June 2010 Archives

In my earlier posting on GDP, I noted that BEA is working on including intangibles in the data (see also the BEA article "Toward Better Measurement of Innovation and Intangibles"). As part of that effort, BEA has a GDP "satellite account" that treats R&D as an investment rather than an expense. This morning, BEA released its latest calculations for GDP in the past few decades as if R&D was counted as an investment (see previous posting for their earlier calculations):

Gross Domestic Product (GDP) would have been, on average, 2.7 percent, or $301.5 billion higher between 1998 and 2007 if research and development (R&D) spending was treated as investment in the U.S. national income and product accounts, the Bureau of Economic Analysis (BEA) announced today. The 2010 R&D Satellite Account updates and extends BEA's estimates of the effect of R&D on economic growth through 2007, and now includes coverage of the most recent business cycle expansion.

R&D accounted for about 6.3 percent of average annual growth in real GDP--that is, GDP adjusted for inflation--between 1998 and 2007, and 6.6 percent between 2002 and 2007. To put the contribution of R&D in perspective, the business sector's investment in commercial and other types of structures accounted for just over 1.3 percent of average annual growth in real GDP between 1998 and 2007.

Comments and analysis are coming in on the Supreme Court ruling in Bilski. Generally folks agree that the ruling was less expansive than many expected. The Court did not rule that business processes could not be patented, even though it threw out the specific Bilski business process patent. The majority opinion seemed punt the issue back to the Court of Appeals for the Federal Circuit -- saying that the "machine or transformation" test was not the only criteria but also saying that the law does not necessarily support broad patentability and that the Appeals judges are free to come up with "other limiting criteria."

The ruling was an outcome of a strong internal debate. Four Justices signed on to a concurring opinion that argued for a broader ruling against business process patents. As the New York Times notes "Court analysts suggested that Justice Stevens wrote his 47-page opinion in anticipation of its serving as the majority view, but lost to those who favored a narrower result."

Since the result was not the bright line guidance hoped for, it is likely that the issue of business process patents will continue to be fought on a case by case basis.

For more comments, see the IAM Blog posting -- - Mixed reactions to the Supreme Court's Bilski decision and Steve Lohr's NTY column Bilski Ruling: The Patent Wars Untouched

It was a busy morning for SCOTUS. In addition to the Bilski decision (see previous posting), the Court ruled on a number of other cases. One of those was the constitutionality of Sarbanes-Oxley. A lawsuit filed about two years ago (see earlier posting) challenged whether the way the Public Company Accounting Oversight Board was created was constitutional. The specifics of the issue was whether member of the Board, who are appointed by the SEC, have tenure or can be removed at will. Opponents of the law hoped to use this issue to have the law completely thrown out. However, the Court ruled that only the tenure part of the Board is unconstitutional and "the unconstitutional tenure provisions are severable from the remainder of the statute." In other words, all the rest of the law remains valid.

The ruling, as the Wall Street Journal notes, "makes it unlikely that Congress will re-examine the full Sarbanes-Oxley legislation, as some opponents of the law had hoped. That reduces uncertainty for investors already grappling with looming changes in the financial-rules overhaul making its way through Congress."

As I said before, gutting SOX would have a major negative effect on any attempt to create a financial market in intangibles. It would be a signal that the US is not serious in protecting investors from misleading claims and shaky accounting -- and therefore investments in new assets such as intangible are extraordinarily risky. So, from my perspective, we dodged a bullet.

However, the case may have other ramifications. By ruling that the members of the Board can be removed at will by the SEC, the Court may have ruled that Commissioners and Directors all such "independent" agencies may not be independent but can be removed at will by the appointing authority, such as the President. That could make life for the regulatory agencies in Washington very interesting. And uncertain.

UPDATE:
Here is the comment on the case from the Economist's Schumpeter columnist:

But it is probably a good verdict from business's point of view. Companies have spent millions on SOX compliance, and had just about got used to the legislation. Moreover, there is no guarantee that a broad reconsideration of SOX, in the current business climate, would produce better legislation. Far from it.

But the idea of every "independent" agency head or commissioner serving at the pleasure of the President still gives me pause.

As expected, the Supreme Court ruled against Bilski, upholding the Appeals court that a patent must be tied to a particular machine or be transformative -- see the Court's "Slip Opinion" on the case and the Wall Street Journal story Supreme Court Rules Against Inventors in Patent Case. Expect a flood of ink over the next few days as everyone weights in on what this means. I will try to summarize later.

Many of the stories published today about Senator Byrd will highlight his mastery of the Senate rules. I was a small part of one such example. As a staffer to Senator Jeff Bingaman in the late 1980's I helped draft part of what became the Omnibus Trade and Competitiveness Act of 1988. Part of the bill created the Competitiveness Policy Council -- an institution that help formulate policy recommendations during the 1990s and is sadly no longer with us. During the Senate floor debate, opponents of this provision moved to eliminate it from the bill. Senator Byrd, in his role as Majority Leader, pointed out that the provision had already been subject to an amendment (in order to amend some other part of the bill, the provision was deleted and reinserted) -- and therefore was not subject to further amendment. When the Senator who offered the motion to delete complained, Senator Byrd told him that you need to understand the rules and suggested that he go work out the issue with my boss, Senator Bingaman, who was the sponsor of the provision in question. "I'm just trying to help you out" was Senator Byrd's words to his colleague. Needless to say, we worked out the issue, the provision stayed in the bill (even through it was named in President Reagan's original veto of the bill) and the CPC went on to produce some important reports.

Senator Byrd understood the Senate and its ways better than anyone. And he used that knowledge to his advantage. He understood the use of both knowledge and power. He also understood the need to work things out. The Senate is a very different place than when Robert Byrd entered it. One can argue whether the changes have been good or bad (probably some of both). But no one can argue that an era has ended.

Here is an interesting story in today's Wall Street Journal -- IBM Sues To Block Oracle Management Hire. According to the story IBM claim that Joanne Olsen violated a one year noncompetition agreement when she took a senior position with Oracle. The suit was filed in New York.

As we noted in our report, Intangible Asset Monetization: The Promise and the Reality, FASB recognizes noncompete agreements as a marketing-related intangible asset. However, noncompete agreements are considered illegal in California under Business and Professions Code Section 16600. Agreements made in other states are also generally found to be unenforceable in California. Nevada, Arkansas, Washington, Montana, North Dakota, Minnesota, Wisconsin, Connecticut, West Virginia, and Oklahoma are also seen as jurisdictions that do not enforce these agreements. Other states usually apply a reasonableness test. I don't know about New York.

