FINNOV study provides food-for-thought on innovation policy

I spent yesterday afternoon and evening, and this morning, at the fascinating conference, ‘Financing Innovation and Growth: Reforming a Dysfunctional System’, first at the House of Commons and then at the Italian Cultural Institute in London. The Science Minister, David Willetts, and his Labour Shadow, Chi Onwurah, both spoke at the event. What is most important is that policy makers from all parties, as well as Treasury Ministers, learn some lessons from the FINNOV study.

Austerity Plans

Austerity plans are based on the wrong diagnosis of the wrong problem -- and may plunge Europe into depression. Governments must be able to spend strategically to encourage growth, or the crisis will only get worse.

Wake Up George

The danger of cuts without growth

Today [29 November 2011] the Office of Budgetary Responsibility (OBR) is expected to downgrade the UK growth forecast to less than 1%. This is bad news because if the UK economy does not grow, the major cuts in spending will not achieve their goal of reducing the deficit, and hence have caused much suffering -especially for the weakest elements of society - for nothing. Cuts without growth don’t allow the deficit to fall because unemployment comes with a heavy cost to the public purse (e.g. unemployment benefits, loss of tax income, crime etc).

EZ problems and Contagion

Contagion today is causing even the ‘core’ European countries to be affected by investors’ fear of the EuroZone (EZ) crisis, causing a mass selloff of EZ bonds which has caused the spread for French yields over German Bunds to hit a record high, and the Euro to fall. Even the stable Scandinavian countries, like Finland, are starting to get affected.

Berlusconi and Eurocrisis

What exactly is the eurozone crisis? Is it a financial crisis? An economic crisis? Actually, it's a growth crisis. And as such, it must have growth solutions. Instead we are being bombarded every day with theatrical new developments (Papandreou's referendum, Berlusconi's wavering on reform and elections) that would make us think that it is all the fault of some corrupt and/or lazy politicians. Or the result of Europeans, and their governments, refusing to live within their means. The solution, we are told, is better politicians and belt-tightening.

UK Is Getting Left Behind

What is often referred to as the ‘financial crisis’ is in many ways a ‘real economy’ crisis. It is no coincidence that two of the biggest problems, Greece and Italy, have the lowest productivity figures in Europe, and little spending on key areas that cause growth like R&D.

Causes of Global Imbalances

All week we have heard about the need for more monetary and fiscal union in the EU in order for the Euro to work. Another key point repeated is that global imbalances must be checked: ‘surplus’ countries (those that export more than they import, like Germany) must increase domestic demand of goods produced by deficit countries (UK, France, etc), and the latter must focus on reforms that will allow their economies to become more competitive.

Steve Jobs & Industrial Policy

Steve Jobs was an important entrepreneur. An inspirational one. But let's not forget how his success was built upon something that those who extol entrepreneurs often forget. The great fruits to be borne out of active State led industrial policy. Take Apple's iPhone. Every bit of it, except the ingenious way it all comes together (extremely important of course), owes its genius not to Jobs but to the… State.

Occupy Wall Street’s Outrage

Occupy Wall Street is keeping our focus on the insatiable greed and undemocratic influence of those who run our major financial institutions. But the quest for personal wealth and political power by the top executives of U.S. business corporations goes well beyond the Wall Street banks. It pervades industrial as well as financial corporations.

Economic Religion in the U.S.

Maximizing shareholder value through stock buybacks has become an economic religion in the U.S., and corporate executives and board members are its chief acolytes.

Labour and 'Bad' Companies

We heard on Tuesday [27 September 2011] that Labour wants to target ‘bad’ companies and reward ‘good’ companies. What it should do it target ‘bad’ indicators of performance—which companies react to and cause them to become ‘bad’. Increasingly so.

Transformative Jobs Plan

With the unemployment rate still at over 9 percent and the U.S. economy facing a possible double-dip recession, President Obama’s jobs plan can only help. If, however, the main point of the plan is to put the employment situation in decent shape by a year from now, I would not bet on its success. The U.S. jobs problem is deeply structural, and requires a transformative plan for a solution.

Obama is Back

After months of political circus, the US government seems to be remembering the important role that the State can play in actively creating economic growth, and setting off a new technological revolution in the process. Today’s announcement of Obama’s $447 billion stimulus package goes in the right direction for economic growth. Not only is the spending needed to boost demand and hence GDP, but also to allow the US to retain its competitiveness in what might be the next big thing after the internet: the green technology revolution.

Best of the US Investments

The U.S. does have an investment problem, but the blame lies with Big Business, not Big Government. Remember when the United States led the world in industrial technology? The peak of U.S. supremacy was back in the 1960s, when the “military-industrial complex” was in full force. Then in the mid-1970s the Japanese mounted a successful economic challenge to the United States in a range of industries, including steel, machine tools, memory chips, consumer electronics, and automobiles. Since then, among Asian nations, South Korea, Taiwan, China, and India have become major global competitors in industries that the United States used to dominate. In historical retrospect, U.S. industrial power has never been quite the same.

