December 2010 Archives

The Intangible Economy is shutting down for the holidays. See you in the New Year!

Have a Merry Christmas, Happy Holidays and a Great New Year.

In yesterday's posting on the America COMPETES Act, I mentioned that one of the provisions expands the Manufacturing Extension Partnership centers so that they can help companies with new product development. But more can be done to improve the MEP's ability to help companies.

In October, MEP released a study on Re-examining the Manufacturing Extension Partnership Business Model (see summary and full report). The report offered a new direction for MEP:

This new vision and mission shifts the program from focusing only on efforts to enhance productivity through process improvement, to include those that generate growth and innovation. This new vision also shifts the focus of MEP to being a strategic advisor and connector to resources and skills, as well as a deliverer of technical assistance. This shift attempts to engage clients at a more strategic level to understand their critical needs and provide assistance in those areas, rather than delivering services in which MEP has capabilities, but which may not match the future direction and strategic priorities of the companies. It also recognizes the importance of more actively engaging in partnerships with other organizations that can provide additional capabilities needed by manufacturers.

The plan expands MEP's scope to cover a broader range of services, focused around five service categories, all under the overarching objective of helping companies achieve profitable growth (see Figure 1). The five service categories include Continuous Improvement, Technology Acceleration, Supplier Development, Sustainability, and Workforce.

Specific recommendations include expanding the scale of the program, ways of better leveraging the federal investment and more coordination of national activities. What I especially like recommendation to "catalyze service expansion and innovation at centers." By this they mean both expansion of the types of services offered and the mechanisms for service delivery. New mechanisms for service delivery could include peer-to-peer learning models, web-based tools, collaborations and partnerships with other public sector and non-profit entities and expanded use of outside service delivery partners.

On the types of services, centers should "expand the range of services to include new offerings in the areas of: Growth and Innovation, Leadership and Management skills, Export/International, and Green/Sustainability." As I've argued before, this should also include better identification, fostering and utilization of intangible assets. Such a focus is implied in the report's recommendations, but could be made more explicit.

The study lays out a clear path for improving the MEP business model. I hope its recommendations are now implemented

Just a little while ago, the House of Representatives agreed to the Senate amendment version of the America COMPETES Act reauthorization (HR 5116) - clearing the bill for the President's signature. The Senate passed the bill on Friday by unanimous consent. The bill is being described as some as a compromise, as it does not contain some of the provisions and the funding levels that passed the House earlier and were being supported by the Obama Administration. However, it does contain certain provision I have discussed in earlier postings.

The first of these (Section 404 of the bill) gets the Manufacturing Extension Partnership Centers into the product development game. Under the new Innovative Services Initiative, Secretary is to set up programs in MEP to assist SME in "accelerating the domestic commercialization of new product technologies." I would note that the original Senate language said the Secretary "may" create the program (which I complained about earlier). The new language says "shall" set up the program -- a big improvement.

In addition, there is a requirement for a study to "evaluate obstacles that are unique to small manufacturers that prevent such manufacturers from effectively competing in the global market." I would argue that one of the problems is the inability of small manufacturers to effectively manage their intangible assets. This issue should be included in this new study.

The second provision (Section 602of the bill, which creates a new Section 23 of the Stevenson-Wydler Technology Innovation Act of 1980) 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 would hope that the definition of an innovative process includes organizational innovations.

The legislation also requires the Commerce Department to undertake a study on economic competitiveness and innovative capacity of United States and develop a National Economic Competitiveness Strategy. The earlier Senate version of this study had it being conducted by the Office of Science and Technology Policy (OSTP). As I noted earlier, I thought that OSTP was the wrong place to conduct the study and develop the strategy. Competitiveness and innovation are much broader concepts than S&T and R&D. Placing competitiveness and innovation strategy in OSTP will drastically narrow the view for such a policy.

Thus I am very pleased that the final version places this activity at Commerce. I am also very pleased that the final version also explicitly and significantly broadens the scope of the study and the strategy. For example the study is required to look at investment in human capital and ways to facilitate entrepreneurship.

The original law created a Cabinet-level President's Council on Innovation and Competitiveness (PCIC) as a mechanism to "develop a comprehensive agenda for strengthening the innovation and competitiveness capabilities of the Federal Government, State governments, academia, and the private sector in the United States." Since both the Bush and Obama Administrations ignored requirement, I am hoping that the new study requirement will spur some action (especially since it doesn't contain opt-out loophole in the original law).

