The Information Technology and Innovation Foundation is a non-partisan think tank that works to formulate and promote policies to advance technological innovation. President Robert Atkinson recently spoke to a group of industrial component manufacturers at the Annual Conference of the National Fluid Power Association about the economics of innovation.

Atkinson spent a good deal of time talking about the so-called Great Recession, the worst recession this country has seen since the 1930s. And while the popular mantra is that this recession was caused by the housing bust, Atkinson asserted that the bigger issue is: What caused the housing bubble and subsequent bust? He argued that the key was that the well of real investments dried up—we, as a country, went from making things to making money. Banks invested in high risk mortgages while individuals invested in the housing market and not in the stock market. What’s more, the Fed made sure to keep interest rates low because the economy was so anemic from structural decline. And more individuals had a difficult time even paying mortgages as their household incomes decreased.

But what was most enlightening to me was when he started talking about what other countries have been doing. Good innovation policies—long-term strategies—like very generous R&D tax credits are paying off. They have been working to develop highly skilled workers in a variety of technology areas.

What has the U.S. been doing? Atkinson’s next comment was stunning.

“Arguing about abortion and a lot of hot button social issues.”

When you look at the bickering in Washington under this light, it becomes even more damning. We’re at a crisis point concerning manufacturing in this country and many of our political leaders aren’t focused on the issue. In the 2000s, for the first time in our history, manufacturing output fell over the course of a decade. Our political system seems backward and broken when compared to some of our manufacturing competitors.

Artkinson feels that we have lagging high skill immigration policies. Corporate tax reform needs to be a priority. Not only is our statutory rate too high, but so is the effective rate, putting us in the top 5 in the world. We need to strengthen investment incentives, especially machinery and equipment, as well as R&D. We have to get tougher on countries that allow or encourage the stealing of manufacturing secrets and disregard patent law.

Washington, are you listening?

How can we best solve America’s manufacturing decline? Comment on Paul’s blog on Pneumatic Tips.

Paul J. Heney – Editorial Director
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On Twitter @ DW—Editor