By Joseph Koziak
I don't know about you but, I am getting a little tired about the constant talk about the deficit and the need to cut back on payments to seniors and veterans who built this country and made it great. What I am looking for is leadership as to how to make the U.S. greater in the future. Our economy is finely a tuned V-8 engine running on 2 cylinders. If it could be free to run in the right direction our economy has more than enough potential to balance the budget and reduce the deficit through the creation of new businesses and more importantly more jobs. How do we kick start the economy for future growth?
As is reported in virtually every newspaper, magazine and Internet blog, there is a boom in construction and manufacturing in Asia, which for the most part has been at the expense of Americans who have lost their jobs due to outsourcing. Korea, China, India and Malaysia can manufacture products cheaper due to lower labor and input costs. So now you are saying, this is obvious, tell me something I don’t know.
What you don’t know is what people from these countries have told me, sometimes in confidence and sometimes at a social event, about how they feel about their place in the world and how they view America. They tell me that they can manufacture faster, cheaper and smaller. What they cannot do however, is invent. Whether it is a lack of an entrepreneurial background or an education system that is based upon memorization and not creative thought, individuals from these countries rarely invent and instead, look to America for innovation. Even when they try to innovate, take Sony with the Walkman or E-reader, they are unable to fully take the discovery across the finish line. It took Apple to move the Walkman into the iPod and Amazon to pioneer the Kindle.
Instead of worrying about the loss of manufacturing jobs, why not focus on what we do best: Innovation. This is easier said than done. As a result of the Great Recession, billions of dollars have been pulled out of venture capital in high tech and biotech investment funds. IPO’s are scarce and in the biotech world, they are not successful after launch. Investors will look at market ready or very late stage opportunities but that does not finance or create new early innovation. I truly believe that the cure for cancer or the next high efficiency battery is sitting on the lab bench in some University but is going nowhere due to a lack of financing and management.
Financing for these ventures is not going to occur until there are more success stories. Unfortunately, this is a chicken and egg analogy, as you cannot have successes until the initial discoveries are funded.
How do we fund the next success story or more importantly how do we fund the future of what America does best? It is not happening right now and it will lead to our downfall if not corrected soon. Like that V-8 engine that needs to be ignited, the high tech and biotech industries need a shot of starter fluid. Now I know most of the readers of this article are opposed to government intervention, however, in this case, this spark is free market friendly.
Firstly, we need leadership from the President and all levels of government to fully support, in words and actions, the need to develop American innovation in all tech areas. Our government leaders need to preach about how technology is the future of the American economy. This might seem a little like grandstanding, but publicity is important. What is more important is leadership. We need people around the water cooler talking about how America will be even greater by a strong focus on innovation. This is our future. We cannot look at the past about how things were. We need to dream again.
Secondly, to financially ignite these areas, specialized tech funds need to be created by the various investment banks. These funds which could only invest in pre-market companies, would receive their funding from individuals and companies which would receive a partial tax credit for each dollar invested. Further, profits from these funds would be tax free as the risk is higher than other investments and the need to finance these start ups is of national importance. These specialized funds would be required to secure management for the technology start-up companies and therefore the fund manager would choose which companies to finance and not the government. The success of the fund is solely dependent upon the success of the start ups that the fund manager chooses and manages. Free enterprise is still at work. Free enterprise will choose the winners and the losers. The government’s role is to set up the infrastructure; America has to do the rest.
What do I expect will be the result? My goal is for over $250 billion to be invested in these funds for start up and pre-commercial companies. As a result, the balance between the innovations looking for capital and the available sources of funding will tilt a little more equitably. As a requirement of funding, these ventures will require management in finance, business development, etc. in order to maximize the use of the funds provided. The last thing we need is to throw a bunch of money in any industry irresponsibly.
How will this money be spent? R&D jobs, clinical studies and capital equipment are the biggest expenditures for tech and biotech companies. This money is spent in America and is not outsourced. It has a huge multiplier effect as each dollar spent in research creates further expansion in the economy. I estimate that the $250 billion investment will yield over $1 trillion in economic activity. What is more important is that this type of growth increases the tax base and provides for a dramatic increase in government revenue. Further, with each job created, there is someone who pays taxes as well as one less person who may be receiving social security. As a result, the federal deficit can be reduced through economic growth without increasing income tax.
Not all of the innovations will be successes. There will be some failures as that is the nature of free enterprise. However, if America’s history can be used a precedent, there will be huge successes and a few blockbusters. We need to foster the next Apple, Google, Microsoft, Amgen and Genetech and they may be in technologies that we have not even heard of today. That is what we do best. That is our future and why we need an American plan.
