The future of American industry should be to maintain its position as a world leader by employing a bold, strategic national industrial policy. Instead of reacting to the forces of globalization, America should harness the forces of globalization to our benefit. We should be the major pioneer of new industries, and a nation that works with global supply chains, while maintaining a robust and secure domestic ecosystem to prevent reliance on other countries. This is necessary not only for economic vitality but also for national security.
Harness Globalization to Benefit the U.S.
Globalization has allowed large and small companies in every industry to operate without allegiance to any single country. Instead of fighting that reality, we should leverage America’s strengths to incentivize companies to bring their business to the U.S.
Respect and Protect Ideas. A major strength of the American business environment is that companies that invest in innovation can profit from good ideas. In today’s global marketplace, IP protection has become highly valuable, but current systems need updating to keep pace with the rapid rate of technological change. The damages to the U.S. economy due to IP theft have also grown to the level of hundreds of billions of dollars per year. A new IP system is needed that is based on two simple principles: 1) if taxpayer dollars funded the creation of the IP, then the public owns it, and 2) if IP was generated in the American private sector, then our country should put its full weight behind protecting that IP on the global market. The U.S. needs to show the world that it is a place where IP rights are clear and protected.
Change Industrial Tax Policies to Bring Companies to the United States. U.S. tax policy currently incentivizes some companies to move their operations and profits offshore. The U.S. has one of the highest corporate tax rates (35%) in the world, and taxes U.S. companies on foreign profits, which leads them to stash foreign earnings offshore rather than bringing them back to the U.S. These policies are counterproductive and dis-incentivize businesses from operating in the U.S. or investing their earnings in the U.S. economy. Industrial tax policy should make it more attractive to bring businesses here, guided by the principles that if companies want to sell here, they should put their business here. This would include reducing the corporate tax rate to a globally competitive rate of 15% and encouraging reinvestment of foreign profits in the U.S. without penalty.
Protect industries that are critical to national security. In failing to recognize the reality of global supply chains, the U.S. has also come to rely on other countries for critical resources, leaving strategic industries vulnerable to manipulation by our adversaries. We need to recognize that some industries – such as energy and semiconductors – should not be fully globalized, because they introduce fundamental vulnerabilities. A bold industrial policy must operate based on the principles that we must protect our vital industries. Providing tax reductions to industries critical to our national security would incentivize a healthy domestic ecosystem for those industries. If an industry is critical to our national security, we should be willing to take extra steps to ensure its protection.
Creating the Industries of the Future
Commercial industry changes at much faster rates than the U.S. government. New industrial policies need to look to the future of industry, not the present. Countries have the most to gain by being the heart of innovation in existing and emerging industries.
Invest in Research and Development (R&D) to seed the industries of the future. The industries that will be of major global significance in the next 10 to 20 years are evident today, and the U.S. government should invest in helping them grow in this country. The scientific fields of bioengineering, neuroscience, materials science, and machine learning have rapidly advanced, producing a wealth of knowledge that will drive the development of new technologies. The U.S. should place considerable focus on funding applied R&D in these areas, to harvest the many fruits that basic research has yielded.
Foster innovation and transition hubs. Centers for Industrial Innovation (CII) can accelerate the generation of new technologies and start-up companies, as well as provide workforce development. If the Federal government is an active player in such centers for innovation, it allows for continued access to new ideas that can be transformed into technologies uniquely suited for government applications. Government input and funding of such centers will insulate them from becoming captive to the largest players of the industries they support. Connecting these CII to Regional Extension Centers (a major policy program that propelled the agricultural revolution of the last century) will help U.S. companies leverage emerging technologies sooner, allowing faster increases in industrial efficiency.
The U.S. needs a unified strategic industrial policy that leverages America’s strengths on the global stage. The White House should release a public document detailing an industrial policy strategy within the first 100 days. Such a policy should make the financial environment easier for companies to bring their business to the U.S. – including lowering the corporate tax rate to 15% and not taxing international profits brought into the U.S. As well, it should consolidate copyright and patent laws into a single, simplified legal structure for IP protection. These new policies should focus on protecting American IP globally, making companies pay their fair share for goods sold in the U.S., and incentivize companies to bring their business back to this country. The U.S. should also institute policies focused on creating industries of the future by funding R&D efforts in strategic areas that will seed emerging industries, fostering the formation and growth of centers for industrial innovation, and supporting advancements in and widespread adoption of automation in all industries. With these policies, American industrial leadership will be driven by the smartest workforce in the world, strong IP protections, innovative research and development, centers that transition ideas into new technologies and markets, and economic policies that help businesses thrive.
This week we will be publishing excerpts from the Potomac Institute's latest report,
“THINK BIG: BIG Science, BIG Opportunities, and BIG Ideas.” THINK BIG argues that innovation in science and technology are the keys to American economic strength and national security. Rather than a return to the infrastructure, economy, and healthcare systems of the past, the report calls for a vision for the future.