March 2011 Archives

Continuing comments on the questions posed by the Commerce Department's Competitiveness study RFI (see here, here, here and here), we turn to a cluster of topics and questions concerning knowledge creation and dissemination.

The questions posed in topic #1 (government R&D) and #5 (incentives to innovate) can be taken together.

Topic #1 - Government research and development - asks the following questions:

How can the economic impacts of basic research funding (e.g., NSF, NIH) be better measured and evaluated? What methods can the Federal Government use to prioritize funding areas of basic research, both within an area of science and across areas of science? How can existing Federal government institutions (not just organizations, but also programs, policies, and laws) devoted to basic research and innovation be improved? Are there new institutions of these types that are needed to achieve national innovation goals? How could the government increase support for industry-led, pre-competitive R&D?

Topic #5 - Incentives to innovate - asks:

How could the government better use incentives (including but not limited to procurement, Advanced Market Commitments, incentive prizes, and aggregation of demand) to promote innovation? Are there other economically-sound incentives that the government should provide?

Taken together, these cover the push and pull of technology development. The government R&D questions cover funding resource in. The incentives questions cover the demand pull. But, as I noted in the overview, the formulation of these questions are too narrow -- especially the focus on basic research. We need to take a step back as ask what is the intangible asset we wish to create. From that point of view, the intangible asset is the creation, dissemination and utilization of knowledge. The first question to be asked what is the role of the government in the creation and diffusion of knowledge? What resources can the government provide to the creation process? What governmental actions can create a demand for the creation and utilization of knowledge?

To answer those question there should first be an inventory of all government support for the creation intangible knowledge assets - directly and indirectly. By looking at this inventory, it will become clear that the government is involved in much more that support for basic research. The federal government creates important knowledge assets in the form of government statistics. It creates other forms of information assets in the form of standards. It supports organizational research and evaluation activities -- both academic and for agencies purposes.

The review would provide a basis for understanding the range and types of knowledge creation and dissemination activities and mechanisms. That would include creating a better understanding of support for non-scientific and technical research and place such support in its proper context. In the context of the broader goal of knowledge creation and dissemination,

A review would also place in context the demand side questions of how to use most effectively use procurement and activities that aggregate demand. Different forms and areas of knowledge creation might require different types of demand side incentives. The review would be a starting point of understanding the different needs and effectiveness of the different approaches.

Topic #3 covers Intellectual Property (IP) and is related to the question of incentives. The questions the RFI ask are:

What are the key elements of any legal reform effort that would ensure that our intellectual property system provides timely, high quality property rights and creates the best incentives for commercial innovation? How can the intellectual property system better serve the dual goals of creating incentives for knowledge creation while also ensuring that knowledge is widely diffused and adopted and moves to its best economic and societal uses?

IP is a key incentive that is a legal market creating activity rather than a direct financial means of creating a market. IP is essentially a government-grant of a monopoly right, granted, as Article I, Section 8, Clause 8 of the Constitution states, "To promote the Progress of Science and useful Arts." "By securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries", as the rest of Clause 8 states, IP regulates the marketplace to creates a financial incentive for invention and creation. The questions in this area should be seen in this context of the overall goal of creating incentives to innovation.

But the structure of IP in the specific form of patents covers both incentives for creation and incentives for dissemination. The alternative IP protection to patents is trade secrets -- which are very different in terms of dissemination. To obtain a patent, the knowledge must be disclosed - rather than be kept secret. The implicit trade off in patents is that protection is granted in return for disclosure. That disclosure is critical for the information flow needed to support entrepreneurial activities, as discussed in an earlier posting. Transfer of knowledge become next to impossible if there is no knowledge about the knowledge. To be effective, however, the IP system must work with other forms of dissemination. Merely disclosing may not be enough to induce dissemination.

Thus, an additional question is in order. How do the incentives for knowledge creation and dissemination under the intellectual property system either support or conflict with other forms of incentives and mechanisms for knowledge creation and dissemination?

The final part of the set of knowledge creating topics in the RFI is #10: Enhancing the exchange of idea. The RFI asks the following:

How can public policy better promote the exchange of ideas among market participants--that is, support "markets for technology"--that enhance the social value of innovations? Similarly, how can the government assist in the diffusion of best practices? Given that ideas and knowledge cannot be traded as readily as are physical goods, what is the government's role in supporting more effective markets?

The first two topics of focus on the creation part of the issue of knowledge creation and dissemination. IP has a dual focus of creation and dissemination. This last set of questions hones in on the dissemination issue. Yet, it seems to look at only one mechanism of exchange: knowledge markets. Knowledge markets is an important concept. But it is only one form of knowledge exchanges. The question should be broadened. How can public policy promote the exchange of ideas and the flow of knowledge? What policies, programs and activities can help or hinder the dissemination of knowledge? What are the various mechanisms for knowledge flows and dissemination and which are best suiting in which circumstances?

Under this broader question should be a review of the range of government policies affecting the flow of information and knowledge. Currently, these policies are in separate silos such as privacy, intellectual property rights, "right-to-know" policies, terms of access to government data and data collection/statistical policy. All of these policy areas approach knowledge, information and data as an intangible asset. But they assess and value that asset in very different ways. A common approach to this intangible assets across the various silos may not be either possible or desirable. But a more coordinated approach that is at least cognizant of the overlap and tensions among the various policy areas would help ensure that more nuanced and appropriate policies could be crafted.

Is a musical empty raisin box an invention? Or is it an example of creativity in the arts? Or does it even matter what we call it?

I vote for the latter. Too often we get hung up on labels. The biggest hang up is the innovation and invention has to be all about "high tech." Sometimes, it is just about doing something a little different.

And one of the premier examples of doing something a little different is the Blue Man Group -- the performance art group that got its start using plastic pipe as a drum. Now they are exciting the creativity and inventiveness of kids through there Invent an Instrument contest. One response is the musical empty raisin box (see this story in the Washington Post -- Blue Man Group contest inspires instrumental invention).

I just hope he filed for the patent on this invention already -- or his "output of the creative process" or what every we call it.

Continuing our series of comments on the questions posed by the Commerce Department's Competitiveness study RFI (see earlier postings), lets us move on to the three E's: entrepreneurship, education and exports.

In topic #2: Entrepreneurship, the RFI asks the following questions:

Through what measures can government policy better facilitate the creation and success of innovative new businesses? What obstacles limit entrepreneurship in America, and which of these obstacles can be reduced through public policy? What are the most important policy, legal, and regulatory steps that the federal government could take to expand access to capital for high-growth businesses?

In order to comment on the questions relating to entrepreneurship, we must first separate out various concepts:
1) start up versus growth
2) entrepreneurial growth (through new business opportunities) versus market expansion (through expanding into new markets geographically or serving an underserved market or by capturing market share or simply through an expanding customer base).

The start up process concerns establishing a new entity. There are numerous specific issues associated with forming a new entity -- business or non-profit.

