U.S. GOVERNMENT PUBLISHING OFFICE

30–088 WASHINGTON : 2018

S. HRG. 115–271 

HOW THE INNOVATION ECONOMY LEADS 

TO GROWTH 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

APRIL 25, 2018 

Printed for the use of the Joint Economic Committee 

( 

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JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

HOUSE OF REPRESENTATIVES 

ERIK PAULSEN, Minnesota, Chairman 

DAVID SCHWEIKERT, Arizona 

BARBARA COMSTOCK, Virginia 

DARIN LAHOOD, Illinois 

FRANCIS ROONEY, Florida 

KAREN HANDEL, Georgia 

CAROLYN B. MALONEY, New York 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

SENATE 

MIKE LEE, Utah, Vice Chairman 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

ROB PORTMAN, Ohio 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

MARTIN HEINRICH, New Mexico, Ranking 

AMY KLOBUCHAR, Minnesota 

GARY C. PETERS, Michigan 

MARGARET WOOD HASSAN, New Hampshire 

COLIN BRAINARD, Executive Director 

KIMBERLY S. CORBIN, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota .............. 1 

Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico ..... 3 

WITNESSES

Dr. Harold Furchtgott-Roth, Director, Center for the Economics of the Internet; Former FCC Commissioner Hudson Institute, Washington, DC ............. 6 

Dr. Michael R. Strain, Director, Economic Policy Studies; John G. Searle 

Scholar, American Enterprise Institute, Washington, DC ............................... 7 

Mr. Mark P. Mills, Senior Fellow, Manhattan Institute Faculty Fellow, 

McCormick School of Engineering, Northwestern University, Washington, 

DC .......................................................................................................................... 9 

Dr. Darrell M. West, Vice President and Director of Governance Studies; 

Founding Director-Center for Technology Innovation, Brookings Institution, 

Washington, DC ................................................................................................... 12 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Erik Paulsen, Chairman, a U.S. Representative 

from Minnesota .................................................................................................... 30 

Prepared statement of Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico .......................................................................................... 31 

Prepared statement of Dr. Harold Furchtgott-Roth, Director, Center for the 

Economics of the Internet; Former FCC Commissioner Hudson Institute, 

Washington, DC ................................................................................................... 33 

Prepared statement of Dr. Michael R. Strain, Director, Economic Policy Studies; John G. Searle Scholar, American Enterprise Institute, Washington, 

DC .......................................................................................................................... 46

Prepared statement of Mr. Mark P. Mills, Senior Fellow, Manhattan Institute 

Faculty Fellow, McCormick School of Engineering, Northwestern University, Washington, DC ........................................................................................... 53 

Prepared statement of Dr. Darrell M. West, Vice President and Director 

of Governance Studies; Founding Director-Center for Technology Innovation, Brookings Institution, Washington, DC .................................................... 61 

Abstract titled ‘‘Who Becomes an Inventor in America? The Importance of 

Exposure to Innovation’’ submitted by Representative Maloney ..................... 71 

Response from Dr. Furchtgott-Roth to Questions for the Record Submitted 

by Representative Maloney ................................................................................. 72 

Response from Dr. Strain to Questions for the Record Submitted by Representative Maloney ............................................................................................. 73 

Response from Dr. West to Questions for the Record Submitted by Representative Maloney ....................................................................................................... 76 

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HOW THE INNOVATION ECONOMY LEADS 

TO GROWTH 

WEDNESDAY APRIL 25, 2018 

CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, DC. 

The Committee met, pursuant to call, at 2:00 p.m., in Room 216, 

Hart Senate Office Building, the Honorable Erik Paulsen, Chairman, presiding. 

Representatives present: Paulsen, LaHood, Handel, Delaney, 

Adams, and Maloney. 

Senators present: Lee, Heinrich, Klobuchar, and Peters. 

Staff present: Ted Boll, Colin Brainard, Connie Foster, J.P. 

Freire, Colleen Healy, Matt Kaido, Beila Leboeuf, Kim Corbin, 

Ricky Gandhi, Paul Lapointe, Alaina Flannigan. 

OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A 

U.S. REPRESENTATIVE FROM MINNESOTA 

Chairman Paulsen. Alright, we will call the Committee hearing 

to order. 

Good afternoon, and welcome to today’s hearing on ‘‘How The Innovation Economy Leads to Growth.’’ 

The U.S. economy is not only growing, but it is also doing it faster. GDP growth is rising. Job creation is strong. Average wage 

growth is improving, and inflation remains low. 

These long-awaited positive results stem from the decision to unleash America’s most valuable economic asset: The American People. Tax and regulatory relief are allowing American families and 

main-street job creators more breathing room and to do more. 

Contrary to those who believed that we are stuck at low growth, 

many economists expect as much as 3 percent GDP growth in 2018, 

and similarly strong growth in 2019. And to achieve this, Washington needs to stay out of the way so that individuals are free to 

figure out new ways to solve old problems. Such innovation is vital 

to sustaining our restored economic growth. 

America has been a laboratory for invention since its inception, 

and it is that spirit that has led to our strength. A report by the 

McKinsey Global Institute in March of 2017, last year, finds that 

many advanced economies rely on productivity gains far more than 

increases in the labor supply to drive economic growth. 

Folks in the private sector know this when they ask questions 

like: How can we serve more customers in one day? How can we 

complete more orders in less time? How can we produce a product 

with fewer passes of a machine? 

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Those questions are how innovation becomes the primary driver 

of productivity gains. And we know we are blessed to live in the 

United States for a variety of reasons, but among those blessings 

are our fellow Americans who have generated remarkable technologies to lift our standard of living, to expand our horizons, to 

support U.S. leadership in the world, and to grow our economy. 

Not all economic systems are equally conducive to such pathbreaking innovations. Every technological advancement of major 

economic consequence since World War II has come from the 

United States. And that is no accident. 

As we will hear from our witnesses today, strong property rights, 

the rule of law, light regulation, and competition are critical conditions for visionary entrepreneurs and risk takers, dreamers and investors, and creators to generate the technological success that we 

have seen. 

American inventors, main-street job creators, and the resourceful 

factory workers will continue to deliver amazing advances, but that 

is contingent on Washington allowing that to happen. 

A brilliant idea or discovery is only the start. It has to be put 

into concrete form and developed. And from there, it has to be commercialized and disseminated throughout the economy before it actually boosts economic growth. 

These steps can take a long time, depending on how they are 

taxed and regulated, or how antitrust law is applied. The highway 

to innovation is littered with potholes, traffic jams, and overturned 

vehicles. You can see this up close in my home State of Minnesota 

where an excise tax has threatened the innovative medical device 

industry, and could drive it away to other countries. 

While the Federal Government has temporarily suspended this 

tax, innovators still face great uncertainty about their future. 

Even more obstacles lurk along the path of international trade. 

Last year, this Committee held a hearing on digital trade. And the 

takeaway is that the United States leads in digital products and 

trade that rely on the internet. 

Yet the freedom of the internet faces challenges abroad, and the 

United States must strive to protect it. To remain credible in this 

mission, the United States must generally promote and defend the 

long-held American principles of unencumbered international 

transactions and trade. 

Every day has the potential for game-changing technological 

breakthroughs. Blockchain is an example of a technology at an 

early stage of development. Its potential for very wide application 

throughout the economy could be stifled by over-regulation. 

And the United States has the opportunity to continue to be the 

champion of its Age of Invention, but only if we keep the engines 

of innovation running. We must protect the ability of our market 

economy to perform at its full potential at home and in global markets across the world. 

I look forward to the testimony from our distinguished panel of 

witnesses today for clarity and for guidance on how innovation can 

drive economic growth and American prosperity. 

Before I introduce our witnesses, though, I would like to now recognize our Ranking Member, Senator Heinrich, for his opening 

statement. 

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[The prepared statement of Chairman Paulsen appears in the 

Submissions for the Record on page 30.] 

OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING 

MEMBER, A U.S. SENATOR FROM NEW MEXICO 

Senator Heinrich. Thank you, Chairman Paulsen, for calling 

today’s hearing on promoting innovation and accelerating economic 

growth. 

Innovation drives economic growth and boosts wages. We need 

more of it, and we need innovation to be more broadly shared 

across regions. 

Other countries are moving forward aggressively to promote innovation, to support advanced manufacturing, and to boost the productivity of their workforces. 

To lead in the 21st Century, the United States must remain at 

the forefront of game-changing discoveries and create an ecosystem 

that supports innovation across the economy. 

The Federal Government plays a key role in this, funding and 

conducting research and development, investing in human capital 

of our people, and in ensuring that we are making the necessary 

investments in a STEM workforce. 

STEM education and R&D are two innovation anchors. We need 

to ensure that students everywhere have access to STEM pathways, and that starts with making sure that schools have the resources they need to recruit, train, and retain talented science and 

math teachers. 

We need to expand middle-skills’ pathways into emerging sectors, and make a college education accessible and affordable for all 

Americans, so that every student has the opportunity to benefit 

from tomorrow’s innovations. 

The Federal Government remains the largest funder of basic research. That research, which adds to our fundamental stock of 

knowledge, yet often would not be conducted without public investment. 