So this case could be an interesting case example of when is an intangible an asset. Is it still an asset if some courts say it is and other say it isn't?

And should IBM be required to book the value of the noncompete agreement? Under existing FASB rules, since it was an internally generated intangible, no. But what about the other way around. Does Oracle also have noncompete agreements -- especially with former Sun executives? Since Oracle's purchase of Sun presumably included those intangibles, are these supposed to be on Oracle's books?

More questions than answers.

In Joff Wild's summary of the the recent IP Business Congress, he made the following point:

There is more to IP than patents. And there is more to intangible value than IP. At previous IPBCs, almost all the talk has been about patents. This year it was very noticeable how many more people were speaking about brands, intellectual assets and capital, and intangibles in general. Patents are just one part of one part of the equation. What is the point in owning potentially great patents if no-one wants to buy into the brands that you build around them and/or you do not have the distribution know-how to get branded products in front of potential buyers? And who is going to buy anything from you if your reputation stinks? For IP professionals the next big challenge could be about contextualising their roles and expanding them into areas that are not necessarily obvious fits right now. Expect to see a lot more about all of this over the coming years.

That is good news. While IP is important, intangibles are more important.

Joff also made another interesting point:

The debate about IP needs to be less about processes and procedures, and a lot more focused on what IP enables - jobs, health, a cleaner environment and so on. It's when you start talking about these t[h]ings and demonstrating the facilitative role IP plays that you get the attention of the top policy makers. David Kappos and Gary Locke in the US are teaching the IP world a lot of lessons at the moment. They need to be learned.

I would broaden that to cover all intangibles. The value of intangibles is how they affect outcomes in terms of productivity and innovation leading to economic prosperity and higher standards of living. Thus, it is not simply how well the US produces intangible assets -- but how well we use them. For policymaker, and everyone, that should be the bottom line.

This morning, BEA released its "third estimate" (what used to be called "final") data on 1st Quarter GDP. The number has been revised downward to a growth rate of 2.7% - from the advanced estimate of 3.2% and the second estimate of 3%. According to BEA:

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Unfortunately, some have gotten the story wrong -- concentrating on revisions rather than the change from the previous quarter. While consumer spending was less than previously reported, it was still greater than in the previous quarter. And durable goods sales were actually up by a healthy amount. The slowdown was due to a decline in state and local government spending, a significant increase in the trade deficit and a large decline in housing.

Unfortunately, with at least two of those areas, things are only going to get worse. Latest data on housing is not good. State and local spending is set to decline further and Congress is being blocked from doing anything about it. Trade is still a wild card - since we only have data through April.

The good news is about business investment going up, specifically equipment and software. And capital spending by business seems to be continuing.

However, the GDP number do not measure investments in intangibles assets. So we don't know about that part of the equation. I know that BEA is working on this, but a measure of intangibles in the GDP is badly needed if we are to understand the direction of the I-Cubed Economy.

In a number of previous posting, I've argued that in the I-Cubed Economy manufacturing it tied closely to other production activities, such as product development and services. All of that argues for keeping manufacturing local. Here is another reason -- financing (from the Your the Boss blog on the New York Times):

When you source your product from China, and need to wait up to 90 days for each order, you have to carry extra inventory as stock-out protection -- another big hit to your cash flow. When you use a domestic supplier, you can turn to FedEx or UPS to solve your problem overnight. That means you don't have to carry as much extra inventory.

With a long supply chain, an entrepreneur faces tough choices because the company's cash is tied up with suppliers and customers. With credit still tight, companies can end up struggling to cover the inevitable cash shortfalls that come from growth. Some companies resort to doing things like factoring -- borrowing off their accounts receivable at interest rates that can top 20 percent -- or bringing in outside investors and private equity money, decisions that cut into either net income or equity.

On Tuesday, the White House released its new 2010 Joint Strategic Plan on Intellectual Property Enforcement (see also the White House blog and the write up in Intellectual Property Watch). The document seeks to lay out a clear message on piracy while sidestepping some of the controversies -- for example with this statement on fair use: "Strong intellectual property enforcement efforts should be focused on stopping those stealing the work of others, not those who are appropriately building upon it."

I applaud the coordinated approach to enforcement. But I would also note that balance is necessary. The following is the recommendation from our December 2008 report Crafting an Obama Innovation Policy:

Strengthening the White House role in reviewing and balancing intellectual property policy as broadly defined. The merits of infinitely expanding and strengthening intellectual property protection--patents, copyrights, trademarks, and trade secrets--to accelerate innovation and promote investment are no longer the articles of faith they were for a generation beginning in 1980. Witness the pending patent reform legislation--most of the provisions of which command broad private sector support--and recent Supreme Court and Federal Circuit Court of Appeals decisions in patent cases involving injunctions, patentable subject matter, obviousness, and willful infringement. But there has been no White House leadership on these issues, contributing to a congressional stalemate on patent reform. Moreover, within the Executive Office of the President there is a growing need for balancing the views of the Office of the U.S. Trade Representative (USTR), which has consistently favored ratcheting up intellectual property protection and enforcement--a stance likely to be reinforced by the new Office of the Intellectual Property Enforcement Coordinator.

Balance is key -- since IP is only one part of the broader intangible-asset base that drives economic prosperity. Thus, what we need is not just an IP enforcement policy -- but an innovation and competitiveness policy based on intellectual capital and intangible asset.

So if the Administration can produce a joint IP strategy - why can't it produce a joint innovation strategy? Looking at the IP enforcement strategy, there are a number of like actions that could easily be taken with respect to intangibles. For example, one action in the strategy is to assess U.S. Government resources spent on IP enforcement "through a Budget Data Request (BDR), whereby agencies reported the amount of resources they dedicated to human capital and programs, identified metrics used in measuring intellectual property enforcement successes, and planned and estimated expenditures for future years." Why can't we do the same thing for our investments in intangibles?

Another action item in the report is to assess the economic impact of IP-intensive industries. Why not expand that to the impact of intangible-asset investments?

IP enforcement is good. But IP enforcement is one narrow silo of the innovation process. If we are to promote economic prosperity in the I-Cubed Economy we need to be tearing down silos. The IP enforcement strategy shows how actions can be coordinated across government agencies. Let's now do the same for innovation.

