It is evident through the concerns in this paper that national policies for innovation, competition and economic development need to consider the true natures of the innovation process and economic renewal. The increasing importance in true innovative capabilities within a nation will play a larger role in determining economic and social progress (OECD, 2005). The critical role of policy formation in this
equation relates to addressing the national dynamics in that environment which affect innovation. This requires a multi-dimensional perspective on innovation systems in policy measures. Innovative and competitive policy measures should focus on the interrelated renewal processes in the economy, consisting of science formation, technology formation, business formation and market formation. All areas of policy influence this system, and as such, all decisions in policy formation should consider the implications to innovative competitiveness. This requires national leaders to develop a conceptual framework for the dynamics of globalization supported by empirical evidence to guide all innovation policy. The following suggestions are based on economic observations, analyzed through the contexts of economic growth through the innovative process discussed in this paper. The six suggestions below address the four areas of economic renewal83.
1) Policy measures should work to improve the educational level of American students.
A critical area of concern in the National Academy‘s report addressed America‘s growing vulnerability, calling for an increase in the American talent pool through the provision of greater incentives for math and science teachers. The report also called for a ten percent increase in federal investments in long-term basic research. The study also recommends steps to improve the appeal of American higher education to foreign students, as well as strategies for retention, including the provision of an increased number of visas permitting U.S.-trained foreign students to remain and work in the U.S. after their studies have been completed (National Academy of Sciences, 2005, ES2). Improved education will help in science and technology formation by equipping the future American workforce with the academic tools to develop S&T innovations. This commitment to education must begin at the pre-college, K through 12 level. The current deficiencies in American K through 12 education stem from the increased social and economic freedoms found in other career fields. For a majority of the 19th century through the 1960s, underemployed, brilliant women subsidized K-12 education due to a lack of other viable career options.
Since the 1970s, smart women have had more and better paying career choices, reducing the talent pool for K-12 teachers. Pay for this profession has remained comparatively low and intelligent, would-be teachers have sought other career alternatives84. To increase the quality and supply of K through 12 teachers, the U.S.
will need to increase the pay of teachers to match other highly-skilled professions, and the general perception of K through 12 teaching must be elevated to a more
prestigious position by making entrance to this field more selective.85
(2) Policy measures should increase incentives for radical innovation.
A critical aspect of policy development designed to enhance the impact of innovation policy should address the need for market and business formation in industrial and economic renewal. A conspicuous missing component in market and business formation involves policy incentives for radical innovation. To resolve this imbalance, policy measures should focus on demand - pull mechanisms for addressing the increased risks associated with radical innovation investment, ultimately resulting in industrial renewal. Possible tax incentives for radical innovation investment could be developed, or the government could enact programs to mitigate the risk of
investing in this field. Radical innovation opens new sources of economic value by breaking out of established business models. This disruptive characteristic is capable of creating completely new businesses as well as new business models (Marklund, Vonortas and Wessner, 2009).
2) Policy measures should encourage the entrepreneurial spirit in small business innovation.
Small business innovation should be a primary focus of innovation policy
particularly when large corporation contributions to industrial renewal are in decline.
Small business growth is a key resource for job creation and overall economic growth.
They also provide agility to large firms through specialized knowledge acquisition.
The dynamic relationship between small and large firms is a key driver in business formation and the innovative and entrepreneurial spirit behind many small firms is a critical aspect in developing future growth of large corporations and industries.
Entrepreneurship is an essential component in business formation, connecting investors with new knowledge. Innovation policy should target incentives and
structures within innovation-based entrepreneurship, further extending incentives found in SBIR and ATP programs.86 The strength of small business in the United States is the backbone of the American economy. A majority of the largest companies in America were started by individuals with innovative ideas, including Microsoft87, Google88 and IBM89.
3) Policy measures should strengthen the national environment for investment.
The development of healthy national environments for new innovation-based industries is essential for the creation of a successful economic system with
competitive strengths. The instability in the U.S. exemplified by the current recession is particularly harmful to the development of perceptions of security in American investment90. Innovation policy should target the systemic hemorrhaging of budget finances and work to reduce national debt while eliminating potential liabilities for the future. Developing perceptions of security is essential to market formation and the attraction of investment. The growing dependence on foreign oil is a critical liability for future energy reliance91. Long-term policy measures should focus on viable renewable energy sources while short-term policy measures should clear the way for offshore drilling and nuclear energy development92. Another critical liability in the American economic forefront is the large percentage of an aging population93. The future strains on Social Security94 and Medicare95 will require an incredible increase in taxes if changes are not made soon96. Ultimately, there is no viable solution that does not include private choice in retirement and health savings accounts97. Other irresponsible budget expenditures such as farm aid which costs the American tax payer $20 billion annually should be eliminated98. The parameters of innovation policy must be expanded to include fields which nurture the economic health of America, particularly concerning national debt and the budget. By reducing national debt, America‘s future economic environment will be significantly strengthened99.
4) Policy measures should address problems in the banking industry.
A major reason for America‘s fall in innovation index rankings lies in the failures in the American banking industry100. The development of market formation depends on a solid infrastructure. Innovation policy should eliminate risky practices such as naked short-selling101. Innovation policy should also address the housing crisis by permitting distressed homeowners to renegotiate their loans to reasonable rates102. Policy developers should follow the innovative measures taken by Hong Kong to address housing volatility by adjusting the length of the loan rather than the rate103. Policy measures should also target the availability of loans to credit-worthy customers.
The liquidity crisis experienced by AIG caused many banks to refuse loans to qualified customers, loans that could be securing the economic environment or serving as the start-up capital for developing businesses. Innovation policy should pressure banks to make loans to credit-worthy customers and enact repercussions for banks that fail to do so104.
5) Policy measures should improve the tax environment for American investment.
Tax incentives for innovation investment are positive steps towards effective reform, but future innovation policies should further extend the incentives for investments. In the short term, to combat the economic recession, capital gains taxes for equities should be suspended if held for a predetermined period of time105. Market formation requires personal financial stability within a population. The American population has developed poor habits in saving, creating a highly-leveraged
population susceptible to economic fluctuations. Innovation policy should lock in low taxes for savings and investment106. Cutting capital gains taxes and expanding
401K107 and IRA108 contribution levels will help to develop a stronger population and a solid investment environment109. One of the greatest possible areas in market and business formation would be the reduction of corporate taxes110. American industry in the United States currently pays 35 percent in corporate taxes, the second highest in the developed world. Reducing corporate taxes to 20 percent would make corporate investment in the United States significantly more attractive111.