Fred Block: Innovating the Way to Economic Recovery

*Cross-posted from Breakthrough Blog

Innovating the Way to Economic Recovery

By Fred L. Block

It's hard to find a silver lining in the historic financial crisis we now face. But the crisis offers a unique opportunity for President-elect Obama to rebuild the foundation of the economy by revitalizing one of our greatest assets - our ability to innovate by mobilizing science and technology for production.

We desperately need a massive economic stimulus package to put people back to work and provide relief to those hardest hit. But an opportunity would be lost if the package simply restored things as they were. Instead, we should work to build a stronger, more sustainable economy by developing and deploying key technological innovations, such as wind and solar power, into widespread use quickly. This is not just a matter of spending money. We also have to create new institutions and new ways of doing business. We need not just stimulus, but "stim-novation," a combination of stimulus and innovation, and government must play a major leadership role in promoting that.

The good news is that the federal government has a track record. For the last 25 years, a dozen different federal agencies have been investing in the commercialization of new technologies across all sectors through a decentralized system that has sparked major advances. This system has helped incubate thousands of small, high tech firms that are pushing the technological envelope, creating innovative new products in a wide range of different industries from personal computers, to biotechnology, to medical instruments, to renewable energy and green technologies.

But the system has many weaknesses. First, federal support for innovation has been insufficient and unstable, often coming at the expense of foundational scientific research. Second, the priorities of the U.S. innovation system have been too often dominated by national security concerns or entrenched industries such as traditional energy producers. Third, the U.S. has failed to effectively deploy and implement new technologies. We have pioneered breakthroughs such as flat panel displays for television and computer screens, broadband internet, and solar cells for producing electricity. But we have lost global leadership to other nations that have grabbed those innovations and put them to work, creating new industries and providing their citizens with better services.

An important first step would be for the new administration to create a Department of Innovation to raise the profile and effectively coordinate federal innovation efforts. Under that approach, the Chief Technology Officer that Mr. Obama has promised to appoint will play more than a symbolic role. This Department would oversee efforts to encourage use of government procurement, public-private partnerships, new regulations as the means to accelerate the deployment of innovations that meet national needs such as renewable energy and a smart electricity grid.

Another important step would be to prioritize innovation spending in the economic stimulus package to build for the short as well as long term. Most types of innovation policy require long lead times and do not fit easily into a stimulus package that is designed to get money flowing as quickly as possible. There are, however, a number of key exceptions where a cash infusion could strengthen innovation capacity. An example could be making funds immediately available to state and local governments to do complete energy retrofits to some of the houses vacated in the mortgage crisis. By adding solar panels, new energy efficient appliances, and adding insulation, we could create a much greener housing stock and develop both the businesses and the workforce for a conservation-backed economy.

Providing guaranteed government demand for a dramatically expanded supply of solar panels, wind turbines, and energy efficient vehicles could encourage a rapid expansion of productive capacity for these new products and yield large economies of scale. This effort would quickly pay for itself through the diminishing burden on the economy of financing oil imports. Moreover, this effort would lower the prices, assuring a rapid increase in commercial purchases.

Another important step would be to target funds to support nondefense research and development through science agencies such as the National Science Foundation, the National Institutes of Health, and the Small Business Innovation Research Program. In that way, the government would be signaling its intention to invest in both fundamental research and the commercialization of research findings. Moreover, this money would put scientists and technicians to work as private research firms are cutting back.

Choosing smart stim-novation policies assures that some of the stimulus package represents a long term investment in expanding the economy's capacity. The only sure foundation for long-term prosperity is enhancing our ability to invent and deploy new technologies that save labor, save capital, and save energy. To paraphrase a classic advertising line, our capacity to innovate is ultimately our most important product.