Jobs: Innovation Is The Answer, And Washington Must Help

A job panic is sweeping America, whipped up in no small part by demagoguing politicians and media pundits. With the U.S. economy growing strongly, people are anxiously asking: Where are the jobs? It is a serious question, reflecting genuine pain and fear. But blaming outsourcing for all of America's job ills is a terrible mistake.

We asked for an open global economy because it's the best way to generate the most prosperity. Now that we have globalization, we should play by the rules.

The truth is that India and China may well become strong competitors to the U.S. Each has a culture favoring education and could move beyond being mere outposts for outsourcing to challenging America for supremacy in the knowledge economy. The U.S. has no choice but to emphasize what it does best in this coming rivalry -- and its most important strength is innovation. Commercializing innovation is America's core competence. We do it better than anyone else. But faced with other potential innovators on the global scene, we have to start doing it even better.

So it's time to do away with ideology and pretense. While it may be folly to pick specific winners and losers, the federal government has a key role to play in fostering basic research and development. It began to play that role in 1790 when George Washington signed a bill establishing the U.S. patent office (the first patent, to Samuel Hopkins, was for a process to make potash for fertilizer). Government action, especially military spending, has promoted critical technologies. DARPA, the Defense Advanced Research Projects Agency, financed the early Internet. The military has also funded many breakthroughs in telecommunications and materials. It's time for Washington to focus on innovation, not protectionism, as the way to ensure jobs and prosperity in America.

Venture capitalists are eyeing five possible areas for break-away innovation. Here's what the government can do:

ENERGY. Clearly, the nation needs to become more energy-independent. The Bush Administration is proposing significant new spending on hydrogen and solar energy. That's good, but much more has to be done to conserve energy by raising fuel efficiency in cars, sport-utility vehicles, and trucks. The White House is offering a $2 billion tax credit for consumers over 10 years when they buy hybrid cars. It should greatly increase that amount to match the $10 billion in subsidies it wants to boost oil, gas, and coal production. The result: more jobs as well as a cleaner environment.

BROADBAND. Washington must craft a clear broadband policy that ties every household in America to a super-fast connection. This is critical. Deregulation, tax credits -- whatever it takes -- must be passed as quickly as possible. A whole new world of rich media -- interactive advertising, education, games, and services -- awaits this action.

BIOTECH. The White House gets full credit for pouring tens of billions into the National Institutes of Health to help develop the biological sciences. But it needs to pressure the Food & Drug Administration to speed up the development of new drugs. And it must move away from its opposition to stem-cell research. Without it, the U.S. will lose its supremacy.

NANOTECHNOLOGY. The Administration is funding six new nanotechnology centers. But Washington needs to pump more money into traditional physics to raise the odds of generating breakthrough science. China and Japan are doing important nanotechnology research. Washington must hurry to hike its investment in this area.

HEALTH CARE. Surging health-care costs may be raising the price of innovation in America and pricing workers out of jobs. In Europe, employers are reluctant to hire because each new worker comes with huge retirement and benefits costs. Part of the current reluctance of American chief executives to hire may be that the price of new workers is too high, thanks to 10% annual hikes in health-care costs. Promoting advances in information technology, pharmaceuticals, and bioengineering can cut the health-care bill. Reducing payroll taxes and giving companies a larger credit for providing health care to workers would also slash the cost of hiring.

Washington must also find a way to make it easier for talented foreign researchers and students to get into U.S. universities. America should make every effort to stop potential terrorists, but it is also keeping out many of the world's best and brightest. This is doing serious harm to innovation.

The U.S. has had periods of virtually no job growth in the past. It has punched through them with pragmatic policies that promoted growth and innovation. That's what we need today.

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