In yesterday's posting I made reference to a paper by Chuck Hulten, et al. on company investments in intangibles. That paper was written as part of a European research project on Competitiveness, Innovation and Intangible Investment in Europe (COINVEST):

The project aims to understand the contribution of intangible investments to innovation, competitiveness, growth and productivity in Europe. Such a project is vital to help European Union (EU) policy formation and to deepen understanding of some of the most crucial questions facing EU economic policy. The reason is simple. Currently, (almost all) intangible investments are either not measured, or are treated as an intermediate input into production so they are assumed to produce no durable assets for firms or economies. Does this matter? In practice, most knowledge investments involve intangible spending. The Lisbon Agenda aims to make the European Union "the most competitive and dynamic knowledge-driven economy by 2010". Thus, we are in the position of having little data or measurements to back this policy aspiration. This project will set out a method and collect the data required. Some knowledge investment is counted as such in the key economic measures such as GDP (eg software). However, R&D and other knowledge investment (like investment in human capital via training, investment in reputation capital, investment in organisational capital etc.) are all treated as day-to-day expenses, not investment. Thus, under current conventions, investment and GDP in an economy whose businesses spend one euro more on almost all knowledge investment is the same as an economy whose businesses turn up their air-conditioning. Using a team of experts in this field, the project will collect data on a wide range of knowledge investment, at macro and micro levels, incorporate these into macro and micro performance measures and thus greatly improve our understanding of knowledge-driven economies and firms and policy.

Joff Wild over at IAM blog has a piece on OceanTomo's new report on intangible valuation. According to OceanTomo, "In 2009, the implied intangible asset value of the S&P 500 reached 81%, an all-time high for the years covered by the firm's research, which extends back to 1975." As Joff points out in his piece, some of these claims of 70% plus intangible valuation have been challenged.

OceanTomo did provide Joff with the following explanation of their methodology:

INTANGIBLE BOOK VALUE METHODOLOGY

Intangible book value is calculated by subtracting the tangible book value from the market capitalization of a given company or index. In practice, companies report tangible book value per share, number of shares outstanding, and market capitalization. Therefore, intangible book value can be calculated by subtracting the market capitalization from the tangible book value per share multiplied by the number of shares outstanding.

It is expedient to do the calculation on a per share basis, as we have done here, and simply subtract the tangible book value per share from the market price. There are modest discrepancies between the two numbers due to differences in setting shares outstanding on a company by company basis. However, the discrepancy is rarely a few percentage points which are within the error needed for most purposes.

While I appreciate the attempts by OceanTomo to put a value on intangible assets, I remain concerned and skeptical of this methodology. The difference between tangible book value and market capitalization certainly contains the intangible asset value. But it also contains a lot more. For one thing, it including the difference between the market's valuation of the physical and financial capital and the official book value of those assets (note the whole mark-to-market controversy in accounting). It also contains what some call the market froth -- or the irrational exuberance. That fact works both ways -- inflating the market value of the stock and deflating it as well. When the stock market tumbled recently, billions of intangible value did not simply disappear - did it?

Thus I am skeptical of using market capitalization to tell us anything of intangible company value - except for where the psychology of the market may be. For example, in 2008 -- according to the Federal Reserve Board's Flow of Funds Account -- the total net worth of US non-farm, non-financial corporations was $14.2958 trillion -- tangible assets of $14.2249 trillion (real estate, equipment and software, inventories -- at market value or replacement cost), financial assets of $13.5006 trillion, and $13.4297 trillion in liabilities. The market value of equities outstanding for these non-farm, non-financial corporations was only $10.0364 trillion -- for a equities/net worth ratio of 70.2% Does this mean that intangibles had a net worth of negative $4.2 trillion?

I would rather refer you to the work of Charles Hulten and colleagues who looks at expenditures on intangibles as investments and then modifies the balance sheets value accordingly. By this measure, intangibles are still important:

For pharmaceutical firms, intangible assets account for 39% of total assets for German firms and 54% for American firms. R&D capital accounts for 24% of total assets in German pharmaceutical firms and accounts for 39% of total assets in American pharmaceutical firms. Organizational capital accounts for 15% of total assets in both German and American pharmaceutical firms. For IT firms, intangible assets account for 38% of total assets for German firms and 43% for American firms. R&D capital accounts for 29% of total assets in German IT firms and accounts for 26% of total assets in American IT firms. Organizational capital accounts for 9% of total assets in German IT firms and 17 in American IT firms.

Those strike me as much more plausible numbers. I especially like the industry-specific calculations given the variation among industries in their intangible asset intensity.

So - yes intangibles are a major part of company value. But let's be careful to not fall into the trap of over-hype. The concept of intangible assets and intellectual capital is already beginning to take root -- even in policy debate (i.e. the reference to intellectual capital in the Obama Administration's manufacturing policy). Let's make sure we build further understanding of and confidence in intangibles based on solid ground.

I'm catching up on an item from IP Watch last month on the importance of knowledge-building for development:

The widening gap in scientific and technological capabilities between some developing countries suffering persistent poverty and rich industrialised countries brings to question why some countries are catching up with richer countries, while others are not. Two key factors for success and innovation are knowledge building and the role of the state as a facilitator, according to UN officials.

The views were put forth in a book launched at a side event to the 13th United Nations Commission on Science and Technology for Development in late May. The roundtable, organised by the International Centre for Trade and sustainable Development (ICTSD) on 20 May, aimed to prompt discussions on the results of the book and their relevance for policy discussions on innovation in international fora.

The authors found that rich countries built strong institutions as a complement to their production systems. That allowed them to build up strong production and the exportation of high quality goods and services, a path followed by emerging economies. However, poor countries continued to produce raw materials for the richer countries. Central to the production activities of all countries that became rich is a set of industrial and innovation policies, they said.

The book entitled "Latecomer Development: Innovation and Knowledge for Economic Growth" is authored by Banji Oyelaran-Oyeyinka, director of the Monitoring & Research Division of the United Nations Human Settlements Programme, and Padmashree Gehl Sampath, economic affairs officer in the Policy and Capacity Building Branch of the UN Conference on Trade and Development (UNCTAD).

