The Changing Wealth of Nations: Intellectual Property and American Competitiveness in the Age of Innovation

Early in Margaret Mitchell's war-time classic Gone with the Wind, southern aristocrats bar-b-queuing on Wilkes' plantation debate how long it will take them to "whip the Yankees." "One Southerner can lick twenty Yankees," proclaims one guest, because "Gentlemen can always fight better than rattle."

For the first of several times, Captain Rhett Butler shows his contrarian streak by observing "there's not a cannon factory in the whole South.. [while the North has] factories, shipyards, coalmines. and a fleet." His point, made by Ms. Mitchell with 76 years of hindsight, was that in 1860 the strength of nations depended far less upon the bravery and training of gentlemen-soldiers and far more on manufacturing, resource abundance and transportation capabilities.

Having started in England 50 years prior, the Industrial Revolution was well under way. The winners would be those nations with access to critical materials, advanced production capacity and market-based economies. Over the next century, railroads and coal expanded to airports and oil, but the story of the industrial era remained largely dominated by material resources and production infrastructure. Then, during the second half of the 20th Century, another trend began emerging, and by century's end a new, information age was unfolding.

Ladies and gentlemen, knowledge - ideas and the people who generate them - is the new coin of the realm, with innovative capacity the key driver of future economic growth, productivity gains and wealth creation.

Thanks very much for inviting me to join you today. Your work is essential to expanding America's innovative capacity. Our ability to create and protect intellectual property and our education system will determine our success in the 21st Century. I am here in the Valley this week because the Bush Administration recognizes the singular importance of our technology sector and the unique contributions it makes to our economy, homeland defense and the global war against terror. We also know that the broader recovery under way elsewhere in our economy is not yet being felt out here. Even worse, as you - our engine of future economic growth - remain stalled, the tech sector is under assault in Washington by those who seek to force stock option expensing, roll-back securities litigation reforms, and prevent freer trade. The Bush Administration stands squarely with the technology community on these issues. Within the next month I expect the Commerce Secretary, our Under Secretary for Technology, and the Director of the Patent and Trademark Office to also visit with leaders in the Valley and huddle on ways we might help restore growth.

Today I'd like to offer a perspective on why knowledge is now "king," the implications of the innovation age for America's global competitiveness, and the Bush Administration's high tech agenda. I'll highlight a few of the IPR issues on my radar screen and then I hope I might hear from you about the issues you believe most important.

WHY KNOWLEDGE IS KING

The wealth of nations is indeed changing. And while it may still take some time before the hydrogen economy replaces oil, the impact of innovation and technology on our society is already profound and unmistakable. Just look at the out-sized impacts of information industries.

• The information technology sector accounts for just 7% of all businesses in our economy, yet between 1996 and 2000 it drove 28% of the overall US real economic growth, generated 2/3rds of the remarkable new productivity growth, (growth that persists today), and created jobs at twice the pace of other sectors, jobs that paid twice as much on average (Digital Economy 2001, Economic & Statistics Administration, US Dept. of Commerce).
• Advances in health care technologies and services have increased life expectancies, resulting in annual net gains of about $2.4 trillion to our economy (Congressional Joint Economic Committee).
• We have seen how new bio-agriculture technologies can reduce hunger around the world, increasing crop-yields by up to 25% and reducing reliance on herbicides and pesticides, which is good for our health and good for our environment. Foreign Affairs reported in April 2002 that Kenyan farmers were harvesting their first crop of sweet potatoes genetically engineered for resistance to an aphid-borne disease that previously had killed up to 80% of their crop.
• Innovations are helping us secure our homeland by detecting and preventing attacks. New technologies are promising ever-greater energy-efficiencies and, of course, education technologies and applications point to radical improvements in how we learn. The good news and bad news here is that we've only tapped 1% of the potential for new technologies to transform the learning process for teachers and students of all ages.
• Emerging technologies promise even greater economic impact and disruption. For example, the National Science Foundation predicts the market for nanotechnology products and services will reach over $1 trillion by 2015 in the United States alone. Leading experts gathered by NSF predicted nanotech's impact will be at least as significant as antibiotics, the integrated circuit and man-made polymers were in the 20th century. From genomics to quantum computing, from pervasive networks to proteomics, there will be more change in the next 30 years than we saw over the last 100.