The growth process may or may not be associate with that start up process. For example, Google is not a start up. Yet it is a very entrepreneurial company. It is entrepreneurial because it seek to identify and exploit new business opportunities. A new coffee shop is a start up, but probably not entrepreneurial growth company under this definition - even though it may be a coffee shop in an underserved market.

Entrepreneurial growth has two phases: identification of the new business opportunity and exploiting that opportunity.

It should be noted that innovative companies are not necessarily either start ups or entrepreneurial (under the above definition). Ford is certainly no longer a start up. Nor is it necessarily entrepreneurial. But it is innovative. Thus, there needs to be a separate set of questions as to how to help established companies use innovation to maintain or improve their competitive edge (which will be covered in topic #8 of this RFI).

Therefore, the question on entrepreneurship needs to be rephrased to focus on the start up and the entrepreneurial growth parts of the process. Below are the relevant 3 questions:

1) What are the government policies that can facilitate the process of creating a new entity? There are a number of programs already in place at the federal, state and local levels to assist new entity creation. These include reducing or simplifying regulatory requirements, providing technical assistance, helping reduce risk (such as through insurance programs), assist in finding suitable facilities and providing access to capital. These programs should be expanded -- but focused on local activities. These "here is how to start a business" activities are most effective when they are targeted to and carried out at the grassroots level.

2) What are the government policies to help entrepreneurs identify new market opportunities? Here one of the keys is access to information and knowledge. For example, the technology transfer process is an important factor in this process. Information about university and government-created technologies can help the entrepreneur spot new opportunities. Technology transfer activities should not be just about closing the deal - but transferring information. Other forms of information, such as market analysis, is also important. Most important is maintaining the flow of information. As is addressed elsewhere in the question #10 of the RFI, enhancing the exchange of ideas is a key part of any policy to support entrepreneurs.

3) What are the governmental policies and activities that can help entrepreneurs exploit the new business opportunities? This question has both a resources-push and a demand-pull component. On the input side, key is identifying and accessing the resources needed. This may include technology, capital and workers. Government programs to provide resources for the development of new technologies - such as the TIP program and SBIR - are important elements of this policy. Policies that promote access to new government and university developed technologies are also important. Obviously, programs that help provide access to capital and specific worker training activities are critical. With respect to worker training, it is important that industry/company specific and on-the-job training are emphasized. Similar to "start-a-business" assistance, this level of specific worker training is most effective when targeted to and carried out at the grassroots level.

On the demand pull side, some areas to be examined would be government procurement and regulations/standards. Government procurement has served as the "thin-opening wedge" needed by many technologies to and regulations can create new opportunities as well. Regulations and standards can create new business opportunities by redefining the market or creating markets for new goods and services.

In some cases, a modification of regulations and government policies may be needed to account for the new activity and to help create the market. A regulation or a policy that was appropriate under one set of circumstances and activities may -- inadvertently -- become a barrier to new activities. For example, the regulation that limits the use of financing under Industrial Development Bonds to only facilities producing tangible goods means that this program is not available to finance software development or bio-medical research facilities.

Another activity would be technical assistance beyond the "here is how to start a company" -- technical/scientific help (connecting with experts in universities and national labs) and business/organizational (mentoring). One specific way might be in helping provide technical assistance in identifying and better managing a company's intangible assets. By understanding their intangible assets, a company will better understand where the new business opportunities lie based on their asset base and what resources (existing or to be acquired) would be needed to exploit that opportunity.

Topic #4 asks about education:

How important is catalyzing greater interest and training in science, technology, engineering and mathematics (STEM) fields? What strategies can be most effective on this score? Can educational technologies be better utilized to this end? What are the critical opportunities and limitations to the creation and adoption of effective education technologies? How can investments in community colleges better leverage public-partnerships to better train Americans for the jobs of today and tomorrow?

As I noted in my overview, all of these are good questions -- but they are far too narrow. The focus should be broader on the development of the important intangible asset of human capital. Formal education is only on part of that process. The topic should also include on-the-job training, non-traditional education, and areas beyond STEM. Such a broader focus would lead a modification of the questions above. For example, what are the critical opportunities and limitations to the creation and adoption of effective education and training technologies -- and their utilization in multiple settings (classroom, individual learning, on-the-job training)?

Starting with a human capital focus would also broaden the field of view go beyond the training and education parts of workforce development. What are the organizational changes that are needed to better improve and utilize human capital - such as the development of high-performance work organizations? What are the labor force policies that either help of hinder human capital development? Such a broader focus would breakdown the policy silos that hinder an effective policy toward our most importance asset -- people. (From more on the need for an overall policy approach to high-performance work organizations, see Jarboe and Yudken, "Time to Get Serious About Workplace Change".)

The third "E" is covered in topic #7: Exports. The RFI asks:

How could the government better assist small and medium-sized domestic firms sell their products abroad? What policies can be pursued that would help all U.S. businesses increase their exports?

Once again, the question needs to be framed in broader terms. Exports are only part of international trade The broader question is as follows: how can the government help companies win in the international trade game? There are 4 reasons why companies don't benefit from international trade.

1) They are not in the game. Many companies simply don't sell outside of a limited geographically areas. In this case, the first question is appropriate: How could the government better assist small and medium-sized domestic firms sell their products abroad? Export promotion activities need to be better coordinated and made more effective.

2) There are trade barriers and unfair trade practices that keep US goods and services out of other markets. Here is the role for trade negotiations and trade enforcement. But the activities need to go beyond lower barrier to trade (i.e. trade agreements). Agreements are meaningless if there is no enforcement.

Likewise, bilateral trade agreements do not cover third-country markets. Aggressive export promotion activities, including matching of export financing, may be required. For example, the creation of an export financing warchest might be needed to bring more countries into the OECD export financing disciplines.

3) There are unfair trade practices in home markets. Exports are only half of the international trade picture. Competing in US market is increasingly no different than competing in international markets. Facing unfair trade practices at home -- such as dumping and illegal subsidies -- are the equivalent of facing trade barrier abroad. It is a government-created competitive disadvantage for US firms. Mercantilist practices are the same whether they are applied against US companies in a foreign market or in the US market. The broader question that needs to be asked is as follows: What are the policies and actions need to counter mercantilist practices of other nations both in markets abroad and within the US?

4) The companies' good and service are not competitive. It may be that some US companies' products are more expensive and/or not as good as their competitors. Companies with uncompetitive products will simply not benefit from international trade no matter how much the government promotes the product, lowers trade barriers or defends it against unfair trade practices. In these case, the remedies are mostly a private sector matter. But, as the last three decades have indicated, there are multiple areas where government can help. These are range from cost of capital to increasing productivity through worker training to business support activities such as MEP -- and is the overall purpose of this RFI.

Addressing the fundamental competitiveness of American companies will help ensure that American business and workers benefit from international trade both at home and abroad.