In sum, while the bill is not what everyone have hope for, from my perspective it is a good step forward. I congratulate everyone who worked so hard to finally enact this bill.

OK - no, this really isn't an intellectual history of intellectual capital and intangible assets. But it is a fun look at how those terms (and the term "intellectual property") has appeared in the past. Google has created a new application -- Books Ngram Viewer -- that allows you to chart how often a phrase is used in books from 1800 to 2000. Below are the results. For the phrases intangible assets and intellectual capital, there were spikes of interest around 1920 (with some earlier and later smaller spikes of interest in intangible assets). The phrase intellectual property really did start to be used until the mid-1980's.

The application not only charts the use of the phrases, it gives you access to the searches as well. I would note that a review of this search for very early citation reveals that some entries are misdated. Still, plenty of raw information for someone who wants to look into the intellectual history of intellectual capital.

Earlier this week, I posted an item on how knowledge intensive sectors -- professional, scientific & technical services, information industries and the educational services -- grew during the recession but have declined in the "recovery."

A couple of readers got back to me with what seems to be a plausible explanation: the structure of the business. Contracts for these types over activities are on more of a long term basis - or at least are such that there is a lag function. As companies cut back on professional services in the recession, the cuts didn't actually hit these services until later as contracts were renegotiated.

The opposite seems true about financial services, however. They dropped in 2007 and 2008 and then rebounded in 2009. That makes perfect sense, however, since it is a financial crisis driven recession.

This raises an interesting point, however. Are knowledge creating industries partially countercyclical? Or is there at least enough of a lag that early stimulus support for these industries could dampen a downturn? One of the standard critiques of any stimulus package is that by the time the money gets spent, the upturn has already occurred. But if there are significant parts of the economy where the downturn is delayed or otherwise lags, then the stimulus might actually arrive at the right moment to be the most effective. An interesting thought to ponder (for the next time).

With the imminent passage of the tax deal, the focus of policy attention is shifting to the possibility of a larger tax reform package next year. Already, the idea is being teed-up of widen base (cut loopholes and special credits) and lower corporate rates.

From an economics point of view, that is a laudable goal. If you want to understand America's dysfunctional industrial policy, just look at the tax code. The current tax deal is a microcosm of that situation with special treatment for a host of industries from movie productions to rum distillers to NASCAR tracks.

But there is another guiding principle of tax reform -- and that is equal treatment. I would specifically extend that principle to treating investments in intangible assets the same as tangible. The tax code should not distort investment decisions by skewing it toward physical assets.

In this regard, the current tax deal is an example of how that principle should operate but doesn't. In the stimulus bill (sec. 144(a)(12)(C)), there was a minor change to allow the use of industrial development bonds (IBDs) to finance facilities manufacturing intangible property. Before this change, only traditional factories were eligible for this program. The change would allow local government to support new facilities for software development or bio-tech research facilities, for example, as well.

That provision will expire at the end of the year -- and was not included in the tax deal. This simply act of putting physical and intangible investments on the same footing was forgotten and ignored.

That is a mindset that needs to be changed as we go forward with broader tax reform.

This morning, President Obama is meeting with a number of business leaders to discuss the economy. Billed as a "CEO Summit" I suspect the agenda will be the standard rhetoric of cut taxes and cut regulations. There will be the obligatory mention of education and "promoting innovation." All of which will probably be a great hand-waving exercise -- until and unless we get serious about fostering and managing our intangible assets.

I doubt a proposal to create a knowledge tax credit (let alone make the R&D tax credit permanent) will be on the table. Or the proposal to double the Federal R&D budget. Or a proposal to make the investment and spend the money to create a real worker training system (as opposed to the current throw-money-at-the-unemployed-and-hope-they-can-find-a-job system).

And while the phrase "strengthening intellectual property protection" will likely be tossed around, I doubt that the summit will say much about confronting China's forced transfer of intangible assets (technology and know-how). Yesterday's New York Times had a detailed story on the issue -- China in Push to Dominate in Wind Power. The story outlines exactly how local content requirements can be used in a catch up economic strategy to build a world-class, globally competitive industry. And, no, it has nothing to do with lack of enforcement of patent rights -- these are not cases of patent infringement but forced technology transfer. It has everything to do with industrial policy.