THE GOOD NEWS AND BAD NEWS FOR U.S. COMPETITIVENESS

Now the growing importance of knowledge and innovation presents both good news and bad news for the United States relative to our global competitors. On the one hand, by almost any measure, America is the most innovative nation on earth.

• We generate the most patents per capita. According to Harvard Business School professor Juan Enriquez, it takes about 3,000 Americans to generate one U.S. patent, compared to 4,000 Japanese, 6,000 Taiwanese, 1.2 million Mexicans, 1.8 million Brazilians, 10 million Chinese and 21 million Indonesians.
• We conduct more research and development than any other nation. The United States funds 44% of the total worldwide investment in R & D - equal to the combined total of Japan, the United Kingdom, Canada, France, Germany and Italy (National Science Board's 2002 S&E indicators).
• American scientific output is greater, as measured by scientific publications per million population, than the EU and Japan (708 to 613 and 498 respectively) (1999 data compiled by the EU).
• Our labs and universities remain a more attractive destination for the best and brightest young minds in the world. 85% of the PhDs who come here from China remain in the U.S. because it's a better place to live and do business. By contrast, many European Union nations remain challenged when trying to attract top scientists and students from places such as India and China. As the Wall Street Journal recently observed, a German government web site highlighted Europeans' challenge here quite nicely, when it attempted to lure foreign researchers by noting: "Germany, as the statistics show, is no more xenophobic than other European countries."

Our culture rewards risk, encourages entrepreneurship, celebrates success and upholds the rule of law more than any other.

And of most significance to us today, Americans have enjoyed the most rational, predictable and transparent framework for intellectual property rights in the world, encouraging investment and incenting innovation.

BUT notwithstanding our advantages and current leadership, the rest of the world is not blind to the importance of innovative capacity in the 21st century, and they're not standing still. America's global competitiveness faces pressure on multiple fronts as technology-driven changes come faster, disruptions cut deeper, technologies fuse and wealth becomes ever more mobile. Here are four of the biggest challenges we face:

Building the Best and Brightest, instead of just importing. Within a generation we will need a far more science-literate, technology-savvy society than we have today. Yet American students at the K-12 level continue to lag behind their international counterparts in math and science learning.

• U.S. eighth graders ranked 19th out of 38 nations in math and 18th in science in the 1999 Third International Math & Science Study Repeat.
• The World Competitiveness Yearbook ranks the U.S. 24th out of 45 nations in science education and 18th in "attractiveness of S&T to youth."
• Other nations are aggressively acting to stem their own brain drains and recruit their citizens trained in the U.S. back to their native countries, and many such as Taiwan are succeeding.

What happens if we neither produce nor attract and retain the best and brightest scientists and technology students?

• Funding the Future. Americans enjoy and expect a very generous entitlement system. Retirees are living longer and receiving far more in Social Security, Medicare and Medicaid benefits than they ever paid into the system. According to Dan Crippen of the Congressional budget office, in 2001, these entitlement programs accounted for 26% of non-interest federal spending; but in 2030, they could account for up to 70%. Things we can afford for our parents may well become too expensive for our children to pay for us. How will future cash crunches impact federal support for education, infrastructure and research and development?
• Sharing the Wealth. Three billion people on our planet live on less than $2 per day, and half the world has never made a telephone call. Globalization and increased connectivity ensure that the most impoverished see how the other half lives, and extraordinary disparities may breed discontent and hostility. As we have seen with AIDS drugs in Africa, there will be great pressures on intellectual property owners to share the wealth or lose control over their innovations. New technologies and discoveries will only add to the pressures on IP and global security. How will we address these pressures while maintaining the incentives critically needed to ensure future innovations get funded?
• Having Wisdom Keep Pace With Intelligence. We have not yet developed systems to assess the social implications and ethical consequences of new technologies. I'll give you an example. Most people would probably support a genetic screen that could ensure our offspring will be free of genetic defects before they are conceived. But what if parents also wish to pre-select gender? Eye-color? Height? Intelligence? The Washington Post recently reported on a stud bull named Elevation who lived 60 miles west of Washington (June 30, 2002). Elevation's genes were so good they used him to sire 80,000 daughters and at least 2.3 million granddaughters. Named Bull of the Century, it is estimated that about 15% of the DNA in today's US dairy cows came from this one animal. If we can find the gene that made Albert Einstein so smart, should we let people similarly splice it into our own future generations?