New America Foundation has been publishing a series of pieces on America's growth strategy. All of the pieces are worth reading. But I want to highlight one particular comment by Jamie Galbraith in his piece "The Pillars of Economic Transformation". He discusses the President's plans framework of education, innovation and infrastructure. And asks the following question:

Let's also ask - why only STEM? American competitiveness depends at least as much on style, design, creativity and art - and especially on the liaison between technology and art. If you like exports, Hollywood is a big winner. And if you understand that education is actually not about exports, nor even about jobs, but about our quality of life, then you appreciate even more the need for a balance between science, technology, engineering and math, and music, art, literature, history and economics. Well, maybe not economics. But accounting, certainly.

Why not indeed? As Chris Hill noted in his paper "The Post-Scientific Society":

In the post-scientific society, the creation of wealth and jobs based on innovation and new ideas will tend to draw less on the natural sciences and engineering and more on the organizational and social sciences, on the arts, on new business processes, and on meeting consumer needs based on niche production of specialized products and services in which interesting design and appeal to individual tastes matter more than low cost or radical new technologies.

Time to take that approach seriously!

Following on yesterday's posting, I would like to take up some of those intriguing questions posed by the Commerce Department's Competitiveness study RFI (see earlier posting).

Let's start with something I have written on before: manufacturing and services.

For topic #6: Manufacturing. The RFI asks the following questions:

What is the role of advanced manufacturing in driving American economic growth and international competitiveness, and what are the key obstacles to success at advanced manufacturing? In which manufacturing industries will our nation have comparative advantages?

The short answer to the first question is simple: manufacturing will continue to play a major role in American economic prosperity. It will be a different role. As we pointed out a year ago in our Policy Brief--Intellectual Capital and Revitalizing Manufacturing, manufacturing is in the process of being transformed into a much more knowledge-intensive activity. The process is analogous to the transformation of agriculture in the early 20th century. Farming did not simply move to other nations with lower-cost producers using the traditional techniques. Agriculture was mechanized--or industrialized, if you prefer. That transformation led to efficiencies that revolutionized the production of commodities and contributed to U.S. economic growth.

Understand this transformation, and you will understand that the last question -- about comparative advantage -- needs to be rephrased. As it now stands, it focuses on the output of the manufacturing process. The issue is not just what products we will compete in. It is about the changes in the production process. Production is moving toward greater customization -- "just-it-time; just-for-me". Customers are becoming more active in the production process as pro-sumers. Virtual reality is beginning to revolutionize the product design process and 3-D printing has the potential for changing the production process. The transformation will affect all sectors and all industries.

As manufacturing is transformed into a much more knowledge-intensive activity, it will require attention to all the inputs to the production process -- technology, worker skills, and cooperative/collaborative organizational structures. All of which are key intellectual capital and intangible assets.

Embracing the role of intellectual capital and intangible assets in manufacturing requires going beyond the narrow view of formal intellectual property. Scientific and creative property are valuable assets that include product development activities beyond the patent, new architectural and engineering designs, and social and organizational sciences research. Computerized information, including customized software and databases, are other important company assets that go beyond our definitions of intellectual property. Specific business models, organizational structures, and organizational capabilities are key elements of any company's ultimate success. Worker skills and tacit knowledge--both general and firm-specific--are assets that managers describe as leaving the company every evening and returning every morning. Brand equity, reputation, and relationships with customers and suppliers are all important. All of these forms of intellectual capital need to be explicitly developed and managed by successful manufacturing companies.

Thus, the key question is not which industries. The question is how do we position American manufacturers to make the transformation. It will not be an overnight leap, but a gradual process that will require sustained attention. At the heart will be helping companies understand the transformation and how to best utilize their intellectual capital.

There are a number of specific actions that could be taken to support the transformation. We should expand the Manufacturing Extension Partnership (MEP) services to explicitly include assistance in indentifying and managing their intellectual capital. Likewise, we should include intellectual capital management in Small Business Administration (SBA) training programs and Economic Development Administration (EDA) business incubator programs. We could also create a specific award and assessment program similar to the Baldrige Award.

Assistance for on-the-job training should be expanded. We should also create a program to allow businesses to use their intangible assets, specifically their intellectual property, as collateral on loans. This could provide an important source of capital to help companies finance the transformation. The government could also do more to promote innovative manufacturing through its procurement process and through the establishment of demonstration and technology diffusion programs.

Research on the manufacturing transformation should also be undertaken. But this should go beyond the traditional advanced manufacturing concept to embrace the entire transformation. For example, the concept of "design thinking" is becoming increasingly important in product development. Just like we have created Engineering Research Centers in a number of areas (including advanced manufacturing), we should create one for design thinking. Likewise, research need to be continued on new manufacturing business models and the linkages between services and manufacturing.

That last point is especially important as the RFI also raise an important subject in a corollary area. Topic #9: Innovation in services - asks the following questions:

What sectors of the economy have gained less from innovation in the past and--to the extent that innovation could have sustained competitiveness--what are the obstacles to their progress? What are the policy issues that are raised by the nature of innovation in the service sector?

First, we should recognize that the barriers between "manufacturing" and "services" are eroding. Service activities are increasingly linked manufacturing activities. In fact, companies such as the German Mittelständler companies are successfully competing in "old" industries based on that linkage. They offer knowledge -- not low cost. 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. So, all of the activities described above for helping manufacturing should recognize that these manufacturing companies are already in the "service" business.

Next, it should be recognized that all of the activities described above for helping manufacturing also apply to services. Service industries are becoming more knowledge-intensive and need to understand and better their intangible assets. MEP could be further expanded to a offer assistance to service providers -- just as the Baldrige Award was opened up to service businesses. Promoting innovative service delivery activities the government procurement process and through the establishment of demonstration and technology diffusion programs is also just as important as in manufacturing. Likewise, research on the organizational and business model aspects of service delivery should be undertaken.

Bottom line answer to both questions: our goal should be to help American companies make the transformation to a more knowledge-intensive, information-fueled innovative production process -- in all sectors and in all industries. Some of those industries will be labeled "manufacturing." Some will be labeled "services." Some will be a combination of both. What we label it is less important than the action we take to help make the undertaking of these activities here in America as productive, competitive and wage/job creating as possible.

Earlier this month, I posted an item on the Commerce Department's Request for Information on Administration's Strategy for American Innovation. I made some comments when the document first come out. But, as I noted, the RFI asks a number of questions that go beyond the framework of the strategy -- both in detail and in subject area. In a series of postings I plan to address many of these specific areas of questions. But first let me return to the overall framework.

The strategy has three major components: Investing in building blocks of education, basic research and infrastructure; Promoting market-based Innovation; Catalyzing breakthroughs for national priorities. They form a pyramid type arrangement, with basic foundations leading to market commercialization and then focusing on specific areas of special interest within that broader market framework.

This framework is fine as far as it goes. It is useful for tying together the Administration's policy initiatives. But the framework and those initiatives don't go far enough to effectively foster innovation in the new I-Cubed Economy.

