Boosting Productivity, Innovation, and Growth Through a National Innovation Foundation

Innovation drives America’s economic growth and ultimately determines its living standards and those of its metropolitan areas. However, the nation faces a growing innovation challenge in today’s global economy. To respond, the federal government should establish a National Innovation Foundation (NIF)-a new, nimble, lean, and collaborative entity devoted to supporting firms and other organizations in their innovative activities. By enhancing America’s world-class entrepreneurial and market environment, NIF would boost the nation’s innovation leadership for the 21st century and raise productivity and incomes. Moreover, by supporting workforce development and performance improvement in firms, NIF would help create better jobs for high school graduates in manufacturing and “low tech” services as well as those with advanced degrees in high technology industries.

America’s Challenge

• Global competition is increasing. Like manufacturing, call centers, and software production, corporate R&D is also shifting overseas. Over the last decade, the share of U.S. corporate R&D sites declined from 59 to 52 percent within the United States, while it increased from 8 to 18 percent in China and India.
• American innovation leadership is slipping. The U.S. ranks only seventh among OECD countries in the percentage of GDP devoted to R&D expenditures.
• Private markets suffer innovation inefficiencies. Private firms tend to under-invest in innovation because no single business can capture all the economic benefits arising from new technologies, products, or business models.

Limitations of Existing Federal Policy

• There is no national innovation policy. Rather than comprising an explicit, focused, national agenda, federal innovation efforts are scattered throughout government.
• There is little focus on services innovation and commercialization. Existing federal innovation activities pay little attention to the service sector and to the important roles that smaller firms and universities play in the commercialization process.
• There is no systematic innovation partnership between the federal government and state and local governments. Federal policies do little to support the effective, albeit underfunded, innovation efforts established by state and local governments.

A New Federal Approach
The federal government should establish a new National Innovation Foundation (NIF) with the sole mission of promoting innovation. The NIF’s proposed budget would be $1-2 billion per year. The new entity could exist as a new agency within the Commerce Department, a government-related public corporation, or an independent federal agency like NSF. The NIF would:

• Catalyze industry-university research partnerships through national sector research grants.
• Expand regional innovation-promotion through state-level grants to fund activities like technology commercialization and entrepreneurial support.
• Encourage technology adoption by assisting small and mid-sized firms in implementing best-practice processes and organizational forms that they do not currently use.
• Support regional industry clusters with grants for cluster development.
• Emphasize performance and accountability by measuring and researching innovation, productivity, and the value-added to firms from NIF assistance.
• Champion innovation by promoting innovation policy within the federal government and serving as an expert resource on innovation to other agencies.