Perhaps most significantly, we face the healthy but daunting challenge of global competition that keeps getting better. Those who believe in the notion of permanent superpowers would be wise to remember that the sun never set on the British Empire, and all roads used to lead to Rome. The battle for leadership in the Innovation Age is a many-horse race, and other nations and regions are also working to improve their own innovation systems. While the United States accounts for 44% of worldwide R&D today, in 1970 we accounted for 70% (Alliance for Science & Technology Research in America). The EU is racing to match our investments in nanotech, while Asian nations have collectively pulled ahead. The world is not standing still.

THE BUSH HIGH TECH AGENDA

With intellectual output playing such a critical role in our economy, society and global competitiveness, the Bush Administration is pursuing a high tech agenda that seeks to maximize the creation, protection and commercialization of intellectual property. Specifically, our policies promote innovation, support entrepreneurship, improve infrastructure and empower people.

To promote innovation, the President has proposed aggressive investments in research & development. Our 2002 budget crossed the $100 billion mark for the first time (at $103B), and we have proposed $112 billion for 2003 - the largest R&D commitment in our nation's history. We're also asking Congress to make the R&E tax credit permanent, to reflect the importance of private investments in research, which are twice as large as government's. We're seeking to strengthen intellectual property protection - both by devoting far more resources to the U.S. Patent & Trademark Office (21% more in 2003), cracking down on illegal piracy here at home, and by enforcing IPR aggressively around the world. Additionally, the President has asked Congress to devote another $200 million to improving math and science teaching at the K-12 level, working with regional teacher colleges and the NSF to improve math & science curricula.

To support entrepreneurs, the Bush Administration passed a bipartisan tax cut that many experts credit with moderating the recession of 2001, and we championed an economic stimulus package that accelerated depreciation schedules for businesses that invest in capital equipment for the next 3 years - the #1 request from the tech sector. We continue to push an aggressive free trade agenda around the world, finally prevailing upon Congress - including many alleged high tech Members who fought against us every step of the way - to extend Trade Promotion Authority to this Administration, so we can negotiate with one voice instead of 101. We're working through the WTO to overcome the anti-globalization inertia we inherited from Seattle, to reduce barriers to trade (especially in services) and to increase international cooperation in protecting intellectual property. Additionally, we're asking Congress to reform the Export Administration Act to make it less burdensome for our technology companies to export new tech equipment consistent with national security concerns. And the President is moving aggressively to improve the transparency and reliability of corporate accounting and governance following the excesses of the 1990s. We're aiming to put those who broke the law in jail, plug the accounting loopholes that reduced market transparency, and reassure investors, while still allowing markets forces to prevail and ensuring our system continues to allow and reward risk.

To improve our innovation infrastructure, the President's technology priorities include hardening the nation's defenses, especially critical infrastructure protection and cyber security; implementing a national energy plan that uses technology to improve energy efficiency while expanding domestic capacities; aggressively promoting the deployment and usage of high-speed Internet (broadband) networks, both on the supply and demand sides; and working to ensure we manage the radio spectrum most effectively - for example, just last week we identified 90MHz of government spectrum for transfer to the private sector for 3G services.

Lastly, to empower people, the President made e-government a top tier priority for the Administration, leveraging unprecedented federal investments in IT - $52 billion proposed for 2003, a 15% increase - to provide more services to citizens and operate government more efficiently. Of greatest importance to this President may be the bipartisan efforts to improve our nation's education system, epitomized by the No Child Left Behind Act signed last year. To remain globally competitive - both as a tech-led economy and as the most-inclusive opportunity society - we must place education first, and that's what our President is doing.

