The Boston Foundation’s 2012 Boston Indicators report, City of Ideas: Reinventing Boston’s Innovation Economy, released Wednesday morning, is at once exhilarating and sobering. The metropolitan area, which accounts for most of the state’s population and economy, is maintaining its position as a global leader in innovation, and this is reflected in relatively strong economic performance. But the challenges are many, including socioeconomic inequities, a persistent and growing jobs/skills mismatch, and above all health care costs.
AIM agrees that the cost of health care represents “the biggest bubble” and the greatest threat to our economic future. (I called for holding future increases below economic growth in Tuesday’s blog.) The Boston Foundation report highlights the impact of health-care costs on public sector budgets - crowding out education, transportation and other needed investments.
But the effect of health costs on market-oriented sectors is at least equally dire. Retiree health benefit burdens are crippling “legacy” companies and institutions; costs for current employees burden every employer; and 97 percent of AIM members say that health costs are a significant deterrent to hiring, especially of lower-skilled and entry-level workers.
“City of Ideas” proposes that “the new paradigm” for innovation is local solutions for broader problems. The health cost crisis is, we believe, amenable to this approach, to a greater extent than the report explicitly proposes. While health care is clearly a national crisis, Boston and Massachusetts have a powerful incentive to seek solutions because of the extent of our exposure. Health is our largest employment sector even when limited to care delivery and research organizations, but beyond that we have a wide range of health-related manufacturing and service industries.
Change is coming, ultimately at the national level. Because the stakes are so high for us – and because our structures and circumstances are to some degree unique – we must lead the way to change. We cannot protect our interests by standing pat. What we need in the health care cost sphere is what we achieved on access: policy innovation produced locally and “exported” nationally.
Of course the specific interests of health care providers, insurers, employers and others diverge and conflict. That’s exactly why we can succeed. Together with a strong shared interest in reform, we have the balance of differing interests to work through the issues, and the intellectual resources to do it. And we have these in one compact area where reality trumps abstractions, and debate can bring us to agreement. In 2006, we came together with a sense of shared responsibility and found a solution to access. We must do the same for cost control.
A bipartisan group of United States Senators on Monday unveiled a proposal to strengthen and make permanent the federal research and development tax credit before it expires at the end of the year.
Analysts project that increasing the alternative simplified R&D credit from the current 14 percent to 20 percent would spur the creation of 162,000 technology based jobs in the short term and thousands of additional jobs over the long term. Associated Industries of Massachusetts supports the increase because research and technology remains a key driver of the Bay State economy.
Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Republican member Orin Hatch (R-UT) formally introduced the Greater Research Opportunities Tax Help (GROWTH) Act of 2011 at a hearing on Tuesday. Massachusetts Senator John F. Kerry and seven other senators co-sponsored the measure.
“In the1980s the U.S. offered the best research and development incentive in the world. Today, the U.S. credit lags behind incentives offered by many developed countries and that credit has lapsed 14 times,” said Eileen McAnneny, Senior Vice President of Government Affairs at AIM.
“One of the reasons that the Massachusetts economy has out-performed the rest of the nation is a prevalence of research and innovation. Strengthening the R&D credit is therefore a key issue for Massachusetts.”
A new report by Ernst & Young indicates that the R&D credit has a significant impact on private spending:
- The existing credit is estimated to have increased annual private research spending by $10 billion in the short-term and by $22 billion in the long-term (beyond the first several years), substantially higher than the credit’s roughly $6 billion to $8 billion annual revenue cost.
- Increasing the simplified credit from 14 percent to 20 percent is estimated to increase annual private research spending by an additional $5 billion in the short-term and an additional $11 billion in the long-term.
- In total, the overall policy – the existing credit plus strengthening the alternative simplified credit – is estimated to increase annual private research spending by $15 billion in the short-term and $33 billion in the long-term.
Tax-News.com reports that under current law, the R&D provision may be calculated under two methods: a traditional credit and the alternative simplified credit, both of which provide US firms a tax credit for incremental qualifying research expenses, such as labor and equipment costs. The GROWTH bill would simplify and update the research credit by significantly raising the value of the alternative simplified credit from 14 percent to 20 percent of average qualifying research expenses, and by allowing the traditional credit to expire at the end of 2011.
The R&D tax credit was originally enacted in 1981 and has provided an important incentive for private sector investment in innovative research by companies of all sizes and in a variety of industries. But many foreign competitors have instituted more generous R&D incentives in recent years, leaving the United States ranked 24th in research incentives among industrialized countries.
The temporary nature of U.S. R&D incentives is a strain on U.S. companies, causing uncertainty that negatively influences future company R&D budgets. Providing the certainty of a permanent credit, especially in a tax reform environment, is critical to maintaining U.S. leadership in global advanced research and ensuring that U.S. companies will continue to do their R&D here in the U.S.
AIM is supporting passage of the R&D credit renewal as part of a national coalition that also includes many AIM-member companies, including Abbott Laboratories, Intel, Procter & Gamble, Microsoft, EMC, GlaxoSmithKine, Pfizer and Raytheon.
Please email Eileen McAnneny, firstname.lastname@example.org, if you would like to receive updates about this issue.
The innovative ideas that represent your company’s future often appear in a raw and flawed state. They are murky and a bit vague, imperfect in some way. They’re also fragile and easy targets for an organization’s “immune system.”
The same organizational antibodies that suppress potentially harmful actions can also dispose of valuable innovations before they have a chance to mature. What distinguishes successful, world-class companies such as Intel, Google and EMC from “also-rans” is a culture capable of separating marginal ideas that need to be eliminated from true innovations to be nurtured.
Can you think of 10 ways to kill an idea? How about 20?
When I facilitate AIM’s Fostering Innovation seminars, it’s not unusual for a team to generate – in less than ten minutes - as many as 50 ways to kill an idea. They’re often relayed from long-ago but not-forgotten personal experience. It’s easy. Anyone can do it. And it’s habit. When you add non-verbal communications such as tone and body language, to the actual words being said, anyone possesses a potent enough arsenal to do the job quite handily.
Early suppression of innovations can compound into a cultural reality, requiring innovators to make a heroic effort to push an idea through all the active and passive barriers. How many people possess that assertiveness and stamina?
This does NOT mean an organization should implement every proposed initiative. In fact, a high percentage ultimately won’t make sense. But the critical point is that they are allowed to mature. Instead of “Yes, but…,” think and say “Yes, and…” Instead of “It costs too much” think and say “How can we show a stronger ROI on this?” And look interested and enthused throughout. Create forums, ground rules and a culture that supports, develops and selects the next generation of initiatives in your business.
Innovation and risk tolerance are cornerstones of long run viability and effectiveness. Oddly enough, it is often commercially successful companies that are most vulnerable to the suppression of these qualities.
First of all they’re busy meeting all those urgent customer demands. The longer run nature of innovation seldom has the same urgency and can easily be crowded out. Secondly, success and stability can lead to a certain organizational complacency. As the author Jim Collins puts it so succinctly “Good is the enemy of great.” Entrepreneurial thinkers within the organization tend to quit and leave or quit and stay. And your organization is the weaker for it.
Keep an entrepreneurial flair alive and well in your organization by creating avenues and time for the advancement and vetting of ideas. Recognize and stop the comfortable and easy habit of killing them off prematurely. Don’t allow for contributions to the process, insist upon them. Then, with a balance of patience and persistence, you’ll see those raw ideas develop into the gems that strengthen your business.
I welcome your comments below.