How Our Nation Can Compete Again
Innovation and productivity are urgent concerns for the 1980s and 1990s. What lessons from the past and present can we use to deal with this future? Before we answer, two quotes are worth noting.
"You have come to visit our country, Sir, at a season of great commercial depression," said the major.
"At an alarming crisis," said the colonel.
"At a period of unprecedented stagnation," said Mr. Jefferson Brick.
"I'm sorry to hear that," returned Martin. "It's not likely to last, I hope?"
Martin knew nothing about America, or he would have known perfectly well that if its individual citizens to a man are to be believed, it always is depressed, and always stagnated, and always is at an alarming crisis, and never was otherwise; though as a body they are ready to make oath upon the Evangelists at any hour of the day or night, that it is the most thriving and prosperous of all countries on the habitable globe.
That quote is from Martin Chuzzlewit, a book written by Charles Dickens in 1848. Michael Kammen, a Pulitzer Prize-winning author of a book called People of Paradox: An Inquiry Concerning the Origins of American Civilization, used it in his preface in 1972. In another part of that book, he commented:
The United States may very well be the first large-scale society to have built innovation and change into its culture as a constant variable, so that a kind of "creative destruction" constantly alters the face of American life.
The Dickens quotation reminds us that history may conclude that it was our pride that was most damaged during the '60s and '70s. We had inflation and stagflation. We had oil blackmail. We had balance of payments and world currency problems. But we did not do all that badly compared to the rest of the world and to our own history. Except for one big difference: For the first time in years, our holy of business holies, our vast cosmetic market for consumer durables like autos and for heavy goods like steel were successfully invaded by foreign competitors. That's what shocked so many of our business and government leaders into a funk. We were beaten on our home ground and at the games of innovation and productivity at which we have always self-confidently presumed ourselves to be preeminent. We can no longer assume preeminence in these areas as our birthright. As we reassess the past 20 years, some lessons stand out.
LESSON 1: There is no safety in size or share or shape of market. The bigness of our government, the multinational reach of some of our corporations, the large scale of our country alone will not make us or keep us innovative or productive enough. These are sources of important strengths, not strengths in themselves.
LESSON 2: If change is a "constant variable" for us, we must not apply yesterday's definitions or conclusions to the problems of today and tomorrow. Current productivity measures, Alvin Toffler points out, are "frequently misleading. . . only surface-deep." Our productivity data relate almost exclusively to the largest manufacturing plants, and seldom go beyond measuring the cost of labor as a productivity element. But look at the advertising pages in INC. and other magazines: The minicomputer and microprocessor revolution is upon us. In factories, offices, and homes (which will again he a growing workplace) they will make "all-factor" productivity mean new and different things. Technologies and businesses that used to require size will require less.
LESSON 3: We must put risk-taking entrepreneurs and small-scale innovators at or near the top of our national priority list. Surely we must encourage investment rather than consumption, but it is risk-taking investment that we must encourage the most, and that tends to be small business investment.
LESSON 4: We must help both government and government-sized business bureaucracies to expand and improve their use of small high-technology companies and small companies in general. The costs of failure here will increase constantly. At least until new patterns of relationships are well established, we probably must mandate them or encourage them by providing special incentives. For example, we ought to have a threshold requirement for more favorable tax treatment of research and development expenses by big companies. It might be that they have to farm out 50% of all their R&D work to small companies in order to qualify for the maximum tax write-offs.
LESSON 5: Leadership in basic science, even when matched with large-scale applied science, will not guarantee the effective forward thrust to innovation that the future will require.
We have reached a point in these discussions where more than a little citizen impatience is warranted. One school of thought want us to "learn from Japan Inc." They'd like us to forge a new Super American Business-Labor-Government World-Beating Conglomerate. We can learn plenty from the Japanese, but trying to copy their methods is a little like telling a football term with a small, quck line and speedy receivers to adopt a game plan of running off tackle: The plan doesn't match the talent, and you rarely win by playing the other guy's game in any case.
Our game is entrepreneurship and economic diversity, and to win again we need the biggest, freest small business sector possible.
That doesn't mean that was don't need the help and involvement of Big Business and Big Government. Properly channeled, their efforts can help us do the productivity job and the innovation job better. But both sectors must pay attention to the need for teamwork. The recent announcement of a new vaccine to fight hoof-and-mouth disease provides a perfect example: It involved a big company (International Minerals & Chemical Corp.), a small company (Genentech), and the Department of Agriculture.
The innovation and productivity battles of the next 20 years are going to be won and lost largely in the private sector. By and large the best thing government can do is provide incentives for risktaking in every way it can. But government must also lead by example.
It's also time to lose patience with those who have refused to give the National Science Foundation's Small Business Innovation Research program (SBIR) a fair chance, both in that agency and government-wide.
The program should be held constant at at least $15 million per year for a decade. That is a mere 1 1/2% of the current NSF budget, and there is no more important need in that budget. None.
Congress should also swiftly pass S.881, a bill sponsored by Sen. Warren Rudman (R-N.H.) and other senators, which would mandate small business R&D set-asides throughout the government. (See The Buck Stops Here, July, page 116.) It should then see to it that the program is swiftly and effectively implemented and administered.
INC.'s commitment is to the largest possible entrepreneurial sector in our economy, from which the shapest advances in innovation and productivity are likely to come. We share the general skepticism about getting or taking anything from any level of government. But the exception we are suggesting here is not really an exception at all. It's a form of federal leadership and support that goes back to the Lewis and Clark expedition, and before that to the sympathy and support that colonial legislatures gave to science and education.
For more than a hundred years people in Arizona have told the tale of a tenderfoot who came looking for one of the legendary frontiersmen. He was told that the man he wanted had last been heard of heading west. "Which trail did he take?" he asked. Back came the reply: "Hell, son, he don't take trails. He makes 'em!"
Some of the trails that need blazing most in the years ahead lead to places of surpassing importance in the achievement of national goals. A carefully limited federal effort to help the small businesses that will be seeking them is hardly a frill.