This is the research that can help us solve the problems we do 

not yet know we even have. Basic research has driven major leaps 

forward, including mapping of the human genome, vaccines, breakthroughs in cancer research, and energy storage technology, and 

the creation of the internet, LASER, MRI, and GPS. 

The knowledge gained through this research has significant spillover economic benefits: increasing productivity, creating jobs, and 

accelerating economic growth. 

That is why it is encouraging that the recent Omnibus Agreement made significant investments in R&D. Investments in basic 

research increased by almost 10 percent over the previous year, its 

largest annual increase since the Recovery Act in 2009. 

Promoting innovation also means extending already developed 

technologies like broadband to communities currently without access. Today, years after high-speed internet was first made available, 19 million rural Americans still lack access. 

The private sector does not have the incentive to extend 

broadband to remote, hard-to-reach communities. The Federal Government must step in and fill that gap. 

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We also need smart policies that can help emerging industries 

grow. Targeted tax credits, competitive grants, and prize competitions are all levers that Congress can pull. The multi-year extension of the Wind Production Tax Credit is a good example. It is 

driving investment in wind farms in New Mexico and across the 

country. Earlier this year, I toured the future site of the $1.6 billion Sagamore Wind Project in eastern New Mexico, which will be the largest wind production farm in our State’s history, and create up to 

300 construction jobs, and 30 full-time operations’ jobs. 

Programs like laboratory-directed research and development, 

LDRD, authorizing a portion of Federal labs’ funding for cutting 

edge R&D are also quite vital. 

At Los Alamos National Laboratory in New Mexico, LDRD researchers generally account for one-quarter of the lab’s patents and 

peer-reviewed publications. Efforts to help commercialize technology developed at our national labs and research universities 

help to take a good idea and get it into production and out into the 

marketplace. 

In New Mexico, we have seen how commercializing the R&D that 

takes place in our labs can generate significant economic opportunities. I will share just one example. 

Descartes Labs is a New Mexico startup that uses artificial intelligence technology developed at Los Alamos National Laboratory to 

provide analysis and predictions based on satellite images of the 

earth. Early applications are in delivering crop-yield forecasts and 

analyzing trends in energy, construction, and the environment. 

Today the company has its headquarters in Santa Fe and has raised close to $40 million in venture money, employs 70 people, 

and is a recognized leader in analyzing satellite imagery. 

We need to help more research turn into innovative startups. Access to capital is key for entrepreneurs. Too many promising young 

companies fall to the valley of death, or get absorbed by behemoths 

where their innovation stalls because they cannot find the financing they need. 

This is especially tough for innovators in rural and smaller cities. 

Good ideas and innovations occur everywhere, but more than threequarters of venture capital goes to companies in San Francisco, Los 

Angeles, New York, and Boston. 

Expanding access to capital can help us tap into the next generation of innovators creating new startups and new opportunities. 

Lastly, immigrants are a key source of innovation and entrepreneurship. We cannot jeopardize these enormous contributions 

through short-sighted immigration policies, or by kicking out talented young people. 

I am an engineer by training. I could talk about innovation and 

R&D and tech transfer all day long, but I look forward to hearing 

from our witnesses next and hopefully learning some new things 

along the way. 

[The prepared statement of Senator Heinrich appears in the Submissions for the Record on page 31.] 

Chairman Paulsen. Thank you, Senator Heinrich. 

I will introduce our four witnesses, and then we will hear from 

each one of them individually. 

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First, Dr. Harold Furchtgott-Roth is a Senior Fellow and the 

founder and Director of the Center for the Economics of the internet at the Hudson Institute. He is the President of Furchtgott-Roth 

Economic Enterprises, which he founded in 2003. He is an Adjunct 

Professor of Law at Brooklyn Law School. From 1997 through 

2001, Dr. Furchtgott-Roth served as a Commissioner of the Federal 

Communications Commission. Prior to his appointment to the FCC, 

Dr. Furchtgott-Roth served as Chief Economist of the U.S. House 

of Representatives’ Committee on Commerce, where he was one of 

the principal staff involved in drafting the Telecommunications Act 

of 1996. Dr. Furchtgott-Roth holds an S.B. in Economics from the 

Massachusetts Institute of Technology, and a Ph.D. in Economics 

from Stanford University. 

Dr. Michael Strain, who is with us today, is the John G. Searle 

Scholar and Director of Economic Policy Studies at the American 

Enterprise Institute. He oversees the Institute’s work in economic 

policy, financial markets, poverty studies, technology policy, energy 

economics, health care policy, and related areas. His research has 

been published in peer-reviewed academic and policy journals. And 

before joining AEI, Dr. Strain worked at the U.S. Census Bureau’s 

Center for Economic Studies, and the Federal Research Bank of 

New York’s Macro Economic Research Group. Dr. Strain holds a 

Ph.D. in Economics from Cornell University. He was a graduate of 

Marquette University and holds an M.A. from New York University. 

Also with us is Mr. Mark Mills, who is a Senior Fellow at the 

Manhattan Institute; CEO of the Digital Power Group; faculty Fellow at Northwestern’s McCormick School of Engineering and Applied Science; and an Advisory Board Member of Notre Dame University’s Riley Center for Science, Technology, and Values. Previously he co-founded and was Chief Tech Strategist of Digital 

Power Capital. Early in his career, Mills was an experimental 

physicist and development engineer at Bell Northern Research, 

Canada’s Bell Lab. And he earned several patents for his work. 

Mills is also a published author and has contributed to The Wall 

Street Journal, The New York Times, and Forbes.com. He holds a 

degree in Physics from Queens University in Ontario, Canada. 

Also with us is Dr. Darrell West, who is the Vice President and 

Director of Governance Studies, and holds the Douglas Dillon Chair 

at the Brookings Institution since 2013. He is the Founding Director of the Center for Technology, Innovation at Brookings, and Editor-in-Chief of Tech Tank. Prior to coming to Brookings, West was 

the John Hayson White Professor of Political Science and Public 

Policy, and Director of the Todman Center for Public Policy at 

Brown University. West is the author or co-author of 23 books, and 

has published more than three dozen scholarly articles in a wide 

range of academic journals. He holds an M.A. and Ph.D. in Political 

Science from Indiana University, and an A.B. in Political Science 

from Miami University of Ohio. 

So we have a stellar group of witnesses that are here to share 

their thoughts and expertise with us today. And with that, we will 

begin with you, Dr. Furchtgott-Roth. Thank you for being here, for 

your opening statement, and I will recognize you for five minutes. 

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STATEMENT OF DR. HAROLD FURCHTGOTT-ROTH, DIRECTOR, 

CENTER FOR ECONOMICS OF THE INTERNET; FORMER FCC 

COMMISSIONER; HUDSON INSTITUTE, WASHINGTON, DC 

Dr. Furchtgott-Roth. Thank you, Mr. Chairman, and thank 

you, Members of this Committee. It is an extraordinary honor for 

me to testify before you today about economic growth and innovation in America. 

These are very important topics, and I am going to focus on the 

information sector, which is the sector I follow most closely. 

I have prepared testimony, which I hope will be entered into the 

record. I am not going to read it all. In fact, I am going to provide 

separate comments. 

My own research shows that a disproportionate share of American economic growth in the past generation is attributable to the 

information sector. I have three simple messages to share with you 

today: 

Global economic growth in the past generation has been more 

profound than any in prior history, and innovation in the information sector was at the core of that growth. 

The United States played a pivotal role in innovation in the information sector. Important factors included increased protection of 

property rights, a lighter regulatory approach, and an emphasis on 

competition. 

And third, despite early receptivity to the internet, governments 

in other countries today are threatening the further development 

of the information sector. 

The five largest corporations in America today by market capitalization are all in the information sector. Amazon, Apple, Google, 

Facebook, and Microsoft. They are also among the largest corporations in the world. 

These are all innovative companies, and together with smaller 

companies in the information sector all have contributed to innovation and economic growth in America. Countless private companies 

and startups compete in this sector. Ask a 20-something in America or anywhere around the world where they would like to work, 

and chances are they’re going to say: In a company in the information sector. 

These new companies have provided the world with new technologies, and have captured the imagination of the next generation. 

Why did these companies develop in the past generation and not 

before? And why did they develop in the United States and not so 

much elsewhere? 

Some might point to extraordinary entrepreneurs and technologists such as Bill Gates, Jeff Bezos, Steve Jobs, Sergei Wren, 

Larry Paige, and Mark Zuckerberg. Others might emphasize critical technologies developed in past generations that enabled the 

further development of the information sector. 

No doubt these and other factors are important, but great entrepreneurs are born in every generation, in every country. What 

made the information sector in the United States over the past 

generation different? 

Consider that much of the sector was founded in America. The 

information sector benefited from three conditions that changed in 

America over the past generation. 

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In America we established clear property rights in the information sector. We had a determined lighter regulatory approach. And 

we also, by statute, mandated more competition. 

Each of these factors was important to the development of the information sector in America over the past generation. Congress 

changed laws, and Federal agencies adopted rules that enabled 

more innovation and economic growth in the information sector. 

The rest is history. 

I have also been asked to address why productivity has slowed 

in recent years. I was asked the same question 40 years ago when 

I arrived at Stanford University. It became the topic of my dissertation. 

The answer today is, sadly, much the same as it was four years 

ago. We know only part, but not all of the reasons. It is much the 

same across all industrialized countries. 

