Provides Policy Solutions to Ensure American Leadership in Digital Innovation
WASHINGTON, DC – As Congress considers anti-competitive legislative proposals that could hinder America’s global technological leadership, a new report released today explains several policy solutions that will help ensure American leadership in digital innovation continues for the long term.
With the United States engaged in high-stakes competition with China, the report finds that, “policymakers will have to make important decisions to ensure the United States maintains both the political and economic conditions that enable innovation in this country.”
Digital innovation has helped power the American economy, with America’s innovators supporting nearly 9 million jobs across the country. Companies that didn’t exist two decades ago have become virtually indispensable to the U.S. economy and employ millions of American workers. However, as China and other adversaries seek to expand their tech dominance in the global marketplace, America’s competitive edge in the global digital innovation economy could be at risk.
The report examines key areas policymakers should focus on to bolster America’s tech innovation for the long-term, including:
- Expanding U.S. Tech Talent: “One way to staunch the decline in production of STEM majors at U.S. universities is to encourage young people from disadvantaged communities to pursue such careers more often… Even earlier in the process, this challenge could be addressed by providing special STEM training for public high school teachers… Finally, policymakers should make it easier for foreign-born students to study at U.S. schools and to remain in the U.S. to work after completing their degree in a STEM field.”
- Expanding the Research and Experimentation (R&E) Tax Credit for Small Businesses: “While the United States was one of the first countries to implement such a tax credit, the size of the U.S. subsidy now lags most other Organization for Economic Cooperation and Development (OECD) nations… Expanding the tax credit would be a common-sense reform to encourage further digital innovation by U.S. firms, and bills that seek to preserve, expand, or simplify the credit usually have bipartisan cosponsors and supporters.”
- Increasing Federal Spending on Applied Technology Research: “The history of U.S. digital innovation shows that private firms often develop useful products and services based on technology created by government-funded research. Unfortunately, government spending on research relative to gross domestic product (GDP) is in secular decline. While such spending amounted to 1.2 percent of GDP in 1976, today it only amounts to about 0.7 percent. (In contrast, China’s 2020 R&D spending rose 10.3 percent to 2.44 trillion Chinese yuan (about $378 billion) – or to 2.4% of GDP.)”
- Increasing Access to Capital for Disadvantaged Small Business Owners: “One idea to help the industries hardest hit by the pandemic – such as the travel and restaurant industry – is to create a small business digital innovation tax credit for small and medium businesses that would give them tax credits for investing in new digital tools and services that help them adapt to the post-pandemic environment. But, we also need new concepts to address disparities in access to capital for minority communities and women-owned businesses that will help unleash innovation and drive broader economic growth…”
- Ending Accredited Investor Limits on “Private Placement” Investments in Private Businesses: “The accredited investor rule essentially has three costs. First, and most importantly, it is especially harmful for early-stage startup businesses, particularly businesses owned by people of color and women, because these businesses are more likely to be overlooked by institutional sources of venture funding. Second, for more mature small businesses, the rule makes funding more expensive, meaning that firms must give up a greater percentage of equity to receive a given amount of funding than they would without the rule, because restricting capital in the private placement market reduces competition amongst purchasers. Short of doing away with the rule entirely, beneficial regulatory proposals include reducing the income and assets threshold, allowing persons who pass Financial Industry Regulatory Authority (FINRA) exams to become accredited, and easing rules that essentially restrict mutual funds from investing in private securities.”
- Reducing Barriers to International Data Flow and Digital Commerce: “Cross-border data flow is critical to modern transatlantic commerce, enabling even the smallest businesses to conduct international marketing and sales. Consequently, restrictions on or regulations of data flow, however well-intentioned, tend to restrict cross-border commerce, which in turn disproportionately hurts smaller businesses who have less resources and rely on digital tools to increase their reach and revenue.”
“America did not achieve its status as the global leader in innovation by accident. It happened because our government pursued a variety of policies with the intent of creating a more innovative economy and a stronger society,” said author Ike Brannon. “Today I fear that too few people realize that innovation and economic growth do not automatically occur and they fail to appreciate the need to pursue policies that spur innovation. A sizable minority of people simply don’t even see innovation and economic growth as beneficial at all.”
The white paper was authored by Ari Blask and Ike Brannon, published by the Data Catalyst Institute and supported by the American Edge Project. Mr. Blask is an associate at Willkie Farr & Gallagher LLP. Mr. Brannon is a former senior economist for the United States Treasury and U.S. Congress.
To read the analysis in its entirety, please click here.
Background: The American Edge Project is a coalition of domestic organizations representing a cross-section of U.S. innovators who are dedicated to telling the story about technology’s positive influence on America’s economy and the vital role innovation plays in our society. Former New Mexico Governor Susana Martinez, former U.S. Representative Chris Carney, and former Federal Election Commission Chairman Bradley A. Smith are directors of the American Edge Project. Former White House Counterterrorism and Homeland Security Advisor Frances Townsend leads the Project’s National Security Advisory Board. Former U.S. Senators Saxby Chambliss (R-GA) and Kent Conrad (D-ND) serve as Co-Chairs of the Project’s Economic Advisory Board. Former U.S. Senator Heidi Heitkamp (D-ND) and former U.S. Representative Greg Walden (R-OR) serve as Co-Chairs of the Project’s Open & Accessible Internet Advisory Board. Visit AmericanEdgeProject.org for more information.