The book was actually published last year. According to its abstract:

The most important issue for development centres on the debate about the centrality of knowledge, technology and innovation to the process of economic development. While this much is broadly agreed, what is at issue is the precise mechanics of overcoming economic development challenges in different contexts. At the heart of it all is about how economies at different levels deploy the unending streams of information and knowledge to developmental ends. In time, the notion of income convergence between the poorer South and the wealthy North has proved a mirage, while a new economic divide has in fact occurred within the South itself, and as well, between regions and within regions. The debate relating to latecomers is thus framed in discussions about regions and countries that arrive late to mastering industrialization in achieving economic prosperity through the use of knowledge. In other words, a new divide has emerged among the latecomers themselves, and with it, greater conceptual complexity in the ways of our understanding of the divergent ways of economic development. We have thus separated "fast followers" and new "late comers".

In the powerpoint from the May briefing, they identify "frontier" countries as US, Japan, Denmark, Germany, Sweden, Norway and Israel. Fast followers are South Africa, Malaysia, Brazil, Mexico and Russia. Those moving from fast followers to frontier are Hong Kong, South Korea and Singapore. Interestingly they place India and China as moving from late comers to fast followers.

The briefing also makes the point that "Innovation is not about R&D, it's the use of knowledge in application." However, they seem stuck in the standard model of technological catch-up driven by traditional science-based research.

That is my one critique of the work. While they identify knowledge as the key driver, they do not explore the various types and roles of knowledge -- including knowledge as business methods and the importance of knowledge absorptions as well as creation.

So, a useful piece of work. But clearly much more needs to be done in understanding the link between knowledge and international economic development.

Here are two reports on the future of jobs in the US. A report from the Georgetown University Center on Education and the Workforce entitled Help Wanted projects a serious shortfall in qualified workers:

by 2018, we will need 22 million new college degrees--but will fall short of that number by at least 3 million postsecondary degrees, Associate's or better. In addition, we will need at least 4.7 million new workers with postsecondary certificates.

A report from the Hamilton Project -- The Polarization of Job Opportunities in the U.S. Labor Market -- makes the following points:

•  Employment growth is polarizing, with job opportunities concentrated in relatively high-skill, high-wage jobs and low-skill, low-wage jobs.
•  This employment polarization is widespread across industrialized economies; it is not a uniquely American phenomenon.
•  The key contributors to job polarization are the automation of routine work and, to a smaller extent, the international integration of labor markets through trade and, more recently, offshoring.
•  The Great Recession has quantitatively but not qualitatively changed the trend toward employment polarization in the U.S. labor market. Employment losses during the recession have been far more severe in middle-skilled white- and blue-collar jobs than in either high-skill, white-collar jobs or in low-skill service occupations.
•  As is well known, the earnings of college-educated workers relative to high school-educated workers have risen steadily for almost three decades.
•  Less widely discussed is that the rise in the relative earnings of college graduates are due both to rising real earnings for college workers and falling real earnings for noncollege workers--particularly noncollege males.
•  Gains in educational attainment have not generally kept pace with rising educational returns, particularly for males. And the slowing pace of educational attainment has contributed to the rising college versus high school earnings gap.

Both the skills/education gap and the polarization of wages are serious problems facing the I-Cubed Economy. In my view, they will not be solved through our conventional educational and labor market policies. Those policies continues to be geared toward the labor markets of the industrial age. For example, we provide government support for unemployment insurance and re-training once people lose their jobs. But we have few programs to upgrade workers' skills and keep them competitive so they don't lose their jobs in the first place. That is way I've been advocating a knowledge tax credit.

The knowledge tax credit is just one example of how we need to change our thinking on public policy. I am sure that others can come up with dozens of other ideas. As these two reports indicate, however, we need to do this re-thinking now. Otherwise, the problems will simply continue to grow.

Last week, I posted a piece on Why humanities matter in the I-Cubed Economy. My point was that we need much more than scientific and technical knowledge (the point that Daniel Bell missed in The Coming of the Post-Industrial Society). If fact, we need even more than communications and social skills that have become associated with the knowledge economy.

Wes Davis' op-ed in the New York Times has a story about how half a century ago on major iconic US company -- Ma Bell herself -- stressed the need for the humanities:

The sociologist E. Digby Baltzell explained the Bell leaders' concerns in an article published in Harper's magazine in 1955: "A well-trained man knows how to answer questions, they reasoned; an educated man knows what questions are worth asking." Bell, then one of the largest industrial concerns in the country, needed more employees capable of guiding the company rather than simply following instructions or responding to obvious crises.

Davis calls for a return to that notion:

As the worst economic crisis since the Depression continues and the deepening rift in the nation's political fabric threatens to forestall economic reform, the values the program instilled would certainly come in handy today. We need fewer drifting straws on the stream of American business, and more discontented thinkers who listen thoughtfully to both sides of our national debates. Reading "Ulysses" this Bloomsday may be more than just a literary observance. Think of it as an act of fiscal responsibility.

Amen to that. And Happy Bloomsday!

In yesterday's posting on EDA and incubators, I noted that EDA needs to move beyond a focus on bricks and mortar. They understand that and last month, EDA, along with NIH and NSF, announced a new technology commercialization grant called the I6 Challenge:

The i6 Challenge is a new $12 million innovation competition administered by the Economic Development Administration (EDA) of the U.S. Department of Commerce, in partnership with the National Institutes of Health (NIH) and National Science Foundation (NSF). EDA will award up to $1 million to each of six winning teams with the most innovative ideas to drive technology commercialization and entrepreneurship in their regions. NIH and NSF will award a total of up to $6M in supplemental funding to their SBIR grantees that are associated or partnered with the winning teams.

I especially like the fact that the program specifically ties into the SBIR program. This is a good way to leverage activities. Note however that this is not the same type of programs as the SBIR, which funds specific research activities. As the FAQs on the i6 program states:

The i6 Challenge is not a grant or award to fund commercialization of individual products or technologies. The goal of the i6 Challenge is to fund new ideas (proposals) that will promote or accelerate technology commercialization, and entrepreneurship with the ultimate goal of driving job creation and economic growth. We are looking for collaborative projects that have wide participation by various stakeholders (including universities, non-profit, for-profit, entrepreneurs, state/local governments, etc.). The challenge is intentionally designed to be non-prescriptive. The proposed projects should help to solve problems that impede within the technology commercialization process (i.e. from research to market) within a given region.

In other words, i6 is a program to build up technology commercialization capacity in a region -- not a program to commercialize a specific technology.

Proposals are due July 15 and winners will be announced in the fall. Given the innovative nature of the program itself, I hope they make information available on some of the more interesting proposals -- not just the winners. Sharing those ideas might end up being just as important as the actual funding of the winners.

