In his Tuesday New York Times column earlier this week, David Brooks proposes what he calls a “bipartisan innovation agenda,” based on a September white paper from the president’s National Economic Council. Brooks is right to talk about innovation as a way to revive the nation’s sputtering economic engine. But his policy prescriptions don’t go far enough to spur innovation because they’re based on an overly market-oriented view of the economy: the idea that the market, if supplied with the right inputs and structured the right way, will produce all the innovation the nation needs.
Brooks advocates some federal policies to increase the supply of what might be called “inputs to innovation,” such as educated workers, basic scientific research, and infrastructure. I won’t discuss the merits of his particular policy recommendations here, but the idea that we’ll get more innovation if we have more inputs to innovation is right—as far as it goes. Brooks supports other policies that are about improving the market environment for innovation, such as promoting more balanced trade between the U.S. and China, cutting the federal budget deficit, and lowering the corporate tax rate. Again, whether or not these particular suggestions are good ones, the idea that innovation requires a supportive market environment is also right—as far as it goes.
The problem is that overall these things don’t go far enough. Policies to boost inputs to innovation and create innovation-friendly markets would be enough to get us enough innovation only if the companies that actually do the innovation were the self-sufficient, perfectly informed, atomistic competitors of textbook economics. In the world of textbook economics, there’s no need for government to worry about how innovation actually takes place because the market will reward companies that somehow figure out innovations that add value and punish companies that don’t keep up.
But real-world business firms, as a growing number of economists recognize, aren’t like the firms of textbook economics, especially when it comes to innovation. Some don’t know how to innovate or even copy the innovations of others—and the market doesn’t always reward the innovators and punish the others. That’s why we have a federal Manufacturing Extension Partnership program to help small and medium-sized manufacturers adopt industrial best practices. The applied R&D and technology commercialization on which innovation often depends increasingly require partnerships between companies or between companies and universities—partnerships that happen outside the market and that often don’t run smoothly. That’s why the federal government has an Advanced Technology Program that helps fund these partnerships. And the benefits of R&D almost always spill over outside the firms that perform it. That’s why the federal government funds R&D in general.
Brooks himself makes one key recommendation that’s all about promoting non-market relationships among companies—but he doesn’t even realize it. He advocates policies to encourage regional innovation clusters where entrepreneurs not only compete but also “meet face to face” and “pollinate ideas.” Federal policy to encourage innovation clusters barely exists. Brooks is right to advocate more of it, and the Obama administration should be applauded for its efforts to support clusters.
Brooks seems so obsessed with avoiding the perennial bugaboo of an industrial policy in which the government “picks winners” that he can’t take the next logical steps from his innovation advocacy: The federal government needs to support the process of innovation, not just the inputs to innovation and the market environment. To take the needed steps, Brooks should advocate more federal spending on programs like the Manufacturing Extension Partnership Program and the Advanced Technology program. He might even go further and support Rob Atkinson’s and my proposal for a National Innovation Foundation, a federal agency whose purpose would be to promote innovation. That would be a huge step.