So while I'm glad the President and the business leaders are talking, I am doubtful much meaningful will come out of it. That is too bad - since there will be a number of real leaders in the group. Maybe it will be the start of a true dialog on solving our competitiveness problems. But to do so, it needs to get beyond the macro-economy obsession and dig into the weeds of how our economic structure is changing and what to do about it. And I'm not sure this group is ready to do that.

This morning the BEA released its revisions of the industry-by-industry GDP data for 2007-2009. And it has a startling fact:

Downturns in durable-goods manufacturing and professional, scientific, and technical services along with the continued contraction of construction were among the leading contributors to the decline in U.S. economic growth in 2009 (emphasis added).

Remember, the Great Recession officially lasted from December 2007 to June 2009. So 2009 was a partial recovery year.

Yet, these knowledge services actually grew in 2008 -- in the heart of the downturn. Professional, scientific, and technical services grew by 4.2%. Information industries were up by 4.1% and the educational services sector was up by 1.7%.

Why intangibles would do well in the heart of the recession and falter at the recovery is a mystery to me. Yes, I know that the recovery has been weak. But the comparison between 2008 and 2009 is striking.

By the way, the data on manufacturing is more explainable. Durable goods grew slightly in 2008 while non-durables dropped sharply. In 2009, non-durables continue to decline but durables dropped dramatically. This makes sense if you think about the lag time in purchase decisions on durable goods. People can cut back on immediate purchases on non-durables, but commitments to buy durables have a little more forward time involved.

Is the same true for intangibles? Any thoughts anyone?

Here is a great talk by Bruce Katz -- Director of the Metropolitan Program at Brookings -- about the Next Economy.

The talk was part of their Global Metro Summit 2010.

October's trade data released this morning showed a slight improvement. The monthly trade deficit declined dramatically to $38.7 billion from September's $44.6 billion. Exports rose by $4.9 billion while imports actually decline by $0.9 billion. The surge in exports caught economists by surprise, as they has anticipated a $44 billion deficit. This good news was due to two factors: increased goods exports and decreased oil imports. Imports of non-petroleum goods actually increased slightly.

Our intangibles trade surplus also moved in the right direction, rising ever so slightly by $70 million. Similar to last month, every category of trade increased: exports and imports of private services both increased as did royalty payments coming in (exports) and royalty payments going out (imports). Exports rose slightly faster than imports in both cases.

The big story concerning intangibles is the latest revisions in the data for the last 6 months. Over the past 6 months, exports were overstated. Royalty payments (imports) of were also slightly overstated but imports of private services were slightly understated. As a result, the intangibles trade balance was overstated by about 5% (roughly $3.5 billion total over the 6 month period). While this does not seem like a large revision, it does change the view of the situation significantly. The old (incorrect) data indicated that our intangibles surplus had finally growth past its earlier levels. The new data shows that our surplus remains lower than earlier in the year. In other words, we thought we were on a stronger growth path that we were.

Obviously there is a continuing need to improve our data collection system -- especially on intangibles.

Our deficit in Advanced Technology Products decreased slightly in October to $8.5 billion as export grew faster than import. This is hardly good new, however, since the Advanced Technology Products deficit remains at near record levels. The September figure of almost $9 billion was the worst monthly deficit since the government started publishing data specifically on Advanced Technology Products. 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.

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.

Here is a new report from the OECD on Innovative Workplaces: Making Better Use of Skills within Organisations. The opening paragraph summarizes the topic very well:

Innovation is widely recognised as an important engine of growth. The underlying approach to innovation has been changing, shifting away from models largely focused on Research and Development (R&D) in knowledge based globalised economies and giving more emphasis to other major sources of the innovation process. Understanding how organisations build up resources for innovation has thus become a crucial challenge to find new ways of supporting innovation in all areas of activity.

The report is mostly a survey of the literature and a discussion of European experiences. That data leads to two conclusions:

Firstly, in line with the OECD emphasis on widening the concept of innovation, they imply a need to put the organisation of work more centrally in the analysis of innovation. Learning and interaction within organisations is at least as important for innovation as learning through interactions with external agents, and indicators for innovation need to capture how material and human resources are used and whether or not the work environment promotes the further development of the knowledge and skills of employees.