IP ISSUES AT THE OFFICE OF TECHNOLOGY POLICY

In pursuit of this agenda, my office likewise focuses on policies to promote innovation, support entrepreneurs, improve infrastructure and empower people. We're working on several intellectual property questions of interest to many of you including:

TECH TRANSFER. By statute, our office has the federal government lead on examining, reporting on and recommending improvements to the 1980 Bayh-Dole and Stevenson-Wydler Acts among others. We coordinate federal technology transfer policy through an interagency working group. These policies and laws establish the intellectual property regime governing technologies developed with federal funding, such as much university IP and inventions at our government labs. These laws have helped distinguish America from other nations with large federal investments in R&D by setting a rational, predictable and consistent framework for determining IP control and ownership that encouraged commercialization. With some urging assertion of greater federal rights over such IP (e.g. seeking recoupment) and others recommending less federal control (e.g. surrendering march-in rights), we're trying to ensure balanced rules ensure ideas move from concept to commerce.

DRM. We're working with NIST and the PTO to examine questions of digital content and rights management as part of our effort to better encourage the deployment and usage of high-speed Internet. Through two expert roundtables we have found that concerns over intellectual property protection (and business models) are keeping valuable content off-line, especially games, music and video. We continue to work with information technology innovators, content creators and consumer advocates, hoping to identify and remove barriers to market-based solutions so these potentially "killer" consumer broadband applications can get off of the sidelines and into our homes.

The Office of Technology Policy also interacts with policy makers across the country and around the world, trying to identify and promote policies that support innovation and tech-led economic development. We continue to stress to our international counterparts that their protection of intellectual property rights is a core driver of sustainable growth and a prerequisite for attracting foreign investment. Exporting American IPR policies and practices offers a win-win - supporting our businesses and protecting our technology while helping people around the world improve their own economies and innovative capacity.

Conclusion

If innovation and entrepreneurship profoundly shaped the 20th century, they will define the 21st. Knowledge development and commercialization are the new drivers of economic growth, both in the U.S. and around the world. Our ability to create new innovations and harness their power will directly impact our national prosperity, security and global influence.

I'd like to conclude by offering three principles to guide our efforts going forward. First, we must not forget that innovation is the key to future prosperity. Technology can enable us to improve our lives and make the world a safer, more abundant, and more equitable place. Yet many will fear technology and the disruptive changes it brings, while others will try to harness its extraordinary power for extraordinary evil. As leaders in government and industry, we must work to promote greater public understanding of, appreciation for, and widespread access to technology. We need to help our citizens understand these changes and educate them to take advantage of them, relying on sound science and rational analysis to use technology to advance the human condition.

Second, intellectual property creation and protection are the keys to unleashing our innovative potential. We must encourage entrepreneurship, reward risk, and maintain the incentives that are so critical to the creative process of bringing ideas from concept to commerce.

Last, we need to all remember the power of Metcalf's law. This principle states that the value of a network increases exponentially as more people connect. While there is zero value having the only telephone on Earth - after all there's no one to call - going from 100 to 1000 users increases the value of the network by more than a factor of 10. As we look to solve the technology policy challenges before us, we must join together with leaders around the world, so the rising tide of innovation lifts all boats. Personally I believe globalization - freer exchanges of people, ideas and goods - can be practiced intelligently and for the benefit of all. We will all be better off - as businesses, as nations and as citizens of the world - when 6 billion people are online, instead of the 500 million who have logged on so far.

Once again I appreciate your having me here and I congratulate all of you for your commitment and efforts to strengthen the development and protection of American intellectual assets. Your work is critical to our economic strength and long-term prosperity, and we look forward to working with you to ensure our nation remains the leader in technology and innovation. Our future depends on our success. Thank you.

For technical questions concerning the Office of Technology Partnerships, contact us:
Office of Technology Partnerships, NIST, 100 Bureau Drive, Stop 2200, Gaithersburg, MD 20899-2200
Phone: (301) 975-3084, Fax: (301) 975-3482, Email: otp [at] nist.gov (otp[at]nist[dot]gov)