James Dyson: Fixing America’s Deficit With Innovation
Politicians and economists are fixated on short-term solutions, but legendary inventor James Dyson says that R&D investment is the way to save the U.S. economy in the long run.
Talk about being caught between a rock and a hard place. Following the midterms, a deeply divided U.S. government must work together. The $3 trillion question is how Democrats and Republicans compromise on fiscal policy and ideology to cut the deficit and stimulate the economy.
In the short term, I don't know. I'm an engineer—I'll leave that to the economists and politicians. But in the long term, the U.S. must focus on a greater ambition—driving exports through researching and developing new high-tech products.
The U.S. needs an ideas revolution. A dot-com boom for this decade focused on high-tech goods.
Common ground can be found in division given a common goal. The U.K. government is formed of a coalition of Conservatives and Liberal Democrats, a first for British politics. They're working together to cut the deficit by slashing budgets. But cuts won't be enough. Ultimately they must make Britain a world-class high-tech exporter.
In the U.S., whatever deal is reached on tax relief for higher earners and federal spending, it's clear it's not going to come close to clearing the deficit. Exports grow economies. That must be the end. And research and development must be the means.
To put things in perspective, China saw a 23 percent increase in exports last year and a year-to-date trade surplus of $147.77 billion. Meanwhile, the U.S. trade deficit stands at $379.1 billion, up 40 percent from the same period in 2009.
In a global economy, the U.S. will struggle to compete in low-cost assembly. But this just makes developing new exportable ideas all the more important. When you can't compete on cost, compete on quality. Better ideas, better technology.
The good news: The U.S. is still the world leader in invention and R&D spending. The bad news: U.S. R&D spending declined 60 percent as a percentage of its GDP in the 40 years ending in 2004. International competitors are catching up fast. China is already the world's No.1 high-tech exporter and is second only to the U.S. in R&D workers.
The prosperity of the U.S. and its ability to come out strong from recession against its competitors depends on decisive action to boost R&D. Amid the inevitable backroom political maneuvering in Washington, a couple of promising policy suggestions have emerged in support of a research and development tax credit.
The National Commission on Fiscal Responsibility and Reform—Obama's deficit-cutting committee—has put on the table a permanent extension of the temporary R&D tax credit, following a proposal from Sens. Ron Wyden and Judd Gregg, a Democrat and Republican, respectively. Democratic Sen. Mark Warner has also suggesting increasing the credit.
How you pay for an extension or increase is another debate. But R&D tax credits are essential because research and development breeds successful companies. It creates new and lucrative ideas that can be sold around the world. The rate at which these ideas are generated and developed determines success against competitor companies and competitor economies.
I've advised the U.K. government to retain and increase R&D tax credits. They work because they reward companies, big and small, that are willing to invest their own money in research and development. R&D is inherently risky—it's costly, it takes a long time, and the eventual outcome is never certain. But the rewards are great: It generates profits, jobs, and exports—real money, not financial smoke and mirrors.
Research and development works. Dyson doubled earnings during the recession last year, and we're doubling our U.K. engineering team this year, because we continue to invest in new ideas.
President Obama has already offered a $100 billion package to expand research-and-development tax credits for companies investing in high tech. He must now unite Democrats and Republicans: not just to keep them on the agenda, but ensure increased support. The U.S. needs an ideas revolution. A dot-com boom for this decade focused on high-tech goods.
R&D tax credits are far from the only measure needed to stimulate high-tech exports. Educating engineers and scientists to fill a growing skills gap; backing and utilizing university research; and reawakening cultural awareness of industry are all essential, too. But they are an important start—a catalyst that helps U.S. companies invest in invention and take on the overseas competitors aiming to displace them.