Secondly, policies designed to promote innovation, especially in countries that are trailing or behind, have tended to focus on the need for increased expenditures on Research and Development (R&D), on raising the percentage of the population with tertiary educational attainment and on furthering the diffusion of Information and Communication Technology. Considerable progress has been made with respect to the latter two indicators. The results presented here suggest that the bottleneck to improving the innovative capabilities of European firms might not be low levels of R&D expenditures, which are strongly determined by industry structures and consequently difficult to change, but the widespread presence of working environments that are unable to provide fertile grounds for innovation. If this is the case, then an important policy measure would be to encourage the adoption of "proinnovation" organisational practices, particularly in countries with poor innovative performance. While the analysis draws on European data, the lessons may be extended to other OECD regions.

This latter point is especially relevant to the US -- where we tend to throw resources (i.e. R&D funds and scientific/engineering personnel) into a black box called "innovation" and expect great things to come out the other end. This OECD report, along with others, stressed the fact that innovation is much more than new technologies and gadgets.

While not specifically a policy piece, the report does, however, point the way to some policy implications:

How could policy makers foster innovative workplaces which are typically
the realm of entrepreneurs and employers? Some promising policy programmes are used in some countries to this effect. Most of these programmes take two forms: workplace development projects and learning networks.

Workplace development projects focus on the performance and the quality
of working life at workplaces. Improvement of the quality of working life may
comprise, for instance, improvements in employees' opportunities for development
and exerting an influence over their work, wellbeing at work, and cooperation
and trust within the work community.

Learning networks consist in joint learning forums workplaces and
research and development units (such as universities, research institutes,
polytechnics or other educational institutions).

Within the European Union, the most ambitious programmes in terms of
funding and outreach are located in Nordic countries that figure among the
highest adopters of learning forms of work organisation.

Among others, the report mentions the activities of the Swedish Agency for Innovation Systems (VINNOVA). In addition to its more traditional R&D projects, VINNOVA has a program on Management and Work Organization Renewal. As the OECD report notes, the projects of the Nordic countries, such as Sweden, are oriented more to direct implementation based on a competitive funding program rather than just research.

While the OECD's report is preliminary, it should open up a set of policy questions for the US -- as we seek to learn from some of the state-of-the-art innovation policies in other countries.

Quick take -- here are two new papers/events from the Brookings Institution's Metropolitan Policy Program on the "Next Economy."

Delivering the Next Economy: The States Step Up.
Some highlights:
• Create state jobs councils and jobs cabinets. The jobs council should comprise corporate, civic, university, and state and local leaders who quickly develop a vision for growth that is empirically grounded in the assets and advantages of the state. A new jobs cabinet within state government could coordinate state actions.
• Create state infrastructure banks (SIB) and expand SIBs into true economic development banks to finance not just roads and rails, but also energy and water infrastructure, perhaps even school and manufacturing development.
• End wasteful tax breaks and other giveaways for business recruitment. Rather support for regional industry clusters and metropolitan exports initiatives

Delivering the Next American Economy
(prepared for the Global Metro Summit 2010: Delivering the Next Economy).
Some highlights:
• Stop refueling the old economy's bad habits, such as subsidizing housing.
• Start investing to help American businesses innovate and have access to a world class infrastructure to connect them with global markets.
• Challenge every metro area to meet and exceed the national goal of doubling exports. Instead of subsidizing businesses to move across municipal lines--a complete waste of taxpayer dollars--cities and suburbs need to team up with businesses to devise export initiatives that build on regional competitive advantage.

In yesterday's posting, I sidestepped the issue of the tax deal announced on Monday to focus on a speech by the President on innovation and economic growth. I wanted to highlight that speech -- as I was sure most of everyone else's focus would be on the tax deal (which was a correct assumption since the North Carolina speech was largely ignored).

So, now let me return to the tax deal. Obviously, there are two things going on here -- the economics and the politics. On the economics side, much of the focus is on the spending versus deficit debate. However, I think David Leonhardt got it right in his column today the "Mr. Obama effectively traded tax cuts for the affluent, which Republicans were demanding, for a second stimulus bill that seemed improbable a few weeks ago." The effectiveness of that stimulus was highlighted by economic analysts and the financial markets.

But not all agree. For example, Harold Meyerson blasted the plan because it "largely perpetuates, and only occasionally worsens, the status quo." As Meyerson points out, some important job creating measure, such as the Build America Bonds were left out. In addition, he questions the tax breaks for plant and equipment -- noting that companies have plenty of cash to invest already.