One of my professors at Stanford, Moses Abramovitz, once described total factor productivity as a measure of our ignorance. It 

still is. 

Having said that, let me briefly note a few major reasons for recent productivity slowdowns: 

One, increased share of the economy in the service sector. Output 

is measured largely as revenue in the service sector, and it is very 

difficult to measure total factor productivity in those sectors. 

Second is increased obsolescence of products indicates rapid quality improvements that are not easy to measure. Take a look at your 

Smart Phone. There is no market today for an iPhone Version One. 

It is obsolete. But you can look at a car manufactured in 2009 and 

there is a good market for it, as there is for a ton of steel. What 

we have is rapidly improving quality of products that are very, very 

difficult to measure. 

Nonetheless, there has been a pronounced decline in total factor 

productivity in recent years, even in sectors that historically have 

shown rapid increases in total factor productivity, such as manufacturing, agriculture, mining, and utilities. 

So as Professor Abramovitz once said, total factor productivity remains a measure of our ignorance. There are a lot of explanations, 

but we don’t have them all yet. 

Thank you, very much. 

[The prepared statement of Dr. Furchtgott-Roth appears in the 

Submissions for the Record on page 33.] 

Chairman Paulsen. Thank you, Doctor. And our next witness 

we will hear from is Dr. Strain. Thank you for your opening statement. You are recognized for five minutes. 

STATEMENT OF DR. MICHAEL STRAIN, DIRECTOR, ECONOMIC 

POLICY STUDIES; JOHN G. SEARLE SCHOLAR, AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC 

Dr. Strain. Well thank you, Mr. Chairman, and Members of the 

Committee. It is an honor to be here. 

How can Congress foster innovation? What are important ways 

to improve the skills of workers, helping to enable individuals to 

innovate? Education reforms designed to teach 21st Century skills 

is critical. 

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A stronger emphasis on work-based learning for workers is critical. And in my view increasing the number of highly skilled immigrants is also critical. Many of the most innovative companies in 

the United States were founded by immigrants. 

Government has a role to play in supporting the basic research 

that innovation requires. Two important ways government supports 

innovation are through funding basic research, and through producing economic and social statistics required by businesses, researchers, and policymakers. 

Beyond encouraging innovation through increasing skills and 

supporting basic research, there is a wide variety of action government can take. Avoiding excessively high tax rates, reducing regulation and other barriers to technological progress, and maintaining a posture of openness to the rest of the world through international trade are just some of the ways public policy can support 

innovation. Congress can also foster innovation by helping to create 

and enforce an appropriate regulatory environment. Likewise, imprudent regulation can stifle innovation, slowing economic growth 

and the rate of improvement of living standards. 

I have been quite concerned about imprudent regulation recently 

in the conversation around big tech. It is common to hear calls 

from both the political left and right to ‘‘break up’’ major technology firms using the government’s antitrust powers. 

In my view, such action would be a major policy mistake. For the 

past half-century the Federal Government has followed the best 

standard that experts have crafted to identify anticompetitive behavior: consumer welfare. More specifically, when asking whether 

a firm is hurting competition, the following question should be 

asked: 

Is the company reducing the welfare of consumers by pushing up 

prices that consumers face, and/or by reducing the quality and variety of products and services that consumers enjoy? 

This antitrust standard stands in contrast to a different view 

which rests on the presumption that large and powerful companies 

should be suspect simply because of their size, under the assumption that with size comes undue economic power and the lack of 

competition. I would highlight three reasons why the latter view is 

inferior to the consumer welfare standard. 

First, it is much more vague and harder to define. This vagueness invites regulatory mischief at worst. More than that, though, 

is the concern that due to its vagueness regulators might be 

swayed more by the public debate around a particular company 

than by relatively more objective metrics. 

Second, the view that is suspicious of size ignores the good things 

that come from size. Economies of scale allow companies to produce 

goods and services more efficiently and at a lower cost than relatively smaller firms. These efficiencies can take many forms, including more specialized management and production techniques. 

Third, focusing on size distracts regulatory attention from consumers. This argument is equivalent to asserting that consumer 

welfare should be the regulatory goal in a normative sense. 

Big tech has significantly increased consumer welfare. Consider 

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nificantly reduced the prices faced by consumers for many products 

to the point that some argue that Amazon may be lowering the 

rate of consumer price inflation for the overall economy. 

Now consider product quality and innovation. The services mentioned above are all remarkably innovative. In addition to them, for 

example, Apple first put an entire music library into the palm of 

our hands, and then put a computer in all of our pockets. Major 

technology companies spend significant sums of money on research 

and development for new products in order to foster innovation. 

Alphabet, the parent company of Google, spends 16 percent of 

revenue on research and development. Facebook spends 21 percent. 

Microsoft spends 14 percent. These ratios are far higher than for 

other companies. For example, General Motors, General Electric, 

Proctor & Gamble, and AT&T each spend less than 5 percent of 

revenue on R&D. 

In addition, there is more churn in the technology industry than 

many may seem to think. It was not long ago that the dominant 

web browser was Netscape, not Google; that the dominant email 

service was not gmail; and that America Online was the dominant 

ISP. 

It is imprudent to assume that Google, Facebook, Apple, Amazon, 

and other tech giants of today will be dominant in perpetuity. The 

public conversation also seems to misrepresent the actual dominance of these companies in the present day. For example, despite 

concern about Amazon’s dominance, it is the case that online sales 

represent less than 10 percent of total retail sales. Walmart’s revenue is more than twice that of Amazon’s. 

In summary, I do not view big tech as a threat to consumer welfare or innovation, and I am not convinced by arguments that antitrust action is required to advance these goals. Instead, big tech is 

advancing consumer welfare through offering consumers a wide variety of high-quality products at low and sometimes zero prices. 

It is also advancing consumer welfare and innovation in the future through high amounts of spending on research and development which will fuel tomorrow’s innovation. And that innovation 

will in turn fuel faster economic growth and higher living standards for American families. Thank you. 

[The prepared statement of Dr. Strain appears in the Submissions for the Record on page 46.] 

Chairman Paulsen. Thank you, Dr. Strain. And now we will 

welcome Mr. Mills for your opening statement. You are recognized 

for five minutes. 

STATEMENT OF MR. MARK P. MILLS, SENIOR FELLOW, MANHATTAN INSTITUTE FACULTY FELLOW, McCORMICK 

SCHOOL OF ENGINEERING, NORTHWESTERN UNIVERSITY, 

WASHINGTON, DC 

Mr. Mills. Thank you, Chairman Paulsen, and Members of the 

Committee. 

As this Committee knows, when it comes to understanding ‘‘How 

the Innovation Economy Leads to Growth,’’ one is necessarily engaged in forecasting technology. And with all due respect, the track 

record on technology forecasting for Congress, and most pundits 

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and especially economists, again with all due respect to my economist colleagues, is dismal at best. 

Forecasting can be a dubious science, but it is serious business. 

My favorite aphorism in this regard dates back to 1963 when physicist and Nobelist Dennis Gabor wrote, ‘‘The future cannot be predicted, but it can be invented.’’ 

Despite recent innovations, there is today a popular forecasting 

thesis that essentially says we live in a time of a new normal 

where foundational innovation has run its course. The ‘‘New 

Normalists’’ don’t propose that there is an end to the kind of technology disruptions we are witnessing now with social media and 

the internet’s impact on politics and culture, instead they claim innovation is now a kind of froth on top of a paradigm of permanently slower economic growth because nothing really fundamental 

is happening in innovation. 

The New Normalists misinterpret, though, the record of recent 

slow growth we have been living through, in fact an interregnum 

between great technological cycles. History offers a lot of examples 

of this phenomenon, but permit me to illustrate just one recent example of energy domains where technology forecasting offers specific lessons also relevant for manufacturing and health care. 

When the Department of Energy was created 41 years ago, nearly every forecaster said, to use economic terms, hydrocarbon technology productivity had stalled out. It would not be able to 

affordably supply energy at the scale society would need in the future. 

Policymaking then effectively focused on a kind of palliative care 

for hydrocarbons: banning exports, constraining consumption, creating strategic reserves. And over the decades a cumulative $500 

billion was spent by the Federal Government in the pursuit of technologies that were forecast to be essential to replace hydrocarbons. 

We now know what happened. Engineers and the private sector 

invented a new technology that unlocked America’s vast shale 

fields that turned out to be astonishingly productive. Shale tech 

has added 2,000 percent more energy to the United States over the 

past decade alone than have solar and wind combined. 

But those on the front lines of the shale revolution, and the few 

forecasters who did anticipate what would actually happen, were at 

that time generally ignored or either viewed as engaged in ‘‘old 

think’’ or in the pockets of entrenched industries. 

As some on this Committee know, my written record shows that 

I was counted amongst those in the history’s minority. There are 

a couple of lessons from energy’s history that are relevant: 

Noisy public debate and aspirational forecasts can hide the real 

underlying trends. And what appears to be innovation stalling out 

is often a pause, the interregnum, between eras as engineers and 

industries perfect and adopt new technologies. 

The question today is what signals are we missing hidden in the 

media noise about the demise of manufacturing, the claimed inevitability of cripplingly higher health care costs? 