The foundation of the pyramid is call, fittingly enough, "Building Blocks." The framework describes three basic foundations: education, R&D and infrastructure (which now divides into physical infrastructure and the "IT ecosystem"). Each of these touch upon an important area, but are too narrow in their scope. The first building block is "Educate the next generation with 21st century skills and create a world-class workforce." This focuses on activities such as improving STEM education, reforming elementary and secondary education, expanding early education, expanding access improving collage education, and strengthening community colleges.

Then, as the last sentence in the paragraph on college attainment, as almost a throwaway line, is this comment, "Finally, the Task Force on Skills for America's Future will build and improve partnerships between businesses and educational institutions to train American workers for 21st century jobs." Only in this one sentence does the document even begin to hint at the needs to the vast majority of workers who won't get college degrees. And even this does not recognized that that there is more to this building block that just formal education -- such as life-long learning.

Rather than focus on "education" or even the broader concept of life-long learning, I suggest the strategy should take a step back and look at the intangible asset involved. The building block is developing and utilizing human capital. Education --- and especially formal institutional degree-granting education -- is only one part of that process. A broader view is needed.

The next building block is fundamental research. The document talks about boost spending at universities, federal labs and industrial laboratories. Again, basic research is an important part of this building block. But it is only one part. There is more needed in the research endeavor to create of new technologies. And innovation is more than new technologies -- a point we will return to later. Again, stepping back, the intangible asset is the creation, dissemination and utilization of knowledge.

The final building block is infrastructure -- which the most recent document breaks into investing in physical infrastructure and the IT ecosystem. Both of these are critical. But, as research has shown over and over again, much of the gain from IT comes from accompanying organizational and institutional shifts. Nothing in the document speaks to the need to include the organizational (intangible) infrastructure.

The next level of the pyramid is "Market Based Innovation." Much of this focuses on getting the "business climate" policies correct in intellectual property rights, competition policy, international trade, spectrum auctions, corporate taxation, and regulatory law. There are numerous good programs and initiatives cited here.

But the innovation ecosystem is more than just creating the climate. It includes creating various forms of incentives and assistance. The strategy recognizes this with the Startup America and Regional Cluster initiatives. More can be done in this area, especially in the key area of incentives to cooperate. For example, the R&E tax credit could be modified to encourage cooperative activities. I was also surprised that the strategy is silent on strengthening the SBIR program. The program is mentioned as part of one of the successful case studies -- but not included in the policy activities and initiatives.

Likewise, there is little discussion of how other areas -- such as regulatory policy and procurement policy -- can be used to create incentives for innovation. The next level of the pyramid does talk about using energy standards to foster innovation - but this section treats regulations as a barrier to innovation.

Finally on this area, the strategy contains a large missing component. Innovation is also more than technology development. It is also more than start-ups and entrepreneurship. The strategy needs to embrace a broader vision on innovation and an explicit recognition of the goal of helping existing companies become more innovative and productive. Other than promoting exports, there are few parts of the strategy that are geared toward helping established companies grow.

The top level of the pyramid is "Breakthroughs for National Priorities." This section outlines a number of priority technology projects. It is a wonderful statement of how technology can be used in key areas. It is also an important, if implicit, statement of how these technology project can have a dual purposed of spurring technological advances for both economic competitiveness reasons and for specific meeting important national needs.

However, it is a statement of technology policy, not a statement of innovation policy. There is nothing about how non-technology projects can contribute to innovation in general and to the specific goals of innovation in the priority areas of energy, health and education. In addition, while harnessing technology is important, reaching national priorities will require more than just strategic investments in key technology areas.

Thus, the strategy document is a wonderful compendium of important Administration initiatives. But it leaves out other important components needed if it is to be a full-blown innovation strategy. Two changes at the level of conceptualizing the issue would help:

1) Take a broad view of innovation, not just technology development.

2) Look at the ways to strengthen the assets (tangible and intangible) needed to promote innovation, improved productivity and foster economic growth, including (but not limited to):

Human capital
Knowledge creation and utilization
Organizational development

Interestingly enough, the questions raised in the Commerce Department get at some of these very issues. More on this in future posts.

Here is an interesting story in today's New York Times -- The Future of Manufacturing is Local. The story cites two example of grassroots organizations that promote "buy local manufacturing": SFMade and Made in NYC. In the case of SFMade, their services go beyond promotion to include services (similar to an MEP) including their Manufacturing 411 resource and referral service and their Manufacturer's Accelerator intensive business advisory service.

I have often said that manufacturing is becoming more knowledge intensive. But it is not just becoming more knowledge intensive in the technical and production sense -- i.e. higher knowledge content in the produces and processes. It is becoming more knowledge intensive in it marketing and strategy through customization of the goods and services. It is unclear the extent to which these "make local" promotion activities will help the companies customize their output more to fit specific local needs. The story does not touch on that part of the issue. But that is clearly an implicit goal of the "buy locally" part of these programs.

So, what are the government programs needed to help these types of initiatives? And how to we help boost them to the next level? Such programs need to go beyond "buy locally because it is the right thing to do" to "buy locally because we make it specifically for you and we do it better than anyone else." This is the marriage of "buy local" with "jurisdictional advantage." Once they can make that jump to local customization, then we will see the transformation and revitalization of manufacturing for the 21st Century.

Here I am reading a somewhat interesting piece in Salon about the closed Apple proprietary platform versus the open platform, and I come across some great quotes:

For free-software fighters, Apple -- the would-be giant killer, the onetime vanguard of the personal computer revolution, the Day-Glo knight in shining armor ever ready to face off against the dark forces of Windows hegemony -- is old news. Apple is history. Free software is the future.

It is easy to argue that Apple and Jobs have already changed the world -- that the computers the vast majority of us use look and feel the way they do because of Apple's innovations.

Now, one would think that this article is all about the iPad/iPhone versus the various Android systems. No -- not a word. As I read further I became more confused with all the talk of Mac versus Linux. I then looked at the date of the article: 1999.

Seems like the open versus closed is one of those never-ending stories. An "Apple versus open system" story could have been written yesterday (one probably was) using much of the same verbiage as from that 1999 story.

And the idea of Apple as history also seems to be a re-occurring theme.

Plus ça change, plus c'est la même chose.

Here we go again. BEA released the third estimate for 4Q GDP, revised upward to 3.1%. The second estimate was 2.8%, revised downward from first ("advance") estimate of 3.2% (see earlier posting). This growth rate is closer to the earlier economic forecasts, as reported by the Wall Street Journal. Credit data on exports for the higher GDP number.

Back to our theme of losing an intangible asset, here is this story from the Wall Street Journal - Public Employees Rush to Retire. And here is the story's tag-line: "Governments Save Money, but Lose Expertise."

Remind you of anything? Like Circuit City ?

Here is an upbeat story to contrast with yesterday's downer of a posting. As I've mentioned before, President Obama has called for a re-organization of government trade functions. Which brings me to this story in this morning's Washington Post, Federal workers asked for government reorganization ideas. According to the story, OMB Deputy Director Jeff Zients sent out an email last week asking for input:

"We know that federal employees have some of the best knowledge about how our government works, and some of the best ideas of how to improve it so it best serves the American people," Zients said in his e-mail.