I agree that this wasn't the best stimulus package that could have been created. There are much more important economic measures that could and should be taken to transform the economy. For example, we should have instituted a knowledge tax credit that pays for continuous worker training and skills development -- not just after someone loses a job. I would have used at least part of the $146 billion allocated to the physical capital investment tax break (expensing of plant and equipment) for this human capital tax break (a knowledge tax credit).

But I also think it is probably the best deal that the President could have gotten. My concern is more on the political side. The real fight over transforming the economy will be on the spending side. Will we really invest in education, innovation and infrastructure -- as the President promised in his speech? As Steven Pearlstein noted:

This is not simply a matter of symbolism, as the president suggested this week. It's a matter of signaling to the country and the GOP leadership that the president will not bow to political hostage taking. Now that he has blinked, you can be sure that Sen. Jim DeMint and the Tea Party zealots are already plotting how to block legislation to raise the debt limit or appropriate funds to keep the government running in order to force repeal of health reform. Given the inevitability of such a showdown, the president would have been better to orchestrate it early, on his own terms and over an issue on which the public is clearly on his side.

The big news economy yesterday was the President's announcement on a tax deal with the GOP. But, when President Obama gave a speech in North Carolina yesterday, he sounded a larger theme of economic recovery and growth. In what some are seeing as a trial run of the next State of the Union address, the President talked about investments in innovation and the economy:

we've got to have a long-term vision about where we want to be 10 years from now, 20 years from now, 30 years from now.

Just like past generations did, we must be prepared to answer these questions in our time. And over the next several weeks, I'm going to be meeting with my economic team, with business leaders and others to develop specific policies and budget recommendations for the coming year. Today I want to outline the broader vision that I believe should guide these policies -- and it's a vision that will keep our economy strong and growing and competitive in the 21st century.

And that vision begins with a recognition of how our economy has changed over time. When Forsyth Technical opened 50 years ago, it was known as Forsyth County "Industrial Education Center." Right? That's a mouthful. (Laughter.) Machine shops and automotive mechanics were some of the first classes you could take. Of course, back then you didn't even need a degree to earn a decent living. You could get a job at the local tobacco or textile plant and still be able to provide for yourself and your family.

That world has changed. In the last few decades, revolutions in communications, revolutions in technology have made businesses mobile and has made commerce global. So today, a company can set up shop, hire workers, and sell their products wherever there's an Internet connection. That's a transformation that's touched off a fierce competition among nations for the jobs and industries of the future.

. . .

Now, in the last century, America was that place where innovation happened and jobs and industry always took root. The business of America was business. Our economic leadership in the world went unmatched. Now it's up to us to make sure that we maintain that leadership in this century. And at this moment, the most important contest we face is not between Democrats and Republicans. It's between America and our economic competitors all around the world. That's the competition we've got to spend time thinking about.

As he went on to say:

But as it stands right now, the hard truth is this: In the race for the future, America is in danger of falling behind. That's just the truth. And when -- if you hear a politician say it's not, they're not paying attention.

. . .

So 50 years later, our generation's Sputnik moment is back. This is our moment. If the recession has taught us anything, it's that we cannot go back to an economy that's driven by too much spending, too much borrowing, running up credit cards, taking out a lot of home equity loans, paper profits that are built on financial speculation. We've got to rebuild on a new and stronger foundation for economic growth.

We need to do what America has always been known for: building, innovating, educating, making things. We don't want to be a nation that simply buys and consumes products from other countries. We want to create and sell products all over the world that are stamped with three simple words: "Made In America." That's our goal.

In the speech he touted various policies and initiatives: the Race to the Top education program, creating "a tax code that encourages job creation here in America," immediate write off of investment in plant and equipment, patent reform, expanding the R&D tax credit, increasing R&D spending to 3% of GDP, export promotion, and infrastructure investments -- including broadband and high-speed rail.

He did lay down the gauntlet on the budget:

The best antidote to a growing deficit, by the way, is a growing economy. To borrow an analogy, cutting the deficit by cutting investments in areas like education, areas like innovation -- that's like trying to reduce the weight of an overloaded aircraft by removing its engine. It's not a good idea. There may be some things you need to get rid of, but you got to keep the engine.