One of the great traps of technology-based economic development is the herd mentality. Everyone wanted to be like Silicon Valley. Then everyone want to be the leader in bio-tech. Then nano-tech. Now its "green." The simple fact is that not everyone can be a leader in the hottest fad. In fact, chancing the hottest technological fad is a sure way to accomplish nothing.

But, there are still specific parts of any new technology where localities can gain an edge. One example is high-tech in New York City -- sometime incorrectly referred to Silicon Alley when it should be called Digital Alley. As a recent story in the Economist notes:

Today, much tech innovation focuses on the media and advertising industries--both of which, for all their recent troubles and changes, remain lucrative and largely New York-based. That is why, for example, the bulk of Google's 500-odd advertising staff, the source of a large chunk of its profits, are in New York, not in the Googleplex in Mountain View, California.

DC, for example, has a nascent social media technology cluster -- in part because of the area's strength in government contracting and public relations/political activities.

As MaryAnn Feldman pointed out some time ago in her paper (see her presentation to Athena Alliance) Constructing Jurisdictional Advantage, a localities advantage "is typically the result of specific unique characteristics that are built up over time to form a coherent place specific activity set that is not easily transferred or replicated and forms the basis for sustainable advantage for both firms and industries." Localities need to build upon those characteristics in new ways and in directions rather than try to create something completely new.

She also pointed out how these clusters of innovation are different from concentrations of production:

Whereas the geographic concentrations of production is often due to the location or natural resources, ease of transportation or historical inertia, the location of innovation is due to knowledge externalities and subject to increasing returns. While innovation yields greater productivity and the increases in wages that jurisdictions seek, jobs associated with routine production remain geographically in place as long as the physical investments are economically viable. Once physical assets are depreciated or obsolete, if the market changes or costs become uncompetitive, these locations are easily abandoned. As a result, property values fall and the jurisdiction suffers.

In contrast, innovation clusters don't easily move as costs shift. Since they are based on intangible assets, they are much more rooted in the location -- as long as they continue in their primary function of innovation. And part of that innovation is the ability to adapt to changing circumstances. The history of Silicon Valley (where almost no one deals in silicon any more) and New York City are examples of that adaptation.

The Obama Administration has pickup up on this idea of regional innovation clusters as part of their innovation agenda and as a center piece of their FY 2011 budget . It was also included in the reauthorization of the America COMPETES Act.

If those efforts are to succeed, however, it will be important for each region to build upon its existing intangible assets. Rather than trying to follow the "next big thing," this clusters should try instead to create it - or at least a lot of interesting next small things. That is how the I-Cubed Economy will prosper.

We know that incubators are a successful and cost effective program for creating companies and jobs. According to a 2008 analysis of EDA programs, "investments in business incubators generate significantly greater impacts in the communities in which they are made than do other project types." For a long time I have advocated the expansion of EDA funds for incubators to cover more than bricks and mortar (see previous posting). Support programs -- including assistance with intangible asset management -- are a key element of successful incubation. Government funding for incubators need to recognize this reality.

A couple of weeks ago, Florida Congresswoman Suzanne Kosmas has introduced HR 5411, the Early-Stage Business Investment and Incubation Act of 2010 that would allow EDA to make grants to incubators, up to $5 million. The funds could be used for the following purposes:

(A) Making an investment in an early-stage business in a targeted industry.
(B) Providing training, counseling, and other assistance to an early-stage business in a targeted industry to support the development of the business.
(C) Providing purchased services to an early-stage business in a targeted industry.
(D) Conducting due diligence activities.
(E) Meeting operational expenses.

The Congresswoman, who represents the Orlando and Florida "Space Coast" area, sits on the House S&T Committee and the Financial Services Committee. The bill, however, was referred to the House Committee on Transportation and Infrastructure Committee - which oversees EDA, with sequential referral to Financial Services. I understand that the Financial Services Committee is somewhat busy right now on another matter. But I hope the Congress and the Administration will look carefully at this proposal. There is a lot of merit in idea.

A little known part of the government's response to the Gulf oil spill is to tap into the wider scientific and technical community for suggestions on its Deepwater Horizon Response website. According to the website over 20,000 suggestions have been received. Like any other open innovation system, the difficult task is sorting out the good ideas. An Interagency Alternative Technology Assessment Program workgroup has been established to screen and triage submissions based on technical feasibility, efficacy and deployability.

I think this is a great example of using the open innovation model. Of course, this hasn't stop some in the media from lampooning the idea. These critics ought to do a little homework on the sources of innovation before they glibly dismiss the effort.

Today's BEA's release of the April trade data is sure to complicate a confusing economic picture. While last month's employment numbers were disappointing, yesterday's survey of economic conditions from the Fed (the "Beige Book") noted slow improvement. Today's trade data (for two months ago) shows a weaker economy. The deficit increased slightly, from $40.0 in March to $40.3 in April. But both exports and imports slightly declined: exports were down my $1.0 billion and decline by $0.8 billion. Economists had expected a larger deficit - probably based on an assumption of increased imports. Interestingly, the increased deficit cannot be blamed on energy imports -- as the deficit in petroleum products actually improved.

Our intangibles trade surplus also declined slightly in April. However, both imports and exports increased. The very slight decline in the overall surplus was due to slightly higher imports of private services. The surplus in royalties actually increased. Most worrisome is that there are once again major revisions to the data (as will be discussed below).

Our deficit in Advanced Technology Products worsened again in April after also increasing in March and February. Following the overall trend, exports and imports declined. This is especially worrisome after March's increases. The declines were generally across the board, but especially noticeable in information and communications technologies. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.

The other part of the story is the annual revisions. As I reported in March, when the January trade figures were released, the previously published data for 2009 were revised to show higher levels of exports and lower levels of imports in the second half of the year. As a result, the intangibles trade surplus for 2009 is $4 billion higher than previously reported.

Now with this second revision to the data, the opposite appears to be true. Imports have been revised up, especially in private services. Therefore the surplus is lower than previously reported. For example, imports of private services for December were originally reported in February to be about $13.2 billion. That was revised in March to be a little over $13.05 billion. Now it is reported to be almost $14.6 billion.

Once again, I appreciate the difficulties in tracking these numbers, and appreciate BEA's efforts to get the most accurate data. But these substantial revisions are worrisome.

Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.

Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

I have long noted that government's have important intangible assets that need to be carefully managed and, in some cases, monetized. Here is a case in point. Yesterday, the Montgomery County Board of Education voted to approve a deal with Pearson, a major educational publishing company (see a story in the Washington Post). Under the terms of the agreement, the school will accelerate its work on developing and implementing a new educational curriculum. Pearson will have own the copyright, help develop the testing and training material and have exclusive rights to market the materials, including using the Montgomery County school's name. The school system will help in the marketing by allowing prospective customers to visit classrooms and in other promotional activities. The school system will receive up to 3% royalties including a $2.25 million advance on royalties.

According to the Post story:

Pearson was attracted to Montgomery because of its national reputation for high test scores and innovative educational approaches.
"What Montgomery County Public Schools has accomplished for its students over the last 10 years is inspirational for the rest of the nation," said Pearson chief executive Marjorie Scardino in a statement.

The deal was not without critics who, according to the article, expressed concern over the propriety of such a commercial relationship. The article notes that a nearby jurisdiction has taken a different tack:

Across the Potomac, the Fairfax County schools used to sell their curriculum on their own, retaining the rights, until officials decided several years ago that tracking the money wasn't cost-effective. Now, they license it free of charge to public schools that ask for a copy, said schools spokesman Paul Regnier.

Apparently, the Montgomery County deal is the first time a publisher and a school system have jointly worked on an entire curriculum. It will be interesting to see if other school systems look for similar opportunities. As the article notes, part of the reason for the school system pursuing the deal is that it needed the money. Many other school systems are in similar circumstances -- but not necessarily with the intangible assets that the Montgomery County system has to exploit.

It will also be interesting to see if the deal sparks any interest or debate on national guideline as to what local government intangible assets should or should not monetized. The federal government has a confusing set of policies on how it manages and values its intangible assets. I assume that the situation is the same at the local level.

In this regard, maybe the federal government can lead by example. As I've said many times before, a first step would be to know what we have. We need review of how much the government spends on developing intangible assets. An intangible asset budget would help tell us how we are doing in fostering the development of intangibles within the larger economy. We need an inventory of government-owned intangibles as well. That inventory would give us the baseline for better internal management. Both reviews are needed before we can set a coherent intangible asset management policy.

There is a simple (and simplistic) mental model of the intangible economy that many carry around with them -- including economists who should know better and journalists and politicians who probably don't. That model is based on an industrial age concept of the division of labor between thinkers and doers (mental work and physical work). In this model, the US (and other "advanced" nations) are moving up the development ladder while others will take our place. So, the US will think and design things; other like China will make things.

The reality is much more complex. Making and designing are all mixed up. Countries that are supposed to be in one area of the value chain pop up in another. Here are two great examples.

Example #1. The US is supposed to be the world leader in aviation technology. Yet, as reported in this recent Wall Street Journal story Boeing is licensing an Italian helicopter design in order to compete for the next generation of Presidential helicopters which will be manufactured in the US.

Example #2. The US is supposed to be the leader in R&D -- the place where American (and other) companies do their work on high end of the value chain. Yet according to NSF's recent survey of global R&D expenses by US companies, American companies do about 20% of their research elsewhere.

By the way, this off shoring of R&D has been going on for some time -- see earlier postings and recent comments on the data by Michael Mandel and Richard Florida.

In the intangible economy, knowledge and intangible assets flow in a global network. There is no hard and fast international division of labor. It is just as important to be able to absorb knowledge as it is to create it. If fact, the two are often necessary compliments. As the Boeing case illustrates, your ability to be near the cutting edge makes it easier to incorporate others knowledge into your own system. This is one of the hallmarks of the open innovation process.

Because of these flows, it is important for public policy to continue to focus on all parts of the production process. To simply narrow our gaze at one area -- such as design or R&D -- is economic myopia.

David Brooks' column in this morning's New York Times is a defense of studying the humanities. He talks about the need to hone communications and social skills in this technical age. But he also talks about how a study of the humanities helps you be a better human:

Let me try to explain. Over the past century or so, people have built various systems to help them understand human behavior: economics, political science, game theory and evolutionary psychology. These systems are useful in many circumstances. But none completely explain behavior because deep down people have passions and drives that don't lend themselves to systemic modeling. They have yearnings and fears that reside in an inner beast you could call The Big Shaggy.

. . .

The observant person goes through life asking: Where did that come from? Why did he or she act that way? The answers are hard to come by because the behavior emanates from somewhere deep inside The Big Shaggy.

Technical knowledge stops at the outer edge. If you spend your life riding the links of the Internet, you probably won't get too far into The Big Shaggy either, because the fast, effortless prose of blogging (and journalism) lacks the heft to get you deep below.

Brooks is echoing a long standing argument about the need for a balanced education. When I was a freshman in Engineering School at Michigan, we had to take a "Great Books" course. In part this was an attempt to produce an "educated person" not just a technician.

In more recent years, this debate seems to have focused on the broadening of the type of skills needed in this new economy. But that is clearly not enough. Not only does the ability to get below the surface go beyond the technical and scientific skills many associate with the "knowledge economy", it goes well beyond the social and communications skills that we tout as so necessary.

In 2003, the American Council of Trustees and Alumni and Institute for Effective Governance produced a report Becoming an Educated Person: Toward a Core Curriculum for College students (I assume the title is a takeoff on the classic college orientation book On Becoming an Educated Person). William Bennett's forward to that report states:

Education is not the same as training. Plato made the distinction between techne (skill) and episteme (knowledge). Becoming an educated person goes beyond the acquisition of a technical skill. It requires an understanding of one's place in the world--cultural as well as natural--in pursuit of a productive and meaningful life. And it requires historical perspective so that one does not just live, as Edmund Burke said, like "the flies of a summer," born one day and gone the next, but as part of that "social contract" that binds our generation to those who have come before and to those who are yet to be born.

This morning BLS on employment announced that employment increased by 431,000 in May. The good news was tempered by the fact that much of this increase was 411,000 temporary Census workers. The unemployment rate declined slightly to 9.7%

Economists had expected much higher employment numbers -- ranging from 515,000 by those surveyed by DowJones to 540,000 of those polled by the New York Times.

It is interesting to note that manufacturing employment increased. Manufacturing still faces a large structural employment deficit however.

Another bit of good news in the data is that the number of involuntary underemployed (part-time for economic reasons) also decline. As I noted last month, the rise in involuntary underemployed was troubling - as this is a coincident indicator. It is good to see this heading in the right direction.