Kudos to Zients for recognizing and utilizing an important intangible assets: the knowledge and experience of the government workforce.

By the way, anyone can submitted ideas on the reorganization (and other topics) at
the ideas page of the Government Reform for Competitiveness and Innovation Initiative website.

There was an important op-ed piece tucked away in the Sunday New York Times -- The Frustrations of the Educated and Unemployed American. Written by a "24-year-old American" Matthew Klein, it goes to the heart of the dangers of the slowed economy:

About one-fourth of Egyptian workers under 25 are unemployed, a statistic that is often cited as a reason for the revolution there. In the United States, the Bureau of Labor Statistics reported in January an official unemployment rate of 21 percent for workers ages 16 to 24.
. . .
The cost of youth unemployment is not only financial, but also emotional. Having a job is supposed to be the reward for hours of SAT prep, evenings spent on homework instead of with friends and countless all-nighters writing papers. The millions of young people who cannot get jobs or who take work that does not require a college education are in danger of losing their faith in the future. They are indefinitely postponing the life they wanted and prepared for; all that matters is finding rent money. Even if the job market becomes as robust as it was in 2007 -- something economists say could take more than a decade -- my generation will have lost years of career-building experience.

So in the middle of all the debate about strengthening our competitiveness by improving education, lets spend a little time also thinking about the resources that are slipping through our hands. That includes not only the young people who can't find jobs, but the middle-age workers whose skills are eroding while they try to make ends meet on rapidly expiring unemployment benefits and food stamps.

Surely we can do better.

Names are beginning to emerge for a new Secretary of Commerce. According to the Washington Post, Eric Schmidt of Google is the front runner for the post. However, Bloomberg also mentions former Pfizer CEO Jeffrey Kindler as well as Schmidt. Reuters is saying the U.S. Trade Representative Ron Kirk is in the mix. And Wired is touting FCC Chairman Julius Genachowski.

All of these are strong possibilities. Kirk would make sense if USTR and Commerce are merged as part of re-organization of the government's trade activities (see earlier postings). But I'm not sure how strong he would be in the rest of the competitiveness agenda. Similarly Genachowski might be too focused in the IT part of the equation. But he is a personal friend of the President -- which helps in the bureaucratic infighting.

On the other hand, outsiders like Kindler and Schmidt bring a different perspective and set of contacts. Schmidt got a boost last week in the form of an endorsement by Clyde Prestowitz in his Foreign Policy magazine blog. Prestowitz had been skeptical of putting a businessperson in the Commerce position -- but changed his mind for Schmidt. Then again, Consumer Watchdog, which has been highly critical of Google, came out in opposition to Schmidt.

And there is yet one other factor in the mix. While we focus in the economic competitiveness activities of the Commerce Department, one of its biggest agencies is National Oceanic and Atmospheric Administration (NOAA). NOAA is more than the Weather Service -- it also administers fishing regulations. Therein is lies the tale (tail?). New England fisherman are angry at NOAA's limitation on fish catches. Recently, Congressman Barney Franks wrote a letter to all the New England Senators asking them to support a fisherman friendly Commerce Secretary. Then again, if the reorganization proposes splitting NOAA off as an independent agency, fish would not be the Commerce Secretary's worry any more.

So stay tuned.

From the NY Times Economix blog -- Study Finds Culture to Be Economic Engine:

Modern Germans may still be harvesting significant economic benefits from extravagant opera houses built by spendthrift Baroque princes, according to a study published this month by the Ifo Institute for Economic Research in Munich.
The economists behind the study, Oliver Falck, Michael Fritsch and Stephan Heblich, argued that Baroque opera houses attract well-educated workers who prefer to live near cultural amenities. Proximity to an opera house can increase regional growth by as much as 2 percentage points, they wrote.
. . .
"Our advice to local policy makers," they wrote, "is to be aware of the value of cultural amenities when competing for high-human-capital individuals."

Here is an interesting short bit from FastCompany - Patent Director: "Patent Filings Do Not Equal Innovation," U.S. Needs New Measure. According to this short piece:

David Kappos, director of the United States Patent and Trademark Office, says the United States needs new ways to measure innovation and also to give fast-track status to green technologies.
First, Kappos says his office is looking at new ways of measuring innovation. After all, open-source software, which explicitly rejects traditional intellectual property rights, powers large parts of the technology industry, such as the Android mobile operating system. Additionally, corporations often take out huge pre-emptive patents to prevent competition from forming.
"Patent filings do not equal innovation, by any stretch," says Kappos. While his solution to the problem may not completely satisfy those eager to see the United States move beyond the patent paradigm, Kappos is pressing experts and universities to come up with new measures of innovation, such as job creation and job growth that arise from a particular idea.

While I applaud efforts by the PTO to look for broader measures of innovation, I hope they won't be re-inventing the wheel. Specifically, I would also draw everyone's attention to our March 2009 White Paper on Frameworks for Measuring Innovation: Initial Approaches. This paper presents two frameworks for measurement: of innovation activity by measuring the intangible assets that are created by and fed back into the innovation process; and of innovation investments, especially the broader investments that set the stage for innovation. In addition, the paper provides an illustrative set of data sources for both frameworks. It utilizes and builds on the discussion of innovation published in an earlier report by the authors for the Bureau of Economic Analysis (BEA) - Measuring Innovation and Intangibles: A Business Perspective (also available on the Athena Alliance website). Both papers provide important guides for future research, especially in the development of future data sources.

Second, I would urge Kappos to take a look at the work done previously in the Commerce Department on this -- specifically the 2008 report of the Measuring Innovation in the 21st Century Economy Advisory Committee. That report was not the end all and be all on US innovation metrics (see my earlier comments). But it was a good starting point and something to build on.

Finally, I would note that the RFI for comments on the Administration's innovation strategy (see earlier posting) asks specifically for comments on the implications of changes in the innovative process. Understanding those changes is critical to any measurement activity. If you don't understand the innovation process, you don't know what to measure. Our current innovation metrics (resources (money and personnel) into to R&D and patents out) is a direct function of the still lingering view of innovation as a linear process (from basic science to product). A more realistic and nuanced view of innovation will help formulate better metrics.

From his comments, it appears that David Kappos understands that. I hope he can build on that understanding -- and on the work already done to date.

I recently received a notice that the 2009 Annual Capital Expenditures Survey (ACES) is now available. This is a great data source on investments in building and equipment. But a quick look at what is included and excluded in the definition of "capital" provides an illustration of the problems in accounting for intangible capital. The survey includes 30 categories of structures and 28 categories of equipment. Some of these equipment categories touch upon intangible assets.

According to the instruction, equipment expenditures includes intangible drilling costs associated with expenditures for developmental and exploratory drilling activities (as well as apparently those drill costs themselves). It includes computer software, including prepackaged (off-the-shelf), vendor customized, and (importantly) internally developed. Expenditures for off-the-shelf and vendor software appear to be the purchase and contract prices while payroll is used for internal developed software. Unfortunately, it does not appear that the data is disaggregated by software type.

