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BOX 8-1

Another Point of View: Innovation Incentives

Some critics say the argument that the US economy is lagging in innovation compared with other nations, or even compared with its own historical performance, is not supported by the evidence. Indeed, comparing the current situation with that of 1989 is instructive and striking in this regard.

In 1989, the US economy had been suffering from extremely poor overall productivity growth for almost two decades.a By 2005, the United States had experienced almost a decade of accelerated productivity growth, briefly interrupted by the 2001 recession.b

In 1989, a panel of experts documented a long-term decline in US industrial performance in several critical sectors.c A decade later, a similar assessment showed US industry to be resurgent across a variety of sectors, including several that had been troubled in 1989.d In 2005, US-based companies—Google, Apple, Boeing, Genentech—remain at the global forefront in commercializing new technology and creating new markets based on innovation.

In contrast, the economies of most other developed nations have suffered from slower growth in gross domestic product (GDP), productivity, and income—and from higher unemployment and inflation.e

What accounts for this “American economic miracle,” and will it continue? Various studies have identified key factors, although there is some disagreement over sustainability. In the area of innovation, structural US advantages include our system of research universities with both govern

the past at taking advantage of breakthroughs and inventions from abroad.8 But as other nations increase their innovation capacity, the United States must reassess its own environment for innovation and make adjustments to maintain leadership and to maximize the benefits of science and engineering for the public at large.

The innovation environment encompasses a broad range of policy areas. The Committee on Prospering in the Global Economy of the 21st century focused on intellectual property protection, the R&D tax credit, other tax incentives for innovation, and the availability of high-speed Internet access. Although some other important components of the innovation environment were not examined in detail, such as the corporate tax rate and tax-forgiveness policies in various nations, the committee believes the spe-


NAS/NAE/IOM. Capitalizing on Investments in Science and Technology. Washington, DC: National Academy Press, 1999.

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