In my submitted testimony for the record I have addressed both 

of those, but in my brief oral remarks I will highlight health care. 

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chine learning. In fact, we are likely seeing a new battle for health 

care efficiency launched by the announced collaboration between 

Amazon, Berkshire Hathaway, and J.P. Morgan. 

And information systems will add valuable efficiency to administering existing health care services and the management of 

records and insurance. But doing better with existing data and 

therapeutics isn’t enough for a real revolution in health care productivity. 

Information systems inherently depend on acquiring more and 

better information. One has to have a physical means to act on 

that information, as well. Fortunately we’re on the cusp of a technological revolution in biological data acquisition and diagnostics 

and therapeutics. A lot of attention has been afforded to the promise of genetic engineering, which itself is, information centric, but 

the other two domains are equally critical: diagnostic tools, and information acquisition. 

There is now a clear path to commercial bioelectronics that are 

body-compatible, implantable, even digestable. Bioelectronics will 

ultimately rival in scale the traditional silicon electronics industry 

and create a tsunami of heretofore unavailable health-centric data. 

Much of that data will end up being channeled through radically 

new kinds of diagnostic tools, many soon in the hands of consumers 

not just professionals. There are far-reaching implications with the 

prospect of nearly every citizen possessing a useful diagnostic device. 

Apple, for example, is well aware of the fact that features inherent in or that can be added to an iPhone constitute an implicit if 

not explicit classification as a medical device. 

Last year’s X Prize, awarded for a portable diagnostic tool, was 

a dramatic example of the kinds of devices that were once just the 

stuff of science fiction. That prize was awarded for inventing the 

Star Trek Tricorder. 

For those who are not science fiction cognoscenti, the space ship’s 

doctor would wave a hand-held tricorder over a patient to obtain 

an immediate diagnosis. The real-world X Prize was for a mobile 

device that was able to diagnose 13 health conditions and continuously monitor 3 vital health signs. All this says nothing about the 

revolutionary health care technologies emerging from a class of 

practical robots and so-called co-bots, the latter working collaboratively with people. These will unlock not only more hyper-precise 

and minimally invasive surgery, but also radically more productive 

tools for elder care and rehabilitation. 

For the record, the same trifecta of technologies—computing, new 

materials, and new machines—is signaling a manufacturing productivity revolution as well. 

History shows that economy-moving revolutions in technology 

have never been predicted by economists. Instead, they’ve been invented and propelled, usually unexpectedly, by innovators. If there 

is a central for policymaking, it’s that instead of directing innovation, it is critical to ensure that there’s an environment that doesn’t 

impede innovators. Thank you. 

[The prepared statement of Mr. Mills appears in the Submissions 

for the Record on page 53.] 

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Chairman Paulsen. Thank you, Mr. Mills. And now we will 

hear from Dr. West. You are recognized for five minutes, thank 

you. 

STATEMENT OF DR. DARRELL M. WEST, VICE PRESIDENT AND 

DIRECTOR–GOVERNANCE STUDIES; FOUNDING DIRECTOR, 

CENTER FOR TECHNOLOGY INNOVATION, BROOKINGS INSTITUTION, WASHINGTON, DC 

Dr. West. Chairman Paulsen, Ranking Member Heinrich, and 

Members of the Joint Economic Committee, so thank you for the 

opportunity to testify at this hearing. 

So today I want to summarize my thinking on ‘‘The Innovation 

Economy.’’ My latest book is entitled ‘‘The Future of Work: Robots, 

AI, and Automation,’’ and it looks at the impact of new technologies 

on the workforce, education, and public policy. 

I also have a new paper, co-authored with Brookings President 

John Allen, on how artificial intelligence is transforming the world. 

Based on this research, it is clear that the Federal Government 

plays a vital role in encouraging innovation. I think there are several steps that would increase our economic growth and make sure 

the United States does not fall behind other leading nations. 

First I argue we need to increase Federal R&D. Right now the 

U.S. spends about $495 billion on R&D, with 72 percent of that 

money coming from the business sector, and only 11 percent coming from the Federal Government. 

If you go back to the 1960s, the Federal Government provided 65 

percent of R&D, and we saw NASA land a man on the Moon. In 

1969 we planted the seeds for today’s internet through a Department of Defense communications tool called ARPANET. So we need 

to remember that historically the Federal Government has played 

a vital role in these advances, and we have done very well on innovation. 

I think there is a danger of relying too much on the private sector for three-quarters of R&D because of its vulnerability to macro 

economic cycles. When the economy weakens, companies often 

slash their R&D and important strategic priorities can be lost 

through the decisions of individual firms. 

Secondly, we need to maintain our international competitiveness. 

The United States now devotes about 2.74 percent of GDP to research and development. This is less than the 4.23 percent devoted 

by South Korea, 3.29 percent in Japan, and 2.93 percent in Germany. 

Now China only devotes about 2 percent, but it has been increasing its R&D spending by anywhere from 14 to 20 percent every 

year since 2000. In fact, China accounts for 31 percent of the 

world’s R&D increase during this 15-year time period. 

Third, we need to address our critical needs in AI and data analytics. The U.S. Government is spending only about $1.1 billion a 

year on nonclassified AI. And just to contrast this, at it’s 19th 

Party Congress, China announced it was going to spend $150 billion on AI and plans to become the global leader by 2030. 

As John Allen and I argue in our recent paper, AI is the transformative technology of our era, and it is going to dictate our leadLAP51NQ082 with DISTILLER

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ership in terms of national security, economic development, and resource management, including many other areas. 

Fourth, we need to promote STEM education. There are too few 

Americans studying science, technology, engineering, and math. 

Only 17 percent of Americans earn a STEM Bachelor’s Degree, of 

those who are graduating from college, and 65 percent of them are 

male. This is far less than other nations. For example, in Korea 38 

percent are graduating with STEM degrees. China is producing 4.7 

million STEM graduates every year, compared to about a half a 

million in the United States. So we need to hire more science and 

math teachers in K–12. We need to pay those teachers higher salaries. 

Fifth, we need to invest in our physical and digital infrastructure. We still have many Americans who lack access to the internet. We are moving to 5G networks. They are going to be faster, 

smarter, and more efficient, but they are going to require the deployment of small cell towers. We need to streamline the local approvals for those towers. 

Six, we need to improve data access. Data analytics has tremendous potential to transform the public and private sector decision 

making. It will give us new insights into health care, energy efficiency, and national security. 

The last point I want to make is just the need to improve our 

digital access. It is crucial that everyone shares in the benefits of 

our innovation economy. We currently have disparities by income, 

race, and education. There are major gaps for rural Americans, 

which I can appreciate having grown up on a dairy farm in rural 

Ohio. One-third of rural dwellers lack access to high-speed internet. So this limits their ability to participate in the innovation 

economy. So it is vital that we close that digital divide. 

Thank you, very much. 

[The prepared statement of Dr. West appears in the Submissions 

for the Record on page 61.] 

Chairman Paulsen. Thank you, Dr. West. 

And now we will have an opportunity to ask questions and have 

an answer period. I would ask Members, and remind them to keep 

your question period to five minutes. I will begin. 

Dr. Furchtgott-Roth, the importance of technological progress 

and driving economic growth is widely agreed upon by members on 

both sides of the aisle. However, there is some disagreement about 

how much growth is actually left to be had, and how to encourage 

the necessary innovation that fuels technological progress. 

Do you think there will be much stronger growth moving forward? And if so, why? 

Dr. Furchtgott-Roth. Thank you, Mr. Chairman, for that question. I don’t remember the author of this statement, but approximately 120 years ago someone famous said that we had reached 

the end of science, and all discoveries that were important had 

been made, and there really wasn’t much point in pursuing it any 

further. 

I think that any suggestion that innovation has reached an end, 

any suggestion that we are at the end, that technology is naive and 

misguided, I think there is an awful lot still going on. 

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Chairman Paulsen. Okay, and Dr. Strain, maybe you can provide some thoughts there. Dr. West had just mentioned how AI is 

sort of the transformational initiative that we’ll be looking at in the 

future here. And sometimes we have a little bit of disagreement in 

terms of sort of how much resources that the Federal Government 

should not do in just basic research versus really encouraging more 

government spending, especially on R&D and other programs, to 

help investment in innovation and fuel growth. What is the reasonable approach? You know, sort of the basic foundations of research 

versus, you know, a lot more government spending in research and 

development? And how do you draw those distinctions and those 

lines? 

Dr. Strain. Yeah, thank you, Mr. Chairman. I think it’s an excellent question. I think there’s a clear role, in my view, for the 

Federal Government to provide resources to universities and to scientists and to centers that fuel innovation. For some kind of clear 

economic reasons, those types of innovative activities generate public goods. Those public goods would be under-provided if it were left 

to the private market. And so there is a clear economic rationale 

for Federal funding there. 

I think it is important that those resources be well targeted, because it is taxpayer money after all, and making sure that laws are 

written, and that agencies like the National Science Foundation 

are distributing money in such a way that the projects are selected 

carefully to encourage economic growth and to fuel innovation I 

think is very important. 

I also think it is important that Congress ensure that the basic 

economic and social statistics infrastructure remain strong. That is 

important for policy making. It’s important for private business activity, both of which have downstream effects on innovation and on 

economic growth as well. The immediate issue is the 2020 Census. 