And here is the real interesting part -- it also includes expenditures for artistic works:

Artistic Production (books, plays, paintings, etc.)
Theatrical movie production materials (filming, special effects, writing scripts, etc.)
Television program production materials (both regular programming and made-for-tv movies)
Songwriting and Recording music (exclude music produced for theatrical movies, plays
or television)

But then, it explicitly excludes expenditures for goodwill, patents, or copyrights.

And it says nothing about a number of categories of intangible capital used by Corrado, Hulten and Sichel ("Intangible Capital and Economic Growth" and "Measuring Capital and Technology: An Expanded Framework") such as engineering and architectural designs, R&D, advertising (brand development) and worker training (human capital development).

So clearly there need to be a lot of work done yet on both the conceptual and data collection before we truly have an understanding of what our capital expenditures are in the I-Cubed Economy.

Apropos my earlier posting, it looks like the Commece Department might stay headless for some time -- from the Wall Street Journal this morning: GOP Senators Threaten to Block Nominees Amid Stalled Trade Deals.

Congressional Republicans Monday threatened to block votes on key administration nominations until President Barack Obama submits trade deals with Colombia and Panama to Congress for passage.
. . .
In a letter signed by 44 Senate Republicans, including Republican leader Mitch McConnell of Kentucky and GOP whip Jon Kyl of Arizona, the legislators pledged to "use all the tools at our disposal to force action, including withholding support for any nominee for Commerce Secretary and any trade-related nominees."

Information policy is one of the forgotten areas of public policy. Not that it isn't a hot topic in many of its specific manifestations. Take for example the debate over privacy. That can be a very hot topic. But that is just a part of the larger issue. The problem is that the issue gets silos into what are seen as unconnected parts: privacy, intellectual property rights, "right-to-know" policies, terms of access to government data, etc.

And it gets overshadowed by the sexier area of IT policy. It is much more fun to talk about use of wireless technologies in heath care than it is to delve into the details of how (and what parts) patient records should or should not be open to the public.

This lack of an overall approach to information policy was exemplified to me reading to separate stories in Sunday's New York Times. The first was by Richard Thaler on How Government Data Can Improve Lives. This piece talks about all the useful thing that can be done if the private sector can just get access to government data.

What he doesn't talk about is the question of where that data comes from, who manages and controls it, and who financially benefits from it. Collection data is takes a huge infrastructure. Contrary to the tone of Thaler's piece, government data is not a free good.

Part of that infrastructure is technical. Part of it is also organizational. One aspect of the technical and organizational problem is the topic of the other piece -- The Digital Pileup by Shelley Podolny. This article talks about the challenge we face in storing and organizing the mountains of data being created every day.

As Podolny alludes to, not all of that data is worth keeping. It takes time and effort to both collect and verify useful information.

The data collection efforts also take a social compact about sharing the data.
More and more, individuals are coming to realize that their data is worth something (see earlier posting). Should they be paid for that information? And should the government or the other data collectors be paid for the cost of those collection efforts? And should these data collection efforts duplicate or suppliant private sector data collection activities?
Data is an intangible asset. We need to understand that and craft our policies according. We also need to cut across the various policy silos.

The ongoing debates over health records illustrates the point (as I've noted before). There are a number of issues all jumbled up in the debate, including whether sold data would be used to discriminate and whether the data can be used to send marketing and our promotional materials. Right now, the emphasis in the debate seems to be on the right of the collector to collect and sell that data versus the patient's privacy rights. The health care industry argues that excessive privacy restrictions would drive up administrative costs. Privacy advocates argue that the industry simply wants to protect its profit stream.

What seem to be missing in the discussion of managing this asset, however, are two things. First, this is not the only information asset collected from individuals. There are policies in place for a number of areas. For example, how do the proposed privacy restrictions compare with other data privacy restrictions, such as credit and other financial information? Surely we can learn from those areas as to how sensitive information is handled.

Second, the discussion does not address the point that the value of the data is tied to its use. The value of anonymous medical data for research purposes is incalculable. It seems to me that such data with appropriate anonymity safeguards should be available - with no patient opt-out provision (just like Census data or data provided to financial regulators). Such data could be sold and manipulated as a private information service.

Data that is used for improved customer services, such as flagging drug interaction problems, is also valuable. Here, a strict usage provision might be in order, i.e. cannot be shared with outside providers without permission. And an opt-out provision might be in order.

Data that is used for marketing purposes has a diminished value. Such marketing information, even if targeted to a specific audience based on their medical conditions, runs the risk of becoming just that much more junk mail. That is not to say that what we call junk mail doesn't have some value to marketer. But its value is not as great as in other uses. For such uses, an opt-in provision is probably most appropriate.

It seems to me that both sides would benefit from strong protection of the data - with the protection tied to the value. By looking at the use and value of the data as an intangible asset, a more nuanced and appropriate level of protection could be crafted.

Here is good argument for the positive role of government standards in promoting innovation by Roger Pielke in today's New York Times-- Let There Be More Efficient Light. As he points out, innovation in the late 19th Century required the government stepping in a creating standards:

Indeed, at the time the lack of standards for everything from weights and measures to electricity -- even the gallon, for example, had eight definitions -- threatened to overwhelm industry and consumers with a confusing array of incompatible choices.
This wasn't the case everywhere. Germany's standards agency, established in 1887, was busy setting rules for everything from the content of dyes to the process for making porcelain; other European countries soon followed suit. Higher-quality products, in turn, helped the growth in Germany's trade exceed that of the United States in the 1890s.
America finally got its act together in 1894, when Congress standardized the meaning of what are today common scientific measures, including the ohm, the volt, the watt and the henry, in line with international metrics. And, in 1901, the United States became the last major economic power to establish an agency to set technological standards.
The result was a boom in product innovation in all aspects of life during the 20th century. Today we can go to our hardware store and choose from hundreds of light bulbs that all conform to government-mandated quality and performance standards.

Unfortunately, we have forgotten that lesson:

Technologies and the standards that guide their deployment have revolutionized American society. They've been so successful, in fact, that the role of government has become invisible . . .

That is too bad. In this age of rapid transformation to the I-Cubed Economy, we need to continually keep a realistic view of the important role of government in the innovation process -- both positive and negative. And standard setting is one of those major positive roles.

From a trade perspective, 2011 is not starting well. BEA reports that the trade deficit rose sharply in January -- increasing to $46.3 billion from $40.3 billion in December, revised. An increase in the deficit was expected, but not such a large jump. According to the Wall Street Journal, "Economists surveyed by Dow Jones Newswires had estimated a $41.5 billion shortfall." Exports were up by $4.4 billion but imports rose by $10.5 billion. News reports mostly blamed the higher price of oil. However, as Chart 3 below shows, the deficit in non-petroleum products declined sharper than that of petroleum products. Imports of consumer goods, capital goods and vehicles were all up as were many commodities and industrial supplies (not just oil).