That's why even as we scour the budget for cuts and savings in the months ahead, I will continue to fight for those investments that will help America win the race for the jobs and industries of the future -- and that means investments in education and innovation and infrastructure.

He also laid down a political challenge to both sides of the aisle -- in a line that garnered the longest applause:
"if our objective is not simply winning elections but winning the future -- then we should be able to get our act together here, because we are all Americans and we are in this race together."

I suspect we will hear that line again -- "not simply winning elections, but winning the future."

So, if you are interested in what might be a sneak preview of parts of State-of-the Union, watch the video.

And stay tuned for the nitty-gritty details of how this gets translated into a budget and a legislative agenda for the next two years.

One of the hallmarks of the I-Cubed Economy is the fusion of manufacturing and services. A couple of stories in a recent issue of the Economist highlight this factor. First, there is this insightful comment in a story on the building hardware business -- specifically elevators (lifts):

Lifts are not high-tech; the industry's barrier to entry is servicing. New entrants might be able to make lifts but would struggle to compete with the comprehensive maintenance networks of the incumbents. Maintenance contracts generally contribute around half of the revenues of the big lift companies, providing steady income even when new orders head for the basement.

Then there was this comment in the "Schumpeter" column on Germany's Mittelständler companies, which

typically have subsidiaries in 24 foreign countries, offering service and advice. Many get the bulk of their revenues from service rather than products. Hako, which makes cleaning equipment, generates only 20% of its revenue from sales of its machines.

Both articles stress the importance of linking service activities with manufacturing activities. In fact, these companies are successfully competing in "old" industries on knowledge -- not price. Knowledge is what gives them a superior product and knowledge is what makes their services so valuable. But is it not just generic knowledge. They are selling their knowledge as a means to create solutions for their customers. Their customers want the knowledge to be specifically applied to them - not some abstract concepts. That is the "service" part of the equation. Or as the story on Mittelständler companies put it "service and advice."

So, where are the public policies that help our economy make the switch to the "solutions" business?

Here is a part of Henry Mintzberg's take on How the enterprises trashed the economy and how most economists and analysts don't get it, including on intangible assets:

Get it about the mass firings of "human resources". If the CEO is the enterprise, then everyone else is a "human resource", to be "downsized" en masse at the drop of an earnings report. After all, resources are conveniently dispensed with, especially when the wolves of Wall Street are baying at the door, and need to be thrown the bones of some human resources to quiet them down. But why not: the company can carry on, in the short run, at least until the bonuses are doled out. Unfortunately, the short run has now run out for American enterprise.

At what price these firings? The answers are all around us: in overworked, unappreciated, discouraged and burned out workers and middle managers.

A robust enterprise is not a collection of human resources; it is a community of human beings. How many large American corporations can claim that kind of robustness? Effective strategy, for example, is not about a planning process that comes from the "top" so much as a learning process that can come from anywhere in the enterprise. The key to IKEA's successful strategy, to take a pointed example, lies in its provision of unassembled furniture that is easily transported. That idea came from a worker who had to take the legs off a table to get it into his car. He was apparently not downsized or discouraged by the leadership of his company.

To put it another way, executives keep saying the "our workers are our most important asset." Yet, workers are still treated as a cost to be minimized.

Or to put it yet another way, companies value their intellectual property (patents). They don't seem to extend the same value to the workers who create those assets. Which is more important -- the asset or the process of creating the asset (the goose or the golden egg)?

Mintzberg has more to say on the failure of leadership -- especially on our infatuation with heroic leadership over engaged management. Read the entire piece.

Bad news today on the economy. BLS data on employment for November showed both slower than anticipated private sector job growth (only 50,000) and a rise in the unemployment rate from 9.6% to 9.8%. Economist had expected 144,000 new jobs and a steady unemployment rate (of course they got it reversed last month.

One glimmer of good news is that the number of involuntary underemployed (part-time for economic reasons) declined -- almost completely because the number of workers part-time due slack work dropped. The number of workers who could only find part time work remained about same. And the number of voluntary underemployed rose, which indicates more people are looking for part-time work. As the chart below shows, involuntary underemployed and slack work remain at high level.

The persistent high rate of unemployed and involuntary underemployed creates a long term danger for the economy. A story in yesterday's New York Times asked the key question: Will Today's Unemployed Become Tomorrow's Unemployable?The problem is a loss of skills and marketability. The longer someone is not working, the more the human capital can decay. At least with underemployment, there is some continued use of skills. But the part-timers don't get the training and the skill development needed to maintain a high level of human capital.

