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  • It's Time to Turn to Innovation, Competition to Spur Economy

    In a recent poll by the Wall Street Journal and NBC news, a majority of Americans expressed their frustration with the approach our government has taken in response to the financial crisis and economic slowdown. Just 43 percent of the respondents expressed satisfaction with how President Obama has handled the economy, a decline of 13 percentage points from a year ago. The disapproval vividly reflects disappointment toward economic policy decisions and management over the past year.

    As the downward-trending poll numbers suggest, a majority of our fellow citizens are not comfortable with the “dramatic change” we have witnessed. The quest to enlarge and mobilize government in the name of rescuing and rebuilding our economy has created both economic uncertainty and a considerable degree of anxiety about our economic future.

    There has always been tension between the state and the free market. The genius of the American economy has been its ability to balance the two, with policies that preserve stability while promoting innovation. However, as shown in the 2010 Index of Economic Freedom that was released last week, the battle has tilted decidedly toward big government. The magnitude of the recent loss of economic freedom has been alarmingly high, with considerable negative implications for our economic future. While many countries around the world continue on the path of economic liberalization, the United States is, in many respects, moving in the opposite direction, simultaneously burdening its economy with increasing government spending, uncompetitive tax rates, and barriers to trade and investment that stifle entrepreneurship and dynamic growth.

    By burdening our economy with even bigger government and stifling it with less economic freedom, we are creating a dangerous economic environment where opportunities are missed, and lingering uncertainty undermines our economic potential.

    In one of his many inspiring speeches, President Obama in fact talked about the importance of innovation:

    “[There is] an important role that we can play, laying the ground rules to spur innovation. That’s the role of government — to provide investment that spurs innovation and also to set up common-sense ground rules to ensure that there’s a level playing field for all comers who seek to contribute their innovations.”

    As a matter of fact, the proven path to stimulating economic growth is to advance economic freedom by promoting policies that generate a virtuous cycle of innovation, vibrant economic expansion, and more opportunities for people. Economic freedom is strongly linked to innovation and business initiatives that cumulatively lead to greater economic vitality for all.

    As the findings of the 2010 Index demonstrate empirically, today’s successful economies are not necessarily geographically large or richly blessed with natural resources. Many economies have managed to expand opportunities for their citizens by enhancing their innovation capacities that are among the chief engines of economic prosperity.

    Unfortunately, our economy’s dynamic innovative pulse is slowing in the presence of ever more bloated government.

    No doubt that the vigor of our ongoing recovery depends on private businesses that will flourish with greater economic freedom. However, many small and large firms are currently postponing spending decisions and projects until they see more clearly government’s latest intentions. Others are put off by anti-business rhetoric that demonizes those whose profit-seeking is the very foundation of investment and job creation.

    It is time to put back our country onto the right course. In preparing for his second State of the Union address this Wednesday, President Obama should be reminded of how to best spur innovation, not throttle it. The tool of choice—economic freedom—requires only an understanding that the people, expressing their wishes freely in the market-places of America, know better than any central planner or government bureaucrat what they need to get moving again.

    Posted in Ongoing Priorities [slideshow_deploy]

    3 Responses to It's Time to Turn to Innovation, Competition to Spur Economy

    1. larry watson says:

      big government is not the answer to our problems. we the people are the heart of this nation. People should not look to the government to solve their problems.

    2. Dale B. Halling, Col says:

      There are some very targeted policy to innovation that should be made immediately. The two most important policies changes we need to make to encourage innovation are to strengthen our patent system and repeal Sarbanes Oxley. The incredible innovation of the 90s was based on technology start-up companies built on intellectual capital, financial capital, and human capital. (see http://www.hallingblog.com) All three of the pillars have been under attack since 2000. Our patent laws have been weakened reducing the value of intellectual capital. Sarbanes Oxley has made it impossible to go public reducing financial capital for start-ups and the FASB rules on stock options have made it harder to attract human capital to start-ups. The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation http://www.amazon.com/Decline-Fall-American-Entre… explains these problems in more detail.

      Thank you for all your good work at the Heritage Foundation.

    3. Joe Brewer, Seattle says:

      It's funny how this article presumes that "big government" caused the economic downturn. As I recall, it was deregulation of markets and the gutting of fundamental government services (including basic research and education) that drove down innovation in this country.

      Please stop promoting the very "solutions" that caused this problem and show some semblance of understanding what is really going on. If you want innovation, you have to make investments. This means more effective and forward-thinking government policies.

      Also, markets cannot function adequately without clearly defined "rules of the game." To presume that markets exist independently from the legal structures provided by government is an unfortunate blindness to the basics of economics. Next time take a course in macro-economics before writing such lousy commentaries that stand in for real investigative journalism.

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