One reason for the increased deficit was a large increase in the Advanced Technology Products deficit. While the deficit dropped dramatically in December, it jumped back up to $7.1 billion in January. Exports of aerospace, information and communications technologies (ICT), biotechnology, and life sciences technology all declined. Interestingly enough, imports of all most all categories of Advance Technology Products also declined. 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.

Our intangible trade surplus increased slightly as exports (both royalty income and business services exports) increased faster than imports (as Chart 1 shows). The trade surplus in intangibles is still overwhelmed by the goods trade deficit (Chart 2).

The other news concerns the annual revisions for 2010, mostly in the second half of the year. The new data shows lower royalty payments received (exports) and payout (imports) but higher levels of private services exports and imports. In the case of private services exports, the revised data is significantly higher. As a result, the trade surplus in royalties and license fees is revised downward by $1.35 billion while the trade surplus in private services is revised upward significantly by $4.1 billion. The overall intangibles trade surplus for 2010 is almost $2.8 billion higher than previously reported.

So, as we reported last month, our intangibles trade resumed its growth trajectory in 2010 after slowing in 2009 (Chart 4). But as Chart 5 shows, that growth was minuscule compared with the return of larger trade deficits in goods in 2010.

Chart 1

Chart 2

Chart 3

Chart 4

Chart 5

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.

Yesterday, the Senate overwhelmingly passed patent reform legislation in the form of the America Invents Act (95 to 5). However, as the New York Times points out, "the House is unlikely to take up a patent bill anytime soon, and people with an interest in the patent system say they expect its bill to be significantly different." However, House Judiciary Chairman Lamer Smith issued a statement praising the Senate bill and saying he will introduce "similar" legislation. We will have to see what happens in the House and then in negotiation between the House and the Senate. So the final form of the legislation is still unclear -- and its timing unknown.

We all know that relational capital is one of the most important intangible assets in this new I-Cubed Economy. Of course, it was always important. As the old saying goes, it's not what you know, it's who you know. If we need a reminder of that, here is the negative poster child for relational capital -- Raj Rajaratnam and the Galleon insider trading scandal. As this shows, it's all about having the right people in your network that allows you to (allegedly) do wrong: "Galleon Network: A Visual Overview".

According to press reports, President Obama will name Commerce Secretary Garry Locke as the new Ambassador to China. He will replace Jon Huntsman (who is said to be planning a run for the White House). Locke may be a great choice for our envoy to China (as some are arguing) but his departure puts the Commerce Department in an awkward spot. There has been no Deputy Secretary at Commerce since Dennis Hightower left last August -- and no one has even been nominated to replace him. (Under Secretary for Economic Affairs Rebecca Blank is Acting Deputy Secretary). This leaves Commerce with no top-level leadership at a time of some major action involving the Department. As I noted yesterday, Commerce is at the center of a major effort to craft a congressionally-mandated competitiveness and innovation report. And one of President Obama's major announcements during the State-of-the-Union was a pending reorganization of government trade function -- meaning an overhaul of the Commerce Department (see earlier postings). So at precisely the same time as Commerce is in the center of the economic policy debate and is the target of a major government reorganization effort, there is no confirmed Secretary or Deputy Secretary.

A White House source many be quoted in the Post as saying ""This is about replacing Jon Huntsman, this isn't about replacing Gary Locke." That may be true. And it is also true that Locke will not necessarily be leaving immediately (there is that little thing called a Senate confirmation that is required). But it will very quickly become all about the Commerce Department if the Administration does not move swiftly to fill the top spots.

In an earlier posting, I noted that the reauthorization of the America COMPETES Act contained a provision requiring the Secretary of Commerce to conduct a study on the on economic competitiveness and innovative capacity of United States and develop a National Economic Competitiveness Strategy. That study is now underway with a Request for Information (RFI) issued by the Office of the Chief Economist at the Commerce Department (see the project's website). [Update: For some reason, the project website does not link to the full request, just the notice of a correction to the email address. Here is the link to the request as published in the Federal Register.] This first RFI specifically asks for comments on the Administration's Innovation Strategy and their A Strategy for American Innovation. [For my general comments on this document, see my earlier postings.]

The RFI also sets out a number of interesting and intriguing questions that go well beyond the scope of the strategy:

(1) Government research and development: How can the economic impacts of basic research funding (e.g., NSF, NIH) be better measured and evaluated? What methods can the Federal Government use to prioritize funding areas of basic research, both within an area of science and across areas of science? How can existing Federal government institutions (not just organizations, but also programs, policies, and laws) devoted to basic research and innovation be improved? Are there new institutions of these types that are needed to achieve national innovation goals? How could the government increase support for industry-led, pre-competitive R&D?
(2) Entrepreneurship: Through what measures can government policy better facilitate the creation and success of innovative new businesses? What obstacles limit entrepreneurship in America, and which of these obstacles can be reduced through public policy? What are the most important policy, legal, and regulatory steps that the federal government could take to expand access to capital for high-growth businesses?
(3) Intellectual Property: What are the key elements of any legal reform effort that would ensure that our intellectual property system provides timely, high quality property rights and creates the best incentives for commercial innovation? How can the intellectual property system better serve the dual goals of creating incentives for knowledge creation while also ensuring that knowledge is widely diffused and adopted and moves to its best economic and societal uses?
(4) Education: How important is catalyzing greater interest and training in science, technology, engineering and mathematics (STEM) fields? What strategies can be most effective on this score? Can educational technologies be better utilized to this end? What are the critical opportunities and limitations to the creation and adoption of effective education technologies? How can investments in community colleges better leverage public-partnerships to better train Americans for the jobs of today and tomorrow?
(5) Incentives to innovate: How could the government better use incentives (including but not limited to procurement, Advanced Market Commitments, incentive prizes, and aggregation of demand) to promote innovation? Are there other economically-sound incentives that the government should provide?
(6) Manufacturing: What is the role of advanced manufacturing in driving American economic growth and international competitiveness, and what are the key obstacles to success at advanced manufacturing? In which manufacturing industries will our nation have comparative advantages?
(7) Exports: How could the government better assist small and medium-sized domestic firms sell their products abroad? What policies can be pursued that would help all U.S. businesses increase their exports?
(8) Implications of changes in the innovative process: In recent years, some experts have noted that the innovation process itself is changing, and that approaches such as user-driven innovation, open innovation, design thinking, combinatorial innovation, modularity, and multi-disciplinary innovation are growing in importance. What are the policy implications of these and other changes in the innovation process? Should policy makers be thinking differently about our approach to industrial organization and competition policy in light of these changes?
(9) Innovation in the services sector: What sectors of the economy have gained less from innovation in the past and--to the extent that innovation could have sustained competitiveness--what are the obstacles to their progress? What are the policy issues that are raised by the nature of innovation in the service sector?
(10) Enhancing the exchange of ideas: How can public policy better promote the exchange of ideas among market participants--that is, support ''markets for technology''--that enhance the social value of innovations? Similarly, how can the government assist in the diffusion of best practices? Given that ideas and knowledge cannot be traded as readily as are physical goods, what is the government's role in supporting more effective markets?