All of this cries out for a knowledge tax credit as an incentive to employers to provide training and skills development to all their workers. We need to preserve and promote our human capital - not stand on the sidelines and watch it wither away.

Here is a great posting from Mary Adams with links to the relevant research on the importance of intangible assets -- Intangible Investment Builds Value - A not so surprising review of the research.

Each of the "not-so surprising" fact has a link to the research. The one I really like: Investors in R&D- and advertising-intensive firms can beat the market because the market does not price these firms appropriately!

As the economy has soured, interest in the notion of competitiveness, economic strategy, and industrial policy has grown. Over the past couple years, numerous reports and studies have been issued. This morning, the Center for American Progress (CAP) released a new paper (A Focus on Competitiveness: Restructuring Policymaking for Results) that takes a different tack. The report is not about what our competitiveness strategy should be. It is focused on how to create such a strategy.

In this regard, the report takes the national security planning process as its model. Applying the national security to economic policy has a long tradition. Many years ago, I drafted legislation to create an economic policy equivalent of the National Security Council -- something that was later done by Executive Order in the Clinton Administration actually following a precedent dating back to the Eisenhower Administration.

The CAP proposals take this is step further and adopt some newer models from the national security area, specifically review process. They propose the following:
• A Quadrennial Competitiveness Assessment by an independent panel of the National Academies whose objectives are to collect input and information from many sources and perform a horizon scan that identifies long-term competitiveness challenges and opportunities
• A Biannual Presidential Competitiveness Strategy that lays out the president's competitiveness agenda and policy priorities, and captures the attention and buy-in of cabinet principals
• An Interagency Competitiveness Task Force led by a new deputy at the National Economic Council that develops the biannual strategy, oversees White House coordination of competitiveness initiatives, and monitors their implementation by agencies
• A Presidential Competitiveness Advisory Panel of business and labor leaders, academics, and other experts who assist the administration in developing policy details.

All of these are good suggestions. I especially like the idea of a review process -- which was at the heart of our proposal from a number of years ago to create a Commission on the Future of the US Economy.

The CAP proposals also echo a similar approach incorporated in to the America COMPETES Act. That law mandated a review process, created a Cabinet-level council (Chaired by the Secretary of Commerce) and set up an advisory panel. These were not perfect mechanisms. As we pointed out in our policy brief, Crafting an Obama Innovation Policy, this function really needs to be driven by the White House - not the Commerce Department. But unfortunately, even these provisions were ignored by both the Bush and Obama Administrations.

The CAP proposal also re-surfaces the idea of transforming the Department of Commerce into a Department of Business, Trade, and Technology and consolidating statistical agencies (ideas we grappled with back in the 1980s). They do take it a step further by suggesting that the competitiveness review process specifically look at even broader agency consolidations by incorporating programs from other departments on worker training, education and science.

My sense is that such consolidations aren't necessarily that helpful. I would support a re-look at the structure of the Commerce Department and the statistical agencies. But there will always be programs and policies that are important to economic competitiveness that will be part of other policy arena's (such as defense or housing). Thus, I don't believe a single overarching competitiveness agency is possible. Coordination - rather than consolidation - seems to be the better course of action.

I would suggest one other organizational idea: the creation of "competitiveness" agency outside the government. Specifically, we should establishment of National Foundation for Science, Technology, and Creativity patterned after the United Kingdom's National Endowment for Science, Technology and the Arts (NESTA). As I've noted before, NESTA takes a broad view of innovation unlike many other technology and innovation programs. Its portfolio of programs covers a variety of areas, including science awareness, early stage investments in technology companies, open innovation projects, design, and arts and cultural fellowships. NESTA is an independent organization; it complements but does not replace government funding of science, technology, and innovation. A United States version of the endowment could be seeded as a public-private partnership, with initial funding from both sources. It would then use income from the endowment and returns from strategic investments to support most of its activities. Creating a US version of NESTA would complement the policymaking process outlined in the CAP proposal.

I applaud the folks at CAP for putting these proposals forward. It is unclear how they will be received. They should be given careful consideration. I fear, however, just at the ideas in the COMPETES Act were ignored (and then watered down in the now-stalled re-authorization), these proposals will be meet with inaction. That would be too bad.