Increase Economic Growth through IP & Innovation

Last week’s Bureau of Economic Analysis (BEA) report on GDP had some good news; the advance second quarter GDP estimates reflected overall growth, with improvements in consumer spending, and an increase in exports. However, business investment, as a component of GDP, is lagging. This is where policymakers need to focus. Business investment, which includes R&D expenditures, is key to economic growth.

Washington needs to ensure protection of intellectual property in order to capitalize on investment potential and increase innovation. Innovation boosts GDP in several ways: it increases investment through R&D expenditures which impacts consumption by creating new and improved goods and services (or more efficient processes for production) and increases export opportunities by providing these new products and services globally.

National Science Foundation found that 64% of companies who invested in R&D produced ‘new or significantly improved’ products or processes; that number fell to only 12% for companies with no R&D (NSF). Moreover, we know that innovative companies value IP protections because companies who invest in R&D protect their investment through the patent system. NSF estimates that 93% of patents issued, and 92% of a patent applications filed, belong to companies who fund R&D efforts (NSF).

The value companies receive from protecting their investments is evident in their continued use of patent system. Therefore, maximizing innovation requires strong, and smart protection of IP rights. Policy makers need to support policies that maximize these protections, while deterring system abuse, in order to increase innovation and ensure economic growth.

Open Data Will Solve the Regulatory Riddle

Governments are the original big data entities. Our governments have long gathered data and compiled statistics on individuals and populations. The value proposition of a government’s use of data is the ability to transform information into an outcome that benefits the public good. Making good public policy stems from the ability to collect and analyze data and information, then execute changes based on those observations. Much of the promise for future generations will emerge from the trend of open data, which has taken place across the globe. 

The most exciting transformations on this front in the U.S. are happening on the state and local level. The Sunlight Foundation’s Open Data Policy initiative has logged the efforts of 36 government bodies on the state, county, and city level that have passed open data legislation. A few states and cities have been the leaders in data-driven initiatives and program administration. Maryland set the bar for states with its StateStat program launched in 2007 by Governor Martin O’Malley and its open data program. New York City has refined and enhanced a comprehensive city-management program built on data and analytics for key performance indicators across the city. Above all, open data is leading the way for more effective and efficient government. 

Cities can use open data to improve performance on local regulation. Our recent report—Enterprising Cities: Regulatory Climate Index 2014—measures the regulatory environments for small businesses across 10 U.S. cities in 5 areas of doing business. Our project documents the advances and improvements on the local level that these cities have taken. City governments in Chicago, New York City, and Boston have made proactive changes to make data more available. These changes have led to improvements in the issuance of permits and licenses for entrepreneurs and small businesses. 

Our research just scratches the surface to the true potential of open data in transforming public administration. State and municipal governments now have the technology and data to improve the ability of businesses to receive licenses, accelerate the zoning and permitting process for construction firms, and expedite city inspections for restaurants and buildings. These transformations can reduce or eliminate unnecessary waiting time and cut administrative fees. The tools are available. It's just a matter of putting them to work to improve the regulatory environment on the state and local level.

MyRA Is Laudable, But Won't Produce Grand Returns

One of the more interesting policy proposals from President Obama’s sixth State of the Union address was the announcement of an executive order directing the Treasury Department to create MyRA—a government backed savings account. The details of MyRA are pretty straight forward: the plan offers American workers a savings account with low interest rates for whose employers do not offer traditional retirement savings plans.

Here’s the skinny via Nick Summers at Bloomberg Businessweek: "The accounts are intended for workers whose employers don’t offer 401(k) accounts, and they can be started with as little as $25; contributions after that can be as low as $5, withdrawn automatically from their paychecks; and earnings on the investments—U.S. government bonds—would be tax-free, like a Roth IRA."

And Lydia DePillis in the Washington Post notes, "The MyRA option would create an cheaper way for smaller employers to enroll their workers in some sort of plan, by taking an automatic payroll deduction that goes into a Roth IRA-style, government-backed account with the employee's name on it."

The plan has its advantages in encouraging meaningful long-term savings for retirement. The proposal is indeed ambitious and well-intentioned, but unlikely to significantly boost overall retirement savings of American workers. As a financial product targeted at lower- to moderate-income individuals, the incentives—other than retirement savings and protection of the principal balance—are weak. Since MyRA is a Roth plan, the contributions are not tax-deductible, which eliminates some incentives for savings.

Last year, we released a report detailing the contributions of the financial services industry to the U.S. retirement savings system. Overall, the current U.S. retirement savings system has proven to be successful, with participation and retirement assets both rising steadily over time. While the overall savings rate has dropped, more than two-thirds of American households have accumulated $19.2 trillion in retirement assets. Presently, the U.S. currently lags many OECD countries in terms of level of savings in private retirement savings plans (adjusted by country GDP):

Private Retirement Savings OECD 2011.png

President Obama’s plan may achieve success by helping ordinary Americans start a meaningful savings account, but it’s not going to produce a sea change of in the way that Americans plan for retirement. It may work in the short-run to prop up participation in general retirement savings, but over the long-term there must be meaningful policy changes to induce increases in general retirement savings rates. The U.S. retirement savings system has proven to work. Policymakers, plan sponsors, and service providers should work together to implement additional measures to strengthen this system beyond the small steps of myRA. These successes should be built upon with policies that further incentivize retirement savings for all economic and demographic groups. Ensuring America's small businesses are able to offer plans that are cost-effective is of great importance.