A Tale of Two Bills
Good Innovation Policy Goes Beyond Interest Group Politics
Technological innovation is a key engine of economic growth and, ultimately, social welfare. Discussions of innovation policy are thus justifiably prominent. Just this year, William Baumol, Robert Litan, and Carl Schramm published an important book on the issue entitled Good Capitalism, Bad Capitalism; presidential candidates held serious discussions about innovation; analysts debated patent reform; and Congress passed one of the best pieces of innovation legislation in years, the America COMPETES Act.
Even readers familiar with the work of Congress might respond to the last item with a blank look of nonrecognition. The big story in innovation legislation this year has been the lack of it. Pending patent reform legislation is still pending and, indeed, has been pending for several years.
Largely absent from the debate is any group that looks at the whole innovation ecosystem, with a view toward advancing overall social welfare.
In the case of the proposed Patent Reform Act of 2007, various interest groups are fighting vigorously over specific aspects of the bill, and their interests are in some cases mutually exclusive. For life sciences firms, innovation revolves around highly patent-dependent work such as drug development. In contrast, for large information technology firms, innovation often requires freedom from patent restrictions, and the patent thickets and trolls that come with them, in order for firms to merge various technologies into newly productive combinations. Each interest group ignores legitimate claims on the other side. Brokering a compromise will not be easy.
Some might suggest that the answer is industry-specific policy. Such an approach has been the norm in other realms of innovation regulation. Most notably, telecommunications regulation has been based on different regulatory regimes for different technologies. Such legal balkanization is widely seen as a mistake, as it sets in stone categorizations that may not be useful in the future and also leads to major battles over the classification of technologies into one category or another (for example, is cable modem service “telecommunications” as well as Internet service?). Moreover, it has enabled powerful interest groups within a given industry to exercise enormous influence in the specific regulatory field they inhabit—power that would be dissipated if the field were defined more broadly.
There is an even bigger problem, however. Largely absent from the debate is any group that looks at the whole innovation ecosystem, with a view toward advancing overall social welfare. This concern about legislation is not new, of course. At least since Mancur Olson’s The Logic of Collective Action, commentators have noted the tendency for legislation to confer concentrated benefits on well-organized interests, reflecting their superior organizing ability and higher stakes. And some commentators would argue that this battle among interested groups should not trouble us when the groups serve as proxies—usually not intentionally—for the public interest. A legislative battle between, say, steel producers and steel purchasers might roughly reflect the public interest by balancing the interests of steelworkers versus consumers of steel products.
A major problem for legislative battles involving innovation is that future industries and innovators do not have a seat at the lobbying table, as they exist only in nascent form or do not exist at all. Perhaps not surprisingly, then, current versions of the patent reform bill make little if any provision for how we should think about patent policy going forward. A modest effort in that direction—a provision for conferring authority on the Patent and Trademark Office to address such issues as they emerge—was dropped, apparently because no constituency was lobbying for it and because existing constituencies were fearful of what the PTO might do with this additional power.
We do not necessarily endorse conferring greater authority on the PTO. As currently constituted, the PTO lacks economic expertise. More generally, agency decisionmaking is often subject to the same narrow interest group pressures as Congress. But the fact that no powerful group lobbies for a mechanism to address forward-looking questions of innovation policy is a real problem.
The more clear it is who the winners and losers will be, the more intense the lobbying and the more danger of legislation emerging that caters only to the interests of powerful incumbent interests.
So the big question with respect to innovation legislation is how the process can make room for future-oriented policy. And this brings us back to the America COMPETES Act. That Act, which passed with great dispatch, builds on an important report by the National Academy of Sciences, Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future. The Act makes several sensible, forward-looking recommendations. First, it calls for a National Academies study “to identify, and to review methods to mitigate, new forms of risk for businesses beyond conventional operational and financial risk that affect the ability to innovate” [section 1002(a)]. Second, it calls for a “President’s Council on Innovation and Competitiveness” that will identify mechanisms by which executive agencies, and the federal government more generally, can foster innovation. This Council will also make recommendations for strengthening the innovation and competitiveness capabilities of state governments, academia, and the private sector [section 1006]. Third, the Act directs the new Council to work with the Director of the Office of Management and Budget to develop a process for using metrics “to assess the impact of existing and proposed policies and rules that affect innovation capabilities in the United States.”
What can we learn from the America Competes Act? Part of the answer involves how it operates. The America Competes Act has only a few small “winners”—federal agencies that receive modest increases in funding. More importantly, it has no obvious losers. Thus a group of public-spirited legislators was able to push the Act through. To put the point differently, the America Competes Act is written at a higher level of generality than the Patent Reform Act of 2007. The more clear it is who the winners and losers will be, the more intense the lobbying and the more danger of legislation emerging that caters only to the interests of powerful incumbent interests.
It is of course possible, perhaps even likely, that subsequent recommendations made by the President’s Council will create winners and losers. But it is also possible that Congress has set the wheels in motion for a future-oriented innovation policy and has built up momentum that existing interest groups cannot overcome. In other words, the America Competes Act may have helped to overcome the imbalance of lobbying clout against future innovators. The National Academies report has now essentially been enacted, and Congress is asking for more. When those recommendations come, they will, in effect, constitute a voice for future innovation. There is no guarantee that the voice will be implemented in a law. But at least it will be heard. There will be a place at the table for the future. And that is probably the most we can expect.
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