That is far afield from this hearing, but it is something that is on 

my mind when your question was asked. 

Chairman Paulsen. So you are sort of referring also to the fact 

that modern technology isn’t often fully captured in existing measures right now with GDP and different productivity measures? Is 

there a way to—you know, what are your thoughts on sort of capturing those statistics or data to make sure we’re making smart 

policy decisions? 

Dr. Strain. Well I think it is an extremely difficult challenge, for 

the reason that my colleague mentioned. It is hard to kind of compare the price of an iPhone 1 in the year 2018 to an iPhone 1 in 

the year 2009. 

The people who work on these issues over at the Bureau of Labor 

Statistics, and throughout the Federal statistical system, are very 

capable people who are doing a good job with what they have. And 

I think making that sort of measurement issue a priority for them 

would be a way to move the ball forward there. 

Chairman Paulsen. And, Mr. Mills, just in my final minute, 

but, you know, you mentioned the future can’t be predicted but it 

can be invented. Do you have some other thoughts? 

Mr. Mills. Well, I do. In fact, one of the themes that we are 

hearing is this challenge of thinking about what is the role of govLAP51NQ082 with DISTILLER

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ernment. And I am extremely enthusiastic about the proposition 

that government should spend more money on basic research. 

However, I think we have a definitional problem between what 

are basic research and science order projects. So putting a man on 

the Moon is engineering. It’s not basic research. It’s not science. We 

do learn science along the way, but it’s an engineering project. 

I worked as both an engineer and a scientist. I admire both domains. Often never the twain shall meet. And I would like them 

not to meet so much in the government domains. Other than for 

Apollo programs and aircraft carriers, I think the government 

should focus on basic science. 

If you look at the history of the sort of disquisitions that come 

from Nobel Laureates, what you will find as the common thread on 

there in their awards is that they had done research that was driven by curiosity. In fact, they use those words. That these great discoveries that advance humanity didn’t come from directed research, 

but they were allowed to do research that was driven by curiosity. 

A tough thing to fund, I understand, but I think it is where the 

government has a critical role. 

Chairman Paulsen. Thank you. Alright, Ranking Member 

Heinrich, you are recognized for five minutes. 

Senator Heinrich. Thank you, Chairman. 

I will start with a comment, Mr. Mills, because I think that they 

should actually meet more. You look at a national laboratory like 

Sandia, and one of the keys to their success is the cross-pollination 

that occurs there between basic science and engineering. And that 

actually played a key role in the development of the hydraulic fracturing that you referenced in your testimony. 

I think it is that cross-pollination that we oftentimes fund things 

in silos and don’t have the full benefit of their leverage. 

Dr. Strain, I want to jump to you because you talked a lot about 

some of the big information sectors. You talked about Amazon in 

particular. I don’t hear a lot about Amazon’s low prices from my 

constituents—and that is not a critique of Amazon—but I do hear 

a lot about them on its impact to small main street businesses in 

rural areas. 

And the point of raising that is that the benefits of innovation, 

especially on a gross level, a GDP level, are pretty easy to quantify. 

But they also have very real negative impacts to specific populations. And those benefits are not flowing equally or homogeneously across our country. 

So how do we make sure, while supporting innovation, that innovation’s benefits don’t just accrue to urban and coastal communities? 

Dr. Strain. Well thank you, Senator, for the question. It is a 

very important one, for sure. 

I think it is the case that most people who live even in rural communities, even in communities where kind of local mom and pop 

stores are threatened by Amazon still benefit from innovation, and 

still benefit from technology companies, and benefit specifically 

from Amazon. The reason that those mom and pop stores are 

threatened is because Amazon is charging lower prices than the 

mom and pop stores can, and that people in those communities are 

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not going to the mom and pop store anymore because they are purchasing their goods elsewhere. 

Senator Heinrich. But most of them, my point is, would not 

choose, you know, a quarter or a dollar off their box of soap that 

gets delivered to their house if they have to trade that for their 

neighbor down the street no longer being able to keep a retail shop 

open. 

How do we get the benefits of that innovation into those communities so that there’s a vested reason for them to want to be part 

of the innovation economy? 

Dr. Strain. It is a classic example of somewhat diffused benefits 

and concentrated costs. So there are some people who are really 

bearing the brunt of this sort of change, and then many, many people who are benefiting from it. But the people who are bearing the 

brunt of it, that weighs heavier on them and there are a fewer 

number of them. 

It is a classic example of the kind of creative destruction that’s 

the hallmark of a market economy. I think the wrong solution is 

to try and stop innovation, and the wrong solution is to try and tax 

companies—— 

Senator Heinrich. So let’s get to the right solution. I’m running 

out of time. 

Dr. Strain. The right solution is harder. I think what we need 

is to have kind of a robust set of policies designed to create onramps to opportunity for people who are negatively impacted by 

technology. And that’s why I mentioned in my testimony things 

like work-based learning, and similar programs. 

Senator Heinrich. Dr. West, do you have a thought on this? 

Dr. West. The right way to maintain innovation that we all 

value is to keep the startup economy that has been crucial to the 

tech sector and the greatness of America. And here I have one 

major concern. 

We have been compiling data for 40 years on the number of 

startups in America. In the last decade there’s been a dramatic 

drop in the number of startups. If you look at the period from 1970 

to the mid-2000s, America averaged between 500,000 and 600,000 

startups. Now we are down to 450,000. So keeping that emphasis 

on competition and helping small businesses start off is absolutely 

crucial. 

Senator Heinrich. Let me ask you about something that specifically impacts small businesses. Yesterday I met with recently 

departed FCC Commissioner Mignon Clyburn, and she emphasized 

ensuring that all Americans have access to a free and open internet, and how important that is to foster innovation in places where 

it is particularly hard. 

What about the digital divide? You’ve talked about that. And 

what about a free internet? Does net neutrality promote or stifle 

innovation, Dr. West. 

Dr. West. In terms of the digital divide, as I believe you pointed 

out in your opening statement, there are 19 million Americans in 

rural areas that do not have access to broadband. One-third of people who live in rural areas lack access to high-speed broadband. 

If you want to apply for a job today, many companies, and Brookings has done the same thing, have converted to online applicaLAP51NQ082 with DISTILLER

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tions. You have to have access to the digital economy in order to 

get a job. 

In terms of the open internet, it is important to maintain the 

open internet. One of the reasons why our country has done so well 

in innovation over the last couple of decades has been that we treat 

all internet traffic the same. There’s been no discrimination in the 

traffic. You can’t slow down anyone’s traffic. 

If you’re the small guy operating a small convenience store on 

the corner, your traffic gets treated the same as the large company. 

So it is important to maintain that. 

Chairman Paulsen. Thank you. Now we will listen to the Vice 

Chairman of the Committee. Senator Lee, you are recognized for 

five minutes. 

Vice Chairman Lee. Thank you, Mr. Chairman. Thanks to each 

of you for coming. Your expertise brings a lot to our Committee. 

The FAA has banned commercial flight of supersonic aircraft in 

this country. This ban was found in a regulation that was promulgated back in 1973, so some 45 years ago. Today, in 2018, commercial aircraft travel no faster than they did 50 years ago, in part as 

a result of this. 

And significantly, the Concord, the heavy, clunky supersonic 

commercial aircraft that was in use at the time the regulation was 

promulgated, has been grounded today in part as a result of those 

regulations. 

But when we look at this today, we realize that there are some 

companies that have developed technologies using stronger, lighter 

materials that could achieve a greater degree of fuel efficiency, and 

perhaps most importantly there are some companies that have developed technologies that they claim can result in commercial 

grade supersonic travel that is 30 times quieter than the Concord 

was. 

And this seems like an example of the problem we face when regulations do not keep pace with current technology. And so, Dr. 

West, I would like to ask you a question about this. 

What do you think some of the benefits to the United States 

might be from supersonic travel? And is this something that you 

think we ought to continue to stick to? Is it time for Congress to 

revisit this idea of banning overland supersonic commercial travel? 

Dr. West. I think there has been so much innovation over the 

last 40 years that any regulation from 40 years ago deserves another look. Because I remember when the Concord was flying, 

there was concern at the time about sonic booms that were annoying people on the ground, and so that was one of the reasons that 

created a complication there. 

But I would not be surprised if manufacturers have figured out 

ways to handle that; that there are noise abatement procedures 

that would make a difference. So we certainly need to constantly 

take a look at regulations. 

We need to move into what I would call smart regulation, which 

basically is well designed and focuses on specific problems. 

Vice Chairman Lee. And just because I find this area interesting, I would note in response to your observation, it is my understanding that the sonic boom is somewhat analogous to the 

wake that travels behind a boat or a ship. And just as the size and 

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the shape and the materials used in a boat or a ship can affect the 

type of wake it casts, there are ways of diminishing the impact of 

the sonic boom. And that is yet another reason why we ought to 

revisit this nearly half-century-old regulation. It is really out of 

date. 

In the coming years we are going to see the deployment of 5G 

technology; 5G wireless networks are going to revolutionize all 

sorts of things. But they require the deployment of a large number 

of small antenna systems, somewhat different from our current cell 

phone networks. 

The dawn of the 5G era brings a whole lot of opportunities in the 

way we will travel, and the offering of things like telemedicine, in 

the travel of autonomous vehicles both on the land and in the air 

in drone use, and a greater connectivity generally. 