Tomorrow and Saturday, the Finance ministers of the G20 nations will meet in South Korea. This morning's Wall Street Journal blog Real Time Economics has the highlights of a pre-meeting interview with Treasury Secretary Geithner -- Ten Takeaways From Geithner Before G20 Finance Ministers' Meeting. One of those ten takeaways is this:

Three areas where there needs to be a global consensus for reform: 1) transparency and disclosure in the financial system, 2) derivatives regulation, 3) capital, liquidity, leverage rules.

In that regard, if Secretary Geithner want to push the G20 for greater transparency, he should start with more disclosure of intangible assets. It is not necessary to take on the entire accounting profession and try to assign a book value to intangibles. Simply requiring more reporting of intangibles would be a major step forward. This could be in the form of the Eccles and Krzus proposal for "One Report." Even baby steps, such as the OECD recommendation for strengthening the patent marketplace through disclosure of patent licensing and sales information would help (see earlier posting on the problem with royalty data). Or it could be through beefing up the requirements for disclosure of information in the MD&A section of existing corporate financial reports - as recommended in Reporting Intangibles.

The Secretary could put his money where his mouth is and lead by example. First of all, he should convene the relevant regulatory agencies --such as SEC, Department of the Treasury, the Federal Reserve and even the Commerce Department--and establish an advisory committee to make recommendations on ways of providing investors with an improved method for assessing the impact intangibles have on the accuracy of a company's financial picture. This advisory committee could also review valuation methodologies and look at ways to support and encourage increased research on valuation standards. This should include a review of industry trade associations efforts to adopt guidelines for intellectual asset management and intangible disclosure appropriate to particular industry sectors.

Second, as part of its prudent bank supervision activities, the banking regulators need to understand the role intangible assets play in the financial system. The regulatory agencies can take steps to study and collect information on the role of intangibles in the financial system--and to underscore the risks of ignoring them. As they build knowledge in this area, Treasury, the Federal Reserve and other financial regulatory agencies should ask the financial institutions the following questions:

•   To what extent are lending institutions employing intangible asset as collateral, either explicitly or implicitly?
•   What provisions are there in bank reporting requirements for intangibles?
•   Given that intangible assets can be wrapped up in the catch-all category of a blanket lien on all assets, how can lending institutions determine the value of intangible assets for the purposes of assessing collateral?
•   If intangibles are used explicitly as collateral, what underwriting standards are used and what are the specific valuation standards and loan-to-value ratios?

Third, the Secretary should support the commissioning of a National Academies' study on intangibles. This was proposed at a June 2008 conference sponsored by the Bureau of Economic Analysis and the National Academies. A broad study of intangibles could include the following components:

•   A survey of efforts in other countries to advance the understanding of intangibles and their role in corporate performance and economic growth, promote financial investments in intangible assets, and foster the utilization of intangibles.
•   An inventory of federally owned intangible assets and an exploration of how to exploit them for economic growth.
•   A list of policy recommendations to accelerate private investment in and management of the types of intangible assets most likely to contribute to growth.

Such steps would put the US at the forefront of the transparency question and set an example for the rest of the G20. And isn't that what international leadership is supposed to be about?

Last week, the OECD held its 2010 Ministerial meeting and policy forum. The focus of the meetings was on economic recovery and sustained growth. One of the highlights was the release of OECD's Innovation Strategy -- a three year multi-disciplinary effort.

The Key Findings report outlines why it matters:

Innovation has been and must continue to be a major driver of rising living standards. Preliminary estimates for several OECD countries show that firms now invest as much in intangible assets related to innovation (R&D, software, skills, organisational know-how and branding) as they invest in traditional capital such as machinery, equipment and buildings. Such investment accounted for up to 1 percentage point - or around one-quarter - of labour productivity growth in Austria, Finland, Sweden, the United Kingdom and the United States between 1995 and 2006 (Figure 1). Moreover, much multifactor productivity (MFP) growth - that is, the joint productivity of capital and labour - is linked to innovation and improvements in efficiency. Collectively, estimates suggest that investment in intangible assets and MFP growth accounted for between two-thirds and three-quarters of labour productivity growth in OECD countries such as Austria, Finland, Sweden, the United Kingdom and the United States between 1995 and 2006. Innovation was the main driver of growth. Differences in MFP also account for much of the gap between advanced and emerging countries, an indication that innovation is also a key source of future growth for emerging economies.

The result is that innovation is both a global and local phenomena. "While firms can access factors of production across the globe, local knowledge and capabilities, including proximity to research and education institutions, continue to matter for innovation."

Thus, the report concludes:

Such changes in the innovation process present a challenge to existing national policy frameworks. The focus on strengthening public research and on providing incentives for firms to invest in research and development is important, but it is not enough. A more strategic approach to fostering innovation is needed, one which considers the full spectrum of policies to create, diffuse and apply knowledge

1. Empowering people to innovate

•  Education and training systems should equip people with the foundations to learn and develop the broad range of skills needed for innovation in all of its forms, and with the flexibility to upgrade skills and adapt to changing market conditions. To foster an innovative workplace, ensure that employment policies facilitate efficient organisational change.
•  Enable consumers to be active participants in the innovation process.
•  Foster an entrepreneurial culture by instilling the skills and attitudes needed for creative enterprise.

2. Unleashing innovations

•  Ensure that framework conditions are sound and supportive of competition, conducive to innovation and are mutually reinforcing.
•  Mobilise private funding for innovation, by fostering well-functioning financial markets and easing access to finance for new firms, in particular for early stages of innovation. Encourage the diffusion of best practices in the reporting of intangible investments and develop market-friendly approaches to support innovation.
•  Foster open markets, a competitive and dynamic business sector and a culture of healthy risktaking and creative activity. Foster innovation in small and medium-sized firms, in particular new and young ones.

3. Creating and applying knowledge

•  Provide sufficient investment in an effective public research system and improve the governance of research institutions. Ensure coherence between multi-level sources of funding for R&D.
•  Ensure that a modern and reliable knowledge infrastructure that supports innovation is in place, accompanied by the regulatory frameworks which support open access to networks and competition in the market. Create a suitable policy and regulatory environment that allows for the responsible development of technologies and their convergence.
•  Facilitate efficient knowledge flows and foster the development of networks and markets which enable the creation, circulation and diffusion of knowledge, along with an effective system of intellectual property rights.
•  Foster innovation in the public sector at all levels of government to enhance the delivery of public services, improve efficiency, coverage and equity, and create positive externalities in the rest of the economy.

