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Fueling the “Magic”

When politicians talk about funding business innovations, they are generally thinking large-scale. Yes, the internet wouldn’t be here without government support, but most innovation does not happen on such a grand scale. In fact, the most revolutionary innovation happens in smaller ways without any government intervention. This year’s innovation? The tablet computer.

During his State of the Union Address in January, President Obama set forth an ambitious economic vision based on encouraging U.S. innovation. “In America, innovation doesn’t just change our lives,” said Obama. “It is how we make our living.” I imagine I wasn’t the only CEO watching who cheered his timely call to action.

When pundits, politicians and analysts speak of economic growth they’re really talking about innovation. In the 1950s, for instance, economists began noticing that their models for growth only accounted for about 15 percent of actual growth in the economy. In other words, given the total inputs (of capital and labor), there was about 85 percent of unexplained output. Eventually economists attached a name to this “magical” growth: innovation.

But innovation does not occur in a vacuum. Furthermore, it does not occur when the levers of government are deciding winners and losers in the economy based off of political calculation. Innovation requires sound policies that reward risk; increase the pool of smart, hard-working entrepreneurs; ease trade restrictions; and create an education policy that recognizes the needs of our 21st century economy.

So it was a disconcerting to hear the president argue in the same speech that government must fill investment gaps because “it’s not always profitable for companies to invest in basic research.” If we’re discussing projects like the moon shot or the infrastructure of the early Internet, then let’s concede that government played a large investment role. The same is true in broadband and energy. But as any tech CEO understands, it’s the smallscale innovations truly drive our economic engine.

Earlier this year, the Consumer Electronics Association put on its annual International CES in Las Vegas. On display were 80 different types of tablet computers. Eighty. How many did Uncle Sam have a hand in creating? More importantly, how much money did U.S. taxpayers put up to fund the first successful tablet, Apple’s iPad?

Even during terrible economic times, one innovation spurred 80 separate imitations—most of which will never hit store shelves. The ones that do will create competition, leading to even better, cheaper computer tablets and, in time, whatever innovation leaves the iPad a museum relic.

That dynamism reveals the underlying tensions between corporate America and Washington. As CEOs, we see everyday how the free market pushes the boundaries of the possible. We know that we must constantly innovate to survive. At one level the Obama administration understands this, but its offer of help reminds me of Ronald Reagan, who famously said that the nine most terrifying words in the English language are: “I’m from the government and I’m here to help.”

When the president speaks of government investment, what CEOs hear is government manipulation of the market. This doesn’t mean we should spurn the offer. It means CEOs need to make it quite clear what we’re asking for: let us do our jobs and you focus on the deficit and stable taxes. In return, we’ll reward you, Mr. President, with a rejuvenated economy, a better job market and an innovative marketplace that Washington can only dream about.

About gary shapiro

Gary Shapiro is the president and CEO of the Consumer Electronics Association and the author of The New York Times Bestseller, The Comeback: How Innovation Will Restore the American Dream.