In my last column, I tried to gauge what candidates Trump and Clinton might do to strengthen our innovation economy, which is vital to raising people’s living standards and enhancing American competitiveness. But now that the election is behind us, it’s time to focus on what President-Elect Trump should do to boost innovation.
Throughout his campaign, Mr. Trump has made it clear that getting the economy moving again is Job No. 1. And nowhere is the need for action on the economy more vital than on the anemic state of American innovation. Indeed, America’s innovators are suffering from a set of policies that have stifled investment and invention for close to a decade, and given us our present stagnant economy.
One stark sign of our weakened innovation economy is the 30% decline in new business formation. Since startups have been responsible for nearly 100% of net job growth over the last 40 years, this has resulted in a corresponding loss in new jobs created — down from 7.5 million new jobs created annually to only 5.2 million today.
This alarming decline in American entrepreneurship is directly attributable to an unprecedented attack on our intellectual property system, driven by the successful lobbying efforts of large technology companies like Google that managed to insinuate hundreds of its employees into the Obama administration. There they have pushed policies that made it difficult if not impossible for many small innovators to develop and protect their intellectual property.
Why is intellectual property so important to innovation — and hence to American economic growth and living standards?
I could cite this 2012 report from the U.S. Department of Commerce that found U.S. intellectual property to be worth more than $5 trillion a year and comprise 35% of total U.S. GDP. Put simply, the value of U.S. intellectual property is greater than the total GDP of any other nation on earth except China.
Or I could point out that IP-intensive industries account for 40 million jobs today — nearly a third of total U.S. employment. Average weekly wages in these IP-intensive industries were 42% higher than in other sectors, and in patent- and copyright-based industries, the wage premium is even higher — 73% and 77% respectively. IP-intensive products also account for 60% of total U.S. merchandise exports.
But instead, I’ll offer one little-known and surprising fact: virtually every single innovation of the last 100 years that led to the creation of a major new job-creating industry — from the early electric power, automobile, and aircraft industries to the semiconductor, personal computer, software, biotech, and Internet e-commerce industries — was created by a small startup that patented its innovations to protect them from theft by larger incumbent businesses.
For more than a century, America’s formula for economic success has been very simple: Startups + Patents = Job Creation.
But that formula has been turned on its head in recent years by large incumbent firms who have pushed government policies that weaken intellectual property protections for small and medium-sized businesses. As a result, these large firms can now engage in an intentional business practice known as “efficient infringement,” whereby they steal any patented inventions they want without compensating the startups that invented them — all because they know the chances of being held to account under our weakened patent system are slim to none.
In essence, big firms have created a new formula that benefits their own bottom lines — but weakens the innovation ecosystem: Big Business + Infringement = Stagnation.
Here are five ways that President-Elect Trump can revitalize America’s startup-driven innovation ecosystem and get us back on track to a stronger and more vibrant economy.