In my last two posts, I suggested that technological innovation is an important and undercounted source of economic growth and that it helps temper inequality by creating new ideas that can rapidly be enjoyed by most people. Thus, any agenda for increasing economic growth and reducing inequality should focus on increasing innovation and decreasing barriers to its enjoyment. Here are four items for an innovation agenda.
1. Clear obstacles to innovation. Federal, state, and local governments should eliminate regulations that make it harder for new firms offering disruptive technologies to enter markets. At the local level, for instance, big-box stores are often thwarted by big-city labor unions. Low-income urban residents in particular would could purchase cheaper goods from such outlets. The middle class would benefit from access to new car services, like Uber, that allow individuals to contract with taxis and private cars by smart phone. It is a service that gives one almost the equivalent of a chauffeur at beck and call—previously the province of the extremely rich.
2. Shrink protections for firms that are “too big to fail.” By increasing returns in the financial sector, these protections encourage talented people go into banking instead of other areas, such as high tech, that would produce innovations that could be quickly shared.
3. Improve intellectual property laws. Some laws make it harder to share innovative ideas. In some sectors, such as software development, companies use patent litigation to prevent innovation by their competitors. Further, as Alex Tabarrok observes in his excellent book, Launching the Innovation Renaissance, IP protection is not a prerequisite for innovation. He cites the fashion industry as an example. Greater protection may be justified in areas that require large investments to develop products that are hard to discover and easy to copy, like pharmaceuticals. But not all industries are like that. Differentiated intellectual property laws could help promote innovation more optimally.
4. Fund basic science research. Basic science cannot easily be patented, and private companies will underfund basic scientific research to the extent that they do not capture all of its benefits. Some basic research, such as the discovery of some natural processes, cannot be patented at all, as the Supreme Court reminded us this last term in the Myriad case. Government could increase funding for this research to the enormous benefit of both companies and their customers, who derive value in excess of what they pay for innovative products. Programs like the President’s BRAIN initiative which matches foundation funds to study the brain are worth taxpayers’ support.