By raising these questions, the project should help propel the debate on competitiveness and innovation in to new areas -- areas it desperately needs to explore, such as the changing nature of innovation. I doubt the final report will be able to discuss all of these areas in any detail. But I do hope the Commerce Department will find some way to capture the richness of the coming debate. They do promise that "In the coming months, DOC will create additional opportunities for the public to comment on a range of related topics, such as those specifically identified in the America COMPETES Reauthorization Act but not mentioned in the Strategy."

I'm hoping that this is the beginning of a fruitful new discussion on our innovation and competitiveness strategy. It is long overdue.

Last week, the President's Council on Jobs and Competitiveness held its first meeting. Below is the tape of the public part of the meeting. Not a lot here about improving competitiveness or long term job creation -- mostly a description of current and near-term situation. There was an interesting discussion on commodity prices from Treasury Secretary Geithner and updates on various Administration programs and activities including StartUp America initiative, Skills for America, the work of the Export Council and PCAST. President Obama also talked about the need to train for industries of the future. He also told the story he heard from Steve Jobs about Jobs' point on the need for more technically trained mid-level managers and manufacturing engineers.

I was especially interested to hear Darlene Miller's comments on training. She is President and CEO of Permac Industries, a precision machining company. She talked about the fact that her company doesn't have the time or resources to train workers. I would put a plug in here for the knowledge tax credit to give companies some help in paying for worker training.

From what Jeff Immelt (the Chair of the Council) said, the Council will be having meetings around the country and hoping to have specific recommendation in 90 days.

This morning's employment data for February showed some progress. Nonfarm payroll increased by 192,000 jobs but the unemployment rate dropped only slightly 8.9% (compared with 9% last month). Employment increases generally across sectors with health care, administrative services, construction and manufacturing seeing the largest gains. State and local government employment dropped by 30,000 jobs. The numbers were in line with what economist had expected -- although those surveyed by the DowJones Newswire had thought the unemployment rate much actually go up. As the New York Times, noted "America's job engine picked up some steam last month."

The number of involuntary underemployed (part time for economic reasons) also remained about the same as last month. In some good news, the number of workers part-time due slack work (essential layoffs) went down - indicating a pick up in production. But number of workers who could only find part time work went up by about the same amount.

Over the years, I've posted a number of pieces on technology transfer and the commercialization university research. Here is a presentation of some new research by Dr. Dr. Roya Ghafele, Lecturer at Oxford University. Feel free to contact Roya directly -- her email is in the presentation.

Financing University Research: Waking a Sleeping Giant

Yesterday, Senators John Kerry and Olympia Snowe introduced legislation on managing the radio spectrum (see also stories in National Journal's Tech Daily Dose and the Washington Post's Post Tech). Spectrum allocation is a hot topic -- as wireless use grows and the airwaves become crowded. Recently, President Obama announced his Wireless Initiative to expand access to wireless broadband.

While billed as a comprehensive approach to spectrum management, the Kerry/Snowe bill contains one element that I find especially important. As the press release notes:

Specifically, the bill tasks the Federal Communications Commission (FCC) and the National Telecommunications and Information Administration (NTIA) to conduct a comprehensive inventory of radio spectrum and perform spectrum surveys to determine existing spectrum use.

In other words, the legislation requires an inventory of a very important public intangible asset: access to the spectrum.

It is time that government take the next step of inventorying all their intangible assets.

The headlines are all about "government waste" -- for example this in the Wall Street Journal: "Billions in Bloat Uncovered in Beltway". Even the title of the recently released GAO report implies that point of view: Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. But if you closely at the report, you will find it is more about better government management. And it includes this little gem:

According to the sum of U.S. Department of the Treasury estimates for fiscal year 2009, almost $1 trillion in federal revenue was forgone due to tax exclusions, credits, deductions, deferrals, and preferential tax rates-- legally known as tax expenditures. The revenue that the government forgoes is viewed by many analysts as spending channeled through the tax system. Similar to spending programs, tax expenditures represent a substantial federal commitment in a wide range of mission areas. For fiscal year 2009, the U.S. Department of the Treasury listed a total of 173 tax expenditures, some of which were of the same magnitude or larger than related federal spending for some mission areas.
. . .
Tax expenditures, if well designed and effectively implemented, can be an effective tool to further federal goals, such as encouraging economic development in disadvantaged areas, financing higher education, and stimulating research and development. However, tax expenditures can contribute to mission fragmentation and program overlap, thus creating the potential for duplication. Moreover, some tax expenditures may be ineffective at achieving their social or economic purposes. Tax expenditures do not compete overtly with other priorities in the annual budget, and spending embedded in the tax code is effectively funded before discretionary spending is considered. Many tax expenditures are not subject to congressional reauthorization. Therefore, Congress lacks the opportunity to regularly review their effectiveness. Periodic reviews could help identify redundancy in related tax and spending programs and determine how well specific tax expenditures work to achieve their goals and how their benefits and costs compare to those of programs with similar goals.

So, GAO's point is that if a government spending program needs to be re-evaluated and re-authorized periodically, then a government spending program in the guise of a tax break should also be periodically be re-evaluated.

Something tells me, however, not to expect much talk in the public and political debate on this side of the ledger. Too bad, for this could have been the start of a meaningful debate on tax policy.

According to a story in the New York Times (Commercial Real Estate Breathes Life Into a Moribund Market), the securitization market is making a comeback. Led by commercial loan securitization, the story claims that "other sectors of this market, including car loans and collateralized loan obligations, are also showing signs of life." The key seems to be a better quality of loan underlying the securitization brought about by a number of factors, including new regulations:

Under the Dodd-Frank regulatory reform, banks are required to hold 5 percent of any securities they sell to investors. The move is intended to reduce risk by forcing banks to eat their own cooking.
Another rule, which will most likely take effect early next year, requires banks and other financial firms that issue asset-backed securities to review the quality of the underlying assets, including commercial real estate. The banks must then disclose their findings to investors. If the assessment shows that the assets did not meet the underwriting standards promised to investors, financial firms must explain the discrepancy in a filing.
Banks are also improving their lending standards on their own. The securities today are more diverse, including multiple loans from a number of developers across the country. The recent deals, for instance, includes a broad set of properties like the Christiana Mall in Newark, Del., the Kenwood Towne Centre in Cincinnati, the Pearlridge Center near Honolulu and 7 Hanover Square in New York.
"The banks can cherry-pick the loans they are making and typically only top-quality prime borrowers are getting financed," said Tony Plath, a finance professor at the University of North Carolina at Charlotte.

I wonder if these means that we will see a return of IP securitizations -- or whether the market will see these types of financial products backed by royalties from trademarks, copyrights and patents as simply too risky and uncertain for a market that needs high quality to survive?