Senator Clinton’s Innovation Agenda: An Analysis

By June 6, 2007Innovation, Trade

Should have paid attention much earlier to James Pethokoukis, the “Capital Commerce” blogger and reporter at U.S. News. Not only is he a Jeopardy! champion, he’s hitting all the topics of high interest to manufacturers.

Latest is a column that grew out of Sunday’s innovaton agenda, 1.0. Pethokouis concludes that of all the candidates, Senator Clinton has laid out the most sweeping and specific agenda for maintaining U.S. competitiveness. Looks about right.

But is the agenda any good? Yes and no. Some items encourage development of human capital and competition, but Clinton’s $50 billion “strategic energy fund” to counter global warming smacks of tired industrial policy. Or so say some of the experts to whom Pethokoukis has talked, seeking to understand how government can best encourage innovation. The consensus?

[Government] should help create a fertile environment for innovation and technological advancement without fashioning some sort of clunky industrial policy that seeks to promote certain industries though government intervention.

And Diana Farrell, director of the McKinsey Global Institute, makes a broader point. Innovation can take the form of Wal-Mart in the 1990s, applying new business practices via off-the-shelf technology, like radio-frequency guns to track merchandise, ahead of its competitors. Others copies Wal-Mart, and productivity improved.

So the real key, as Farrell puts it, is “creating maximum competitive intensity” to force companies to constantly innovate—whether through new technology or business models or management processes—to keep ahead of rivals. And then when competitors respond, those innovations get spread.

“Europe is innovative, but that innovation doesn’t get diffused throughout various sectors,” she says. For instance, hypermarkets like Wal-Mart have long been frowned upon in France and restricted via zoning requirements. Likewise, free trade—or as Farrell puts it, “exposure to global best practices”—is critical to fostering innovation of all sorts. Globalization forces U.S. companies to innovate or die—and in the process raises our standard of living.

How about that? A discussion of innovation leads to the topic of free trade. The conclusion: Cowering behind walls of protectionism quashes the spirit of innovation. And competition suffers.

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