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The Challenge: The U.S. Must Act Now to Maintain its Competitive Advantage as the World’s Leader in Innovation

Ingenuity and innovation have always been a key part of our competitive advantage, helping to fuel productivity growth and the new technologies and industries that create jobs. Now, due to global competition and the rapid pace of technological change, we have to continuously innovate just to maintain our hold on traditional strengths like advanced manufacturing, or to compete in life-enhancing services like education and healthcare.

While the U.S. still leads the world in absolute levels of R&D investment, for years countries like Japan and South Korea have been spending more on R&D as a percent of GDP. China, meanwhile, more than doubled its R&D spending as a percent of GDP since 1999.

Jobs Council Recommendation: Renew American Leadership in Innovation by 2020

Innovation is the key to America’s future, and as a nation we should be pushing at the frontiers of progress with continuous public and private sector breakthroughs in products, services, business models and ways to develop our people. In order to create the next generation of innovations, national spending on R&D—including both public and private funds—needs to rise to at least 3% of GDP, and ideally more.

Maintaining our traditional advantage in an era of global competition will require a renewed commitment to invest in innovation—not only the research to develop new technologies and the capital to turn ideas into industries, but a 21st century workforce with the skills to sustain our competitive edge and develop the next round of game-changing inventions.

Bolster Private Sector Investment in R&D. The U.S. should increase the R&D tax credit and make it permanent to catch up with the 16 other countries that offer more favorable tax treatment for research and development. We can also encourage private innovation with strong enforcement of intellectual property (IP) protections to guarantee inventors the fruits of their labor, and tech transfer policies that allow better access to markets for new technologies. With two-thirds of R&D coming from the private sector, we have to make the U.S. a more attractive place for such investments in order to meet our goal of 3% of GDP.

Increase Federal Support for R&D and Target it Towards Next Generation Challenges. The Council endorses President Obama’s call for significant new investments in R&D. Basic R&D is fundamental to innovation, generating knowledge that can be used by many companies to create new products, processes, and services. But because the societal benefits are far greater than those that accrue to any individual inventor, government has long provided a large share of basic research funding.

We also have to be strategic about how we invest our federal R&D – carefully choosing where and how it is deployed, targeting promising fields without picking individual winners and losers. We cannot continue investing the majority of our federal R&D investment in defense with only a quarter in health and only 7% in energy. The Council also recommends considering the expansion of the role of novel research agencies such as the Department of Energy’s new ARPA-E, modeled after DARPA, as these innovative agencies stretch our research budgets further.

Ensure That Entrepreneurs Can Access Financing. The U.S. should make it a priority to remove regulatory barriers to small IPOs, make permanent the capital gains exemption for investments in qualified small businesses, and streamline access to SBA programs. Capital is the critical fuel that lets breakthrough ideas become the breakaway companies that create the lion’s share of new American jobs, and these steps can go a long way to help innovations reach a broader market and realize their job-creating potential.

New financing options can also add firepower to the innovation ecosystem in the United States. Connected platforms now allow entrepreneurs and researchers to tap the wisdom of the crowd and raise money from the crowd to finance their ventures. Leveraging these “crowdfunding” opportunities will require the regulatory changes discussed in our last report, including those that will allow investors to contribute smaller amounts through crowdfunding platforms.

Develop a Skilled American Workforce Ready to Innovate. We need to emphasize science, technology, engineering and math (STEM) disciplines for both our students and our teachers to prepare our workforce for the jobs of the future. We should aim to double the number of engineering graduates we produce each year, from 130,000 to 260,000, and recruit top STEM college graduates to teach in K-12.

It is time that Washington ends the “reverse brain drain” and allows highly skilled immigrants who get their degrees in the U.S. to live, build firms, and create jobs here as well, rather than continuing policies that push fantastic engineers, programmers, and physicists into the arms of our competition. In addition, the Jobs Council calls on our fellow business leaders to find fresh ways to unlock the creative potential of all of our employees, from the boardroom to the factory floor. Providing frontline workers with the incentives, platforms, and freedom to innovate, as companies like Google and Toyota have done, is a critical new source of competitive advantage.

Target Investments to Some of Our Greatest Challenges to Free Up Resources to Invest in Our Future. Innovation can help us overcome some of our historic challenges, and therefore we should turn our innovative lens to the issues that matter most – such as high quality education and healthcare.  It turns out there’s a link between breakthroughs in some critical sectors and our very ability to invest in innovation more broadly.