Dr. Furchtgott-Roth, I would like to ask you. These benefits can 

be impeded by government regulations that could stop the deployment of this technology. Is our current regulatory framework prepared to handle these challenges, the challenges associated with 

the deployment of a 5G network? 

Dr. Furchtgott-Roth. Senator, that is a very good question. A 

lot of people are very concerned about the deployment of 5G technologies, and in fact are concerned about whether regulation will 

get in the way. 

I think at the Federal level, and I would say even at the State 

level, that most people in government are trying to take great efforts to be sure that there are not impediments to the deployment 

of the new technologies. 

There are a handful of municipalities around the country that 

want to create new regulations on the siting of towers, or in the 

case of 5G networks it’s not going to be towers, it’s just going to 

be a tiny little box that can stick on the side of a building. And 

so I think there is some concern that municipalities may be impeding the deployment. We will have to see. 

Vice Chairman Lee. Thank you. I see my time has expired, Mr. 

Chairman. 

Chairman Paulsen. Thank you. Senator Peters, you are recognized for five minutes. 

Senator Peters. Thank you, Mr. Chairman. Thank you to our 

witnesses today. I appreciate the conversation that’s been very interesting. 

I am concerned about the growth of innovation that we see in 

this economy. There are other sectors outside of IT and health care 

which of course are big drivers for the economy right now, but looking at it more broadly coming from Michigan, particularly with a 

lot of older industries there. 

In a recent Economic Innovation Group study I was struck by a 

finding that they cite, another study, that shows that in the United 

States today only generates two nonhealth and non-IT patents for 

every one billion dollars in GDP. And so taking out IT, taking out 

health care, looking at a decline of dynamism generally in the rest 

of the economy, which is a very large part of our economy. And in 

the 1980s it was four. So basically it’s half. The innovation outside 

of IT and health care, at least as measured by the number of patLAP51NQ082 with DISTILLER

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ents, which is just one of many measures you could have, has 

dropped in half. 

Dr. Furchtgott-Roth, any ideas? You’ve certainly talked in your 

testimony. We have a lot of explanations for what’s happened to 

productivity. And you mentioned the iPhone example, but that 

would be out of this. This is innovation within these other industries. 

Dr. Furchtgott-Roth. Thank you, Senator. That’s a very important question. If I had my econometrics hat on, I would say there’s 

an inflation issue. If you’re comparing patents per dollar of activity 

in the 1980s with today, you’re going to have a—it’s not surprising 

to see some decline per dollar. 

But I think the real question you’re asking is really far more profound than that, which is: Outside of some sectors of the economy, 

probably particularly high-tech, health care, the United States no 

longer has the global position that it had a generation ago. And I 

think that is very troubling. It is something that I hope this Committee will be able to address, to figure out—I focus a lot on the 

information sector. That is an area where the United States has a 

very strong global position. 

There are other industries where we have lost that edge. And I 

am very troubled about actions that are being taken by other governments that threaten the information sector, and no doubt other 

sectors of the economy. 

Senator Peters. I appreciate that. We need to work more on 

this, because this is a fundamental question for us to deal with. 

And I think part of what folks have talked about, at least in my 

reading, and it’s correlated I think to what Dr. West talked about, 

is the decline of new business formation. Because it’s a lot of those 

smaller businesses in particularly these other industries where you 

can get more innovation as a result of that. 

Dr. West, you have talked about the decline of that. One other 

statistics that I have been looking at, and would love to have your 

comments, and this doesn’t refute but maybe is a little counter to 

what Dr. Strain said, but is that we have seen just a concentration 

in our economy with larger and larger firms across the sectors. In 

fact, I think one of the statistics are, if you look at over the last 

20 years we have more concentration now in more industries than 

we have had in the past. And as you have bigger and bigger firms, 

it becomes more difficult for a small firm to start in those industries. Dr. Strain mentioned the advantages of size, which there are 

significant ones including economies of scale, et cetera. Do you believe—and where’s the academic literature—that because of an increasing concentration across all industries that we’ve actually 

seen a decline in dynamism in the economy as a result of that, and 

the competitive advantages that big firms have? 

Dr. West. I do worry about small businesses getting squeezed 

out of this environment. I think the competition is an issue, and 

we need to take a look at it. In 2014 in The Wall Street Journal, 

a Silicon Valley entrepreneur, Peter Thiel, wrote a famous column 

saying competition is for losers, and argued that monopolies are 

great. 

I strongly disagree with that viewpoint. I think small businesses 

actually create a lot of the jobs. When we think back to the big tech 

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sector, you know most of those firms started in garages or dorm 

rooms. So it is really vital that we maintain an environment where 

small businesses can thrive. 

Senator Peters. And in my remaining time—I only have 30 seconds and it’s a big question for you—but you mentioned AI and the 

transformative nature of AI. It has also been argued, and I agree, 

that it is transformative, but it is large capitalized companies, big 

companies, that will be able to use AI more efficiently and more effectively than smaller companies, and could actually further concentration. 

Is that a potential problem? 

Dr. West. It’s a potential problem, but the economic payoff of AI 

is just so substantial. Price-Waterhouse Coopers just put out a 

study in which they estimated AI can increase global GDP by over 

$15 trillion. 

Unfortunately, half of that money is going to go to China just because they are investing, and they are really putting a lot of effort 

into there. Only about 20 percent of that is going to accrue to 

North America. So that is an area where we need to do better. 

Senator Peters. Thank you. 

Chairman Paulsen. Representative Handel, you are recognized 

for five minutes. 

Representative Handel. Thank you very much, and thank you 

to each of the witnesses. 

Mr. Mills, I saw you shaking your head a little bit about the comment that AI is going to primarily benefit larger companies. Would 

you like to tell me what you think about that? 

Mr. Mills. Yeah, I don’t think that’s what’s going to happen, but 

we’re back in the forecasting game here. AI is in early days of deployment. In fact, the AI community is struggling with the same 

kind of reproducibility challenges that the medical community and 

the science community at large has in terms of claims. 

But more interesting is that, what I think will happen is that AI 

is going to democratize the nature of computing and will actually 

help small businesses. So we’re at an odd phase in the computing 

infrastructure of the world. 

So you have the big guys competing to create these broad cloud 

infrastructures of access to cheap computing. There’s fierce competition among a half-dozen major players, another half-dozen very 

significant players. There will be some winners, but I don’t think 

the consolidation is going to happen very quickly. 

And what they are doing is providing astoundingly cheap, essentially free, and for small businesses actually free supercomputing 

in the cloud running AI. So I am a partner in a boutique venture 

fund that invests—not on the coasts; we invest in the Heartland— 

in software. And one of our companies is an AI company that does 

AI primarily for the resource industries in oil and gas. 

But they get—and they are proud of this AWS compute power for 

free, Amazon offers startup companies. It’s a hook. They want them 

to stay in when they become bigger. But that hook is chasing a rapidly declining cost of AI. It means that the supply chain advantages 

Amazon had in the early days get democratized to the mom and 

pop shops. 

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I am, frankly, worried about regulating big tech, like Dr. Strain 

is, but I am particularly enthusiastic about the democratizing effect 

of what will become sort of an era of embodied computing universally. 

Representative Handel. Well it is interesting. I, just coincidentally, had a meeting with a young fellow, literally a very young fellow, in his early 20s, who is an extraordinary innovator and inventor in the AI sector, and he has a very small company, and he has 

been able to monetize it, and he is doing extremely well as a 23- 

year-old. 

So what he said to me—and this goes to my next question for 

you, Dr. Strain—he said that he sees AI and this breakthrough as, 

well, some would be concerned that it is going to take jobs away 

from Americans, he rather sees it as a way to help individuals do 

their jobs better. 

And as we have seen technology advances come forward, we always hear the cry that, oh, it is going to be the demise of the worker and the workplace. But we really have not seen that come forward. 

Do you have some thoughts, Dr. Strain, on that? 

Dr. Strain. I do. It is such an important question. My answer 

will be somewhat similar to my answer to Senator Heinrich. This 

will be a situation where you have concentrated costs and diffuse 

benefits. 

So there will be some people who are impacted quite negatively. 

But the technology will accrue overall to the benefit of everybody, 

and it will accrue to the benefit of the average American, if you 

will. 

There have been many periods of history within the United 

States and in Europe where new technologies have kind of come to 

the fore, and there has been concern that those technologies would 

make human work obsolete. Those concerns have never come to 

pass. 

In my view, we are not looking at a situation where those concerns will come to pass at any point in the near future, as well. 

New kinds of work will be created. 

Representative Handel. Great. Thank you. 

And in my remaining time, for Dr. Furchtgott-Roth, you made a 

comment that you, in your opinion the United States has lost its 

edge when it comes to innovation and discovery. Why do you think 

that? And what can we do from a policy—put the money investment part aside—but policy framework, can we do to help recapture, regain our place in the innovation hierarchy? 

Dr. Furchtgott-Roth. Well as I mention in my comments, I 

think there are three elements. One is clear property rights. The 

second is a lighter regulatory touch. And the third is competition. 

I think all three of these are important and necessary for innovation. And my comment was in response to Senator Peters about 

certain sectors of the economy where we used to be globally dominant and no longer are. 

