positive effects on economic growth. For example, borrowing to build a school or build a highway could result in a better educated workforce or lower transportation costs. Borrowing for consumption purposes is the opposite, so it’s not going to have economic growth effects.

Visit www.uschamber.com/ncf to learn more.


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