4. Applying innovation to address global and social challenges

•  Improve international scientific and technological co-operation and technology transfer, including through the development of international mechanisms to finance innovation and share costs.
•  Provide a predictable policy regime which provides flexibility and incentives to address global challenges through innovation in developed and developing countries, and encourages invention and the adoption of cost-effective technologies.
•  To spur innovation as a tool for development, strengthen the foundations for innovation in low-income countries, including affordable access to modern technologies. Foster entrepreneurship throughout the economy, and enable entrepreneurs to experiment, invest and expand creative economic activities, particularly around agriculture.

5. Improving the governance and measurement of policies for innovation

•  Ensure policy coherence by treating innovation as a central component of government policy, with strong leadership at the highest political levels. Enable regional and local actors to foster innovation, while ensuring co-ordination across regions and with national efforts. Foster evidence-based decision making and policy accountability by recognising measurement as central to the innovation agenda.

Many of these recommendations are things we have heard before. Not everyone will agree with each point. But having a full discussion of them in the full context of innovation policy is very useful. A couple of the specifics are ideas near and dear to my heart including:

Well-functioning venture capital markets and the securitisation of innovation-related assets (e.g. intellectual property) are key sources of finance for many innovative start-ups and need to be developed further.

Ensuring that information on intellectual assets (e.g. R&D, patents, software, databases, organisational capital) is consistent and comparable over time and across companies would help investors to better assess future earnings and the risks associated with different investment opportunities. This can help make financial markets more efficient and improve firms' ability to secure funding at lower cost. Governments can assist in efforts to promote identification and dissemination of best practices in reporting. Given the wide range of intellectual assets held by firms in different industries, and the comparatively early stage of development of reporting frameworks, the approach to improved disclosure should remain principles-based.

The OECD reports ends with a road map for "the way forward":

In this broader approach to innovation, it is particularly important to balance policies aimed at the creation of new knowledge and innovations with those aimed at fostering its uptake and diffusion in the economy. Policy actions also need to reflect the changing nature of innovation. This implies an emphasis on the following areas:
•  A more strategic focus on the role of policies for innovation in delivering stronger, cleaner and fairer growth.
•  Broadening policies to foster innovation beyond science and technology in recognition of the fact that innovation involves a wide range of investments in intangible assets and actors.
•  Education and training policies adapted to the needs of society today
to empower people throughout society to be creative, engage in innovation and benefit from its outcomes.
•  Greater policy attention to the creation and growth of new firms and their role in creating breakthrough innovations and new jobs.
•  Improved mechanisms to foster the diffusion and application of knowledge through well-functioning networks and markets.
•  New approaches and governance mechanisms for international cooperation in science and technology to help address global challenges and share costs and risks.
•  Frameworks for measuring the broader, more networked concept of innovation and its impacts to guide policy making.

More than anything else, this outline of a broad strategic view is a major contribution to the policy debate. The Economist summary of the meetings is especially telling:

Windy talk about innovation is mind-numbingly abundant. Unusually, however, the grandees taking part in a conference in Paris this week organised by the OECD received some pointed advice. The rich-country think-tank has unveiled a thoughtful new report on how governments can do better at spurring and measuring innovation.
The grandees were also unusually attentive. Many governments are facing not only slow economic growth but also big deficits and heavy debts. At the same time, problems such as global warming and rising prices for natural resources demand their attention. Innovation, the OECD argues, offers a way out.

Let us hope that they took the larger message - of needing a broad innovation strategy -- to heart. Otherwise, piecemeal actions won't get us to where we need to be.

The full report - The OECD Innovation Strategy: Getting a Head Start on Tomorrow - is available for purchase online; the Executive Summary can be downloaded for free. A companion report - Measuring Innovation: A New Perspective is also available for purchase online.

Below is a video of Andrew Wykoff, Head of OCED's Directorate for Science, Technology and Industry, describing the importance of innovation.

Other video clips from the policy forum are available online.

After some political drama, the House passed the H.R. 5116, America COMPETES Reauthorization Act of 2010 on Friday (see House S&T Committee press release). The bill reauthorizes various federal R&D programs and STEM education programs. It also enacts many of the Obama technology initiatives including setting up an interagency task force at OSTP and requiring a manufacturing strategy, creating a new prize mechanism in NSF, establishing the Regional Innovation Initiative and creates Energy Innovation Hubs.

I am especially interested in two provisions. The first is a provision to get the MEP Centers into the product development game. Labeled the Innovative Services Initiative, this provision allows the Secretary to set up programs in MEP to assist SME in "accelerating the domestic commercialization of new product technologies." I would have liked the language to say "shall" set up the program rather than "may" -- but it is still a step forward.

The second is the creation of a program of loan guarantees for projects that "reequips, expands, or establishes a manufacturing facility in the United States to (1) use an innovative technology or an innovative process in manufacturing; or (2) manufacture an innovative technology product or an integral component of such product." The program also uses MEP Centers as an outreach mechanism for the loan guarantees.

I am especially pleased that the program allows for companies to qualify for using innovative technologies or processes. Other programs, such as the Innovation Ohio Loan Fund for example, are focused on the development of new technology. Use, however, is just as important.

Needless to say, much more needs to be done to create innovation strategy of America. But passage of this bill is a good step. It is too bad it took so long.

Here are two interesting news stories about company brands. A story in this morning's Washington Post - Political ads are tough sell for image-conscious corporations - describes how companies are being careful not to associate their brand with any particular political activity even after the Supreme Court ruling allowing for unlimited corporate political spending:

Many corporate executives don't want to wade into partisan political campaigns. But other companies have told their advisers and GOP fundraisers that they are interested in helping finance ads to spotlight proposed regulations and lawmakers they don't like. These companies include firms on Wall Street and in the energy sector opposed to stricter regulations as well as fast-food franchise owners fearful of being forced to unionize their shops.
They just don't want to be singled out -- or have their corporate logo attached

The second story is from the New York Times -- Venting Online, Consumers Can Find Themselves in Court -- on how companies are suing for what they consider defamatory remarks. The issue is what are called SLAPP suits (strategic lawsuit against public participation) where individuals or organizations try to silence opposition through lawsuits. [Full disclosure: I was once involved in an organization that was the target of a SLAPP suit]. But the story points out that such tactics are being used by companies to counter negative on-line postings.

Neither of these are new tactics: corporations have long been sensitive to how their brand is used and companies have been suing critics forever. But the juxtaposition of these stories reminds us that brands and reputation are valuable assets -- and that companies recognize the need to protect them.