Representative Handel. Alright, thank you. And I am running 

out of time and I yield back. 

Chairman Paulsen. Representative Adams, you are recognized 

for five minutes. 

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Representative Adams. Thank you, Mr. Chairman. And thank 

you for your testimony, gentlemen. 

In 2017 the National Institutes of Health, the primary govern- ment agency for biomedical and public health research, spent $19 

billion on research grants. These grants funded thousands of laboratories across the country. And since the majority of this work 

is done by academic researchers, these grants are an important 

source of Federal funds for universities and their surrounding communities. 

In short, research funding translates into greater economic opportunity for the researchers, their schools, and the communities 

hosting them. 

So perhaps you can imagine my concern at finding out that of the 

top 100 organizations that NIH gives research funding to, no 

HBCU, Historically Black College or University, is included. Not 

one was on the list. 

So, Dr. West, what are the implications for HBCUs being left out 

of the bulk of NIH funding? 

Dr. West. Well I would say it is devastating for them, and it is 

devastating for their local economies. Because we know, as you 

suggest, R&D really drives economic development. In fact, people 

have suggested the multiplier effect is 5 to 1, or 10 to 1. It is a 

huge economic effect. 

In many local communities, economic development is based on 

Eds and Meds. It is the education sector and the biomedical sector 

and the hospital sector that drives a lot of economic growth. 

So if the HBCUs are not getting the grants, it is really going to 

limit what they can do research-wise, but also have a devastating 

impact on their local communities. 

Representative Adams. So what about the—what implications 

do you find of the funding disparity for the students that these universities teach? 

Dr. West. It means that they will be denied opportunities, especially in the STEM fields, and in biomedical areas, and those are 

going to be the growth areas in the future. So if they are coming 

out of college and they do not have those skills, it is going to limit 

their opportunities. 

We know that by 2044 America is going to become a majority minority country, and so it is crucial that we recruit more women into 

the STEM field, but also more minorities so that that sector represents the full diversity of America. 

Representative Adams. Thank you. The topic today is ‘‘How 

Innovation Helps the Economy Grow.’’ And I am really on HBCUs 

because, not only did I attend one and spent 40 years on the campus, I really know the impact that these colleges and universities 

have not only on our economy but also on our students. 

So if HBCUs and other minority-serving institutions continue to 

be under-funded in regards to Federal research grants, can the 

economy grow equally? 

Dr. West, that is a question for you. 

Dr. West. Well the short answer is, no. And one of the concerns 

that I have is, if you look at the venture capital money today, 

three-quarters of it is basically concentrated on the coasts. So most 

of America is being left out of the growth areas of the economy. 

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Something like two-thirds of GDP is now taking place in less 

than one-third of America. Those geographic inequities are devastating. It makes most of the country feel left behind, while the 

coasts are running ahead and doing very well. 

It is bad for our country, and it has a devastating effect on our 

politics. 

Representative Adams. So can the African American community expect to see the same economic impact from government research grants if HBCUs are not receiving proportional Federal 

funding that the PWIs, or the Predominantly White Institutions, 

receive? 

Dr. West. There deserves to be greater representation there both 

from a fairness standpoint, but also from an economic development 

standpoint. Many of those schools are located in places that are not 

doing that well economically, and so this is one way in which the 

Federal Government can play a constructive role of helping communities that have been left behind by technology innovation and 

making sure that they are able to compete in the years going forward. 

Representative Adams. Well thank you for your responses. 

You know, when you look at across the country we have got 106 

or more of these schools, and it would really I think be important 

not only to them, to the students that attend them, but also to our 

economy for us to take another look there. 

Thank you, and I yield back, Mr. Chairman. 

Chairman Paulsen. Thank you. Representative LaHood, you 

are recognized for five minutes. 

Representative LaHood. Thank you, Mr. Chairman. I want to 

thank the witnesses for being here today, and for your valuable testimony. 

I know we have touched a little bit on competition here today. 

And when I think of the tech, or the titan firms that are out there, 

obviously some of them have been under scrutiny for what some 

would deem as somewhat sophisticated or calculated, and arguably 

anticompetitive practices. 

For instance, a number of these tech companies have combined 

their ability to collect data and build algorithms to determine 

which products or services are trending. And once they have 

achieved those results, these same companies then can alter their 

search engines to favor their own products and services over their 

competitors, and even simply buy out their competitors. 

And you add these companies’ significant network effects where 

value is added to the company simply because a consumer chooses 

to use only that company’s products or services. These firms gain 

significant market power. And I think we have seen that in a lot 

of different instances. 

I guess from a public policy standpoint, when we think about 

what government can or can’t do, how do we ensure that startups, 

which are the major drivers of innovation, are still able to compete 

and be able to have a market to innovate as a whole. And I think 

I’ll start with Dr. West. 

Dr. West. Thank you. I agree with your emphasis on competition. I agree that there is a problem in terms of the decline of 

startups in America. 

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My colleague, Bill Galston and Clara Hendrickson wrote a paper 

on this topic, which I would recommend to everyone on the Committee. And what they suggest is the need to update our merger 

review guidelines for the digital economy. 

Many of those guidelines date back 20 and 30 years and have not 

really been updated, even though our economy has undergone 

major changes. So we need to kind of look at how we think about 

those types of things. 

Representative LaHood. Dr. Strain. 

Dr. Strain. I certainly think this is an extremely important 

issue, and I agree with Dr. West that looking at some of the merger 

rules is a reasonable course of action. 

I think it is important to recognize that there is more complexity 

here than there may seem. So on the one hand it is the case that 

tech giants are buying smaller tech firms and kind of folding them 

into their conglomerate. And it is reasonable to speculate that that 

may be reducing innovation and reducing competition in the economy. 

The flip side might also be the case. It could be that the opportunity to be purchased by a major tech firm is actually something 

that is incentivizing people to innovate and to create new tech companies. Their goal could be to be purchased. 

And so it is an area that I think merits further study and further 

examination, but it is not immediately clear to me that, because 

Facebook purchased Instagram there is less competition and innovation than there otherwise would be. 

Representative LaHood. Along those same lines, as we look at 

the Federal Trade Commission and the role that they play, does 

the FTC have a modernized set of tests and evaluations to adequately determine if and when the tech company is stifling competition or innovation, or is anticompetitive? Do you feel that their 

standards and evaluations are currently up to par on that? Do you 

want to comment on it, Dr. Strain? 

Dr. Strain. Yes. I feel that the standards are the right standards. The standards focus on the consumer and on the welfare of 

the consumer. The standards focus on the prices that consumers 

face, on the quality and variety of products that are offered to consumers, and on whether innovation is being fostered, and whether 

competition is being advanced. 

There are other standards, and other countries place emphasis 

on different things, but that standard has been the standard in the 

United States for the past half-century, and it still seems to me to 

be the correct and appropriate standard. 

Representative LaHood. Thanks. Mr. Mills, my ears perked up 

when you mentioned the Heartland. I represent a District in central Illinois, Peoria, Illinois, is my home town. And you talked 

about investment in the Heartland when it comes to not necessarily the East or the West Coast. 

How do we look at smaller markets? And what is the attraction 

to investing in tech in medium-sized markets or the Heartland? 

Mr. Mills. Well the short answer is, to be mildly cynical, is that 

the pricing of the deals is better. So you are not competing against 

large venture funds that add a zero to the valuation of a company 

you want to invest in. 

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So you can find just the smart young men and women, and older 

men and women—I would note the Kaufen Index shows that the 

number of startups started by people over 55 is the same as the 

number under 35 as a percentage of startups. 

It is attractive because there is a lot going on. But it is not attractive if you do not like traveling. So venture funds tend to like 

to invest in their geographical orbit. 

I would like to point out that one of the big problems, having 

been a practicing venture capitalist and began one, and having 

taken a company through an IPO as the founding chairman and 

CTO, that the biggest problem that we have in getting new companies to not be bought by an Amazon, or be bought by a GM, or whoever, is that we’ve damaged the IPO process. 

The finance regulatory system makes it extraordinarily difficult 

and extraordinarily expensive, and this has been well analyzed by 

a lot of academics, but as a practitioner being run through that 

mill I can tell you it is a very difficult, very painful process. 

I know what it is designed to do, to protect innocent victims buying stock in companies that are charlatans, but I think the pendulum has swung too far. 

Representative LaHood. Thank you. Thank you, Mr. Chairman. 

Chairman Paulsen. Thank you. Representative Maloney, you 

are recognized for five minutes. 

Representative Maloney. Mr. Chairman, I would like to thank 

you and the Ranking Member for calling this incredibly important 

hearing, and all of our panelists. I believe this is certainly one 

issue that we can firmly all agree on, that innovation and entrepreneurial drive is one of the defining characteristics, if not the defining characteristic, of America’s success. And certainly it has been 

essential to our economic success. 

And I am disturbed by some of your statements that we are losing our competitive edge and our really innovative success in this 

area. 

I just have noted economically in my own District and around 

the country that retail stores are closing. They are just closing in 

droves. You have empty stores. And I represent Manhattan. It is 

a business district, but stores, particularly retail stores, are all 

going out of business. 