Perfect Competition

To claim that something is “perfect” is to say that it cannot be done better. With the start of another academic year, hundreds of thousands of college students who take introductory microeconomics courses will learn from their professors that the best possible allocation of society’s resources occurs when perfect competition characterizes the organization of industry.

Americans and Chinese Growth

If you want to talk job creation, let’s talk China. While the United States suffers through a prolonged jobless recovery, with another recession on the horizon, the Chinese economy has continued to boom. In the second quarter of 2011 the China’s GDP growth rate slowed to 9.5% year-on-year, down from 9.7% in the previous quarter and 11.9% a year earlier.

Global Tax Dodgers

By now the story is familiar. For the last decade US-based business corporations have been engaged in the massive offshoring of good jobs to high-growth, low-wage areas of the world, especially China and India. In general, these companies have found offshoring to be immensely profitable.

What Drives the Stock Market

During the 1980s and 1990s, Americans fell in love with the stock market. The “go-go years” of the 1960s had produced decent stock yields. But households still viewed investment in corporate stocks as a risky business, as would be confirmed by the negative performance of the stock market in the stagflation of the 1970s (see the table below).

US Economy: Rebirth of Innovation

In his State of the Union address back in January, President Barack Obama invoked the need for the United States to engage in innovation no fewer than 11 times. He emphasized the critical role of the government in supporting the basic research that makes innovative enterprise possible:

Nuclear Fusion Challenge

The one innovation that I believe would most meet the world’s energy challenge is the development of NUCLEAR FUSION (hot not cold!). However, unfortunately this is still far off. Part of the reason is that in the last decade most of the very costly investments, required by the international collaboration in this area, have become concentrated into ONE single experiment: the ITER project (the International Thermonuclear Experimental Reactor). Besides recent revelations of the unrealistic costs of the project, which is estimated at 16 billion euros with many predicting it will increase significantly, a core problem of this unitary approach to the devlopment of a new technology is that the history of innovation teaches us that the exploration process that underpins innovation is most successful when distributed amongst a variety of different types of experiments, and settings, that allow the trial and error process of scientific discovery, and the serendipity which this embodies, to be let loose rather than restrained.

US Economy is a Mess

The US economy is a mess. Over two years since the Great Recession officially ended, the unemployment rate is over nine percent, the foreclosure crisis rages on, and households remain loaded up with debt. The fiscal situation of federal and state governments is dire, in part because free-market ideologues think that low taxes are a God-given right.

No Growth and Bad Procurement Bids

The UK government spends more on furniture than green technology. If the country is to grow, and if UK companies are to win future procurement bids for greener products, the UK economy must start to spend and send the right signals to business. Until then, the procurement issue is just an isolated drop in the ocean. And another reason for hypocritical requests for ‘protection’ by the state by the same companies that usually call for it to be withdrawn. It is the most innovative companies and nations that are growing, and not living in fear of EU procurement rules.

SEC Agency Failings

In 1991, well-known compensation consultant Graef S. Crystal published In Search of Excess: The Overcompensation of American Executives in response to an explosion in executive pay that occurred in the US in the 1970s and 1980s. How, Crystal asked, did it make any economic sense for the CEOs in his sample of 200 large US corporations to be making 130 times the pay of the average American worker? And why were they making about seven times the compensation of their CEO counterparts at Japanese companies, many of which were out-competing their US rivals?

Exec Pay Weakens US Economy

Focusing on shareholder return is a very bad way for companies to govern the allocation of their resources. Public shareholders simply trade outstanding stock, but taxpayers and workers make risky investments in the innovation process and should be able to lay claim to a fair share of the returns. Yet since the 1980s, top executives of major US business corporations have invoked the flawed obsession with maximizing shareholder value to justify the exclusion of taxpayers and workers from sharing profits. Instead, they have been intent on increasing not only cash dividends — the traditional way of distributing value to shareholders — but also stock buybacks, which are used to manipulate their company’s stock price. So shareholder return has become the measure of success of the publicly traded corporation.

Robbing Workers and Taxpayers

Want to solve the mystery of the American economy's current employment and competitiveness problems? Take a close look at the current corporate obsession with “maximizing shareholder value.” It sounds like a sound business principle, but in reality, it's based on a flawed ideology that leaves something crucial out of the business equation — workers and taxpayers.

UK becoming a Banana Republic?

The IMF report was not good news. It reduced its expected growth in the UK from 2.5 in April 2010 to 1.5 in May 2011. This after a period of 0 growth (-.5 in the last quarter of 2010 and .5 in 2011 1st quarter). It also said that the course being pursued for deficit reduction (mainly cuts) should not change UNLESS there is a prolonged period of weak growth, unemployment and inflation. There are many signs that we are headed for exactly that: a prolonged period of slow growth.

Tax and grow

Today's Budget uses taxation policy to try to encourage corporate investment. The idea is that reducing corporation tax will increase investment and employment, benefitting us all. The problem is that such tax cuts in the 1980s, both in the UK and the USA, did not increase investment but merely changed the composition of where the total tax bill came from and had a regressive effect on income distribution.