In my previous post, I personalized the elegantly-written letter that the President of Renssalaer Polytechnic Institute drafted on the topic of how to build an "innovation ecosystem." I believe unequivocally that this thesis can be applied in large part fo a number of industries, and I wrapped it around a discussion about game-based learning and innovation in our education system. I would like to spend this post focusing on one of the critical pieces that game-based learning and other educational technologies are lacking: access to a healthy pipeline of investment capital.
I raised an idea that is not a new one by any means: how to better leverage the mechanisms that the government has at its disposal in order to jumpstart this emerging ecosystem. Using the government's resources for effectively would create incentives to spur more development of these critical learning tools, so that the economic system can be moved into equilibrium. At present, there is an excess demand and little to no supply, and suppliers are discouraged due to immature funding models. As previously mentioned, a healthy ecosystem needs more than just foundation/nonprofit and government grants to be "sustainable."
In an August 17, 2009 BusinessWeek article, the case is made that the current tax code is outdated and has resulted in the United States having higher effective corporate tax rates compared to those of other nations. How do we make the tax code more "internationally competitive"? Allow businesses to capture most or ALL of the benefits of their investments in R&D, workforce training and new machinery and equipment, particularly IT. I would also add early-stage businesses to this definition. As quoted from the article: "There is a new body of thinking, called "Innovation Economics," that is based on a view that economies differ by time and place and the only way to make effective policy is to pragmatically analyze each situation. Market forces alone often do not produce optimal outcomes and that public policy, including tax policy, that corrects these mismatches can enhance societal welfare."
So how does the author suggest we use the tax code to provide such "innovation incentives"? Congress should considering doing the following:
- Expand the R&D tax credit by increasing the Alternative Simplified Credit rate from 14% to between 20% and 40%, depending on how much investments are increased.
- Broaden the definiition of "qualified R&D" from beyond that involved in inventing a product to that involved in developing a production process.
- Broaden the current flat credit for collaborative energy-related research to any area of research and expand the rate from 20% to 40%.
In addition, our system should encourage investment in new capital equipment, perhaps by allowing companies to write off investments in capital equipment in their first year instead of having to depreciate them over many years. Further, by allowing employee-training expenditures to be counted as qualified expenditures for the Alternative Simplifed R&D Credit, it would result in creating higher-skilled workers.
I would take this even further. As mentioned in my previous post, Congress should IMMEDIATELY provide incentives to angel investors and venture capitalists for investments in start up companies within certain industry boundries. They must make the market for these investors, and once the profit incentives take root (when the industry forces right themselves), these incentives can be gradually rolled back. An interesting blog post by a venture capitalist from T2 Venture Capital a year ago called out the venture capitalists as an industry that thrives on "inefficient markets" because they can seize upon certain "arbitrage" situations that plague such markets. As the author states, what policies will create a level playing field for all innovators, not just help the large players win bigger?"
Our system needs a healthy staple of risk-seeking capital, fearless entrepreneurs, skilled supporting professionals and a strong social network. Just listen to experts like Michael Porter. But most importantly, we need to celebrate and enhance risk-taking. Successful leaders will tell you that you learn more from failures than successes. We can NOT be afraid to fail. It's worse to not try and to try anything.
So if the government wants our education system fixed, do more than just one $5 billion "Race To The Top Fund." Change the playbook; in fact, maybe we should just blow it up and start from scratch. Any reason why we still teach our kids in predominantly 30-40 minute class sessions. A new colleague of mine, one of the architects of the Asia Society International School Studies Network ("ISSN"), uses 90 minute class sessions. That may seem trivial, but its far from trivial.
Lets start changing the parameters of the playing field and create a fever pitch that our politicians need to hear. Isn't that how our democracy is supposed to work? Isn't that how we birthed the Declaration of Independence? Make your opinion known, and let the viral nature of the Internet take over.