I read an article last week that 18 major retail companies are 

going out of business. And I resisted buying online, but now I do 

everything online because it is faster and I do not have time to go 

shopping. But there are no more toy stores, clothing stores, they 

are all going under. And that is just one example of how a large 

conglomerate, in this case Amazon, is taking over. 

And it just is common sense that when these large conglomerates 

go in and dominate, they are going to stifle the creativity in those 

areas, and the competition in those areas. 

But I want to ask Dr. Furchtgott-Roth, in your testimony you 

state the need for strong intellectual property laws, and I agree 

that our property laws have brought many people to invest in our 

country. They trust our laws. They invest in our country. But in 

the past the high tech industry has benefited greatly from the fact 

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that workers often move from one company to another, taking their 

skills with them. 

It has been argued that this cross-cultural or hybridization has 

been a significant factor in promoting innovation. If you look at the 

automobile companies that all came up in Detroit. The Silicon Valley with all these high tech companies out there. And now we see 

a trend where some companies have tried to enforce nondisclosure 

agreements that restrict the movement of skilled workers, or take 

a broad interpretation of what knowledge is proprietary. They are 

being forced to sign non-compete, won’t go to another firm, won’t 

share information. 

Yet if you look at the history of the country, it was this crossideas that people would get in an area and talk to each other, go 

to another firm, do a startup. But now with these non-competes 

and this, that, and the other, I just like to think what kind of impact do you think these agreements have? And are they damaging 

innovation? 

I would like to ask you, and I would like to ask Dr. West, about 

the impact of these nondisclosure, non-compete, won’t go to another 

firm, you can’t go to another firm in the same industry, that these 

industry high tech firms and others are forcing their employees to 

sign. 

I even went to visit a high tech firm. I was just visiting it. And 

I was going in and touring it, and I had to sign a nondisclosure, 

will-not-reveal anything I learn during the trip that I had to just 

look at it. 

So what is this going to have—true story; I couldn’t believe it— 

but anyway, to the panelists, if you would start, Doctor. 

Dr. Furchtgott-Roth. Yes, thank you. It is a very important 

question. 

I think a lot of the non-compete contracts are very fact-specific. 

And I’m sure there are some that are very problematic and may 

have discouraging effects on innovation, and others may very well 

be necessary for companies to be willing to invest in employees and 

be willing to share information with them. 

So I would be very—I am not in a position to make a blanket 

statement about their effectiveness. Maybe some of the other panelists have a stronger view. 

Representative Maloney. Dr. West, do you have a—— 

Dr. West. Yes, I do have stronger views on that, so thank you 

for the opportunity. I agree with you that many of the noncompete 

clauses are overly broad. 

I grew up in an era where most employees were free agents, and 

you basically sold your talent to the highest bidder, or where you 

wanted to work. I think we have gotten away from that, and I 

think that damages our ability to innovate, it damages competition, 

and it is probably part of this drop in startups that we have been 

seeing over the last 40 years. 

Representative Maloney. I have one minute left, but I am 

going to ask, I guess it was Dr. Strain, you said that all of these 

huge conglomerates were not hindering, if I heard you correctly, 

the competition, and it was really still a small part of the profit, 

or the organizations. But I’ve got to tell you, I don’t remember an 

antitrust suit in my lifetime. And yet if you read the history of our 

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country, there was one antitrust suit after another trying to break 

up monopolies. 

I guess we did have one when we reformed the telecommunications system in America and said AT&T could no longer dominate everything, that there would be competition. And I would 

argue that is what brought us all of the new internet and high tech 

firms, is when we deregulated that we had a burst of activity 

where a young, brilliant kid could start their own company. 

But we are fixing it so that it is becoming harder to happen. So 

I just want to throw that out. I am concerned about the domination. And I read an article that one major company begins every 

meeting by saying ‘‘Dominate!’’ We must dominate America’s commerce. We must dominate the world in this area. 

And I don’t see that dominating brought us the innovation, that 

brought us the success that we have as a country. And if we lose 

that success, I think we lose a fundamental element of what America is. 

I am very concerned about it. Thank you for calling this hearing, 

Vice Chair and Chair. I think it is very important. 

Chairman Paulsen. Thank you. And let me just thank all of 

our witnesses for taking the time to appear before the Committee 

today. I want to remind Members, should they wish to submit additional questions for the record, the hearing record will be open for 

five business days. 

And with that, our Committee is adjourned. 

[Whereupon, at 3:27 p.m., Wednesday, April 25, 2018, the hearing was adjourned.] 

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SUBMISSIONS FOR THE RECORD 

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Good afternoon, and welcome to today’s hearing on ‘‘How the Innovation Economy 

Leads to Growth.’’ 

The U.S. economy is not only growing, but it’s also doing so faster. 

GDP growth is rising, job creation is strong, average wage growth is improving, 

and inflation remains low. 

These long-awaited positive results stem from the decision to unleash America’s 

most valuable economic asset: the American people. 

Tax and regulatory relief are allowing American families and main street job creators more breathing room and to do more. 

Contrary to those who believed we were stuck at low growth, many economists 

expect as much as 3 percent GDP growth in 2018 and similar strong growth in 

2019. 

To achieve this, Washington needs to stay out of the way so that individuals are 

free to figure out new ways to solve old problems. 

Such innovation is vital to sustaining our restored economic growth. 

America has been a laboratory for invention since its inception, and it is that spirit that has led to our strength. 

A report by the McKinsey Global Institute in March 2017 finds that many advanced economies rely on productivity gains far more than increases in the labor 

supply to drive economic growth. 

Folks in the private sector know this when they ask questions like: How can we 

serve more customers in one day? How can we complete more orders in less time? 

How can I produce a product with fewer passes of a machine? 

Those questions are how innovation becomes the primary driver of productivity 

gains. 

We know we are blessed to live in the United States for a variety of reasons, but 

among those blessings are our fellow Americans who have generated remarkable 

technologies to lift our standard of living, to expand our horizons, to support U.S. 

leadership in the world, and to grow our economy. 

Not all economic systems are equally conducive to such path-breaking innovations. 

Every technological advancement of major economic consequence since World War 

II has come from the United States. That is no accident. 

As we will hear from our witnesses, strong property rights, the rule of law, light 

regulation, and competition are critical conditions for visionary entrepreneurs, risk 

takers, and investors to generate the technological success we have seen. 

American inventors, main street job creators, and resourceful factory workers will 

continue to deliver amazing advances-but that’s contingent on Washington staying 

out of the way. 

A brilliant idea or discovery is only the start. It has to be put into concrete form 

and developed. From there it has to be commercialized and disseminated throughout 

the economy before it actually boosts economic growth. 

These steps can take a long time depending on how they are taxed and regulated, 

or how antitrust law is applied. 

The highway to innovation is littered with potholes, traffic jams, and overturned 

vehicles. You can see this up close in my home state of Minnesota where an excise 

tax threatens the innovative medical device industry and could drive it away to 

other countries. 

While the Federal Government has temporarily suspended that tax, innovators 

still face great uncertainty about their future. 

Even more obstacles lurk along the path of international trade. Last year, this 

Committee held a hearing on digital trade. The takeaway is that the United States 

leads in digital products and trade that rely on the internet. 

Yet the freedom of the internet faces challenges abroad, and the United States 

must strive to protect it. To remain credible in this mission, the United States must 

generally promote and defend the long-held American principles of unencumbered 

international transactions and trade. 

Every day has the potential for game-changing technological breakthroughs. 

Blockchain is an example of a technology at an early stage of development. Its 

potential for very wide application throughout the economy could be stifled by overregulation. 

The United States has the opportunity to continue to champion its Age of Invention, but only if we keep the engines of innovation running. We must protect the 

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ability of our market economy to perform at its full potential at home and in global 

markets. 

I look forward to the testimony from our distinguished panel of witnesses today 

for clarity and guidance on how innovation can drive economic growth and American 

prosperity. 

PREPARED STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, JOINT

ECONOMIC COMMITTEE

Thank you for calling today’s hearing on promoting innovation and accelerating 

economic growth. 

Innovation drives economic growth and boosts wages. We need more of it and we 

need innovation to be more broadly shared across regions. 

Other countries are moving forward aggressively to promote innovation, to support advanced manufacturing, and to boost the productivity of their workers. 

To lead in the 21st century economy, the United States must remain at the forefront of game-changing discoveries and create an ecosystem that supports innovation across the economy. 

The Federal Government plays a key role in this—funding and conducting R&D, 

investing in the human capital of our people, and ensuring that we are making the 

necessary investments in STEM. 

STEM education and R&D are two innovation anchors. 

We need to ensure that students everywhere have access to STEM pathways, and 

that starts with making sure that schools have the resources they need to recruit, 

train, and retain talented science and math teachers. 

We need to expand middle-skills pathways into emerging sectors, and make a college education accessible and affordable for all Americans, so that every student has 

the opportunity to benefit from tomorrow’s innovations. 

The Federal Government remains the largest funder of basic research—that research which adds to our fundamental stock of knowledge, yet often would not be 

conducted without public investment. 

This is the research that can help us solve the problems we don’t yet know we 

have. 

Basic research has driven major leaps forward—including mapping of the human 

genome, vaccines, breakthroughs in cancer research, and energy storage technology 

and the creation of the internet, laser, MRI and GPS. 

The knowledge gained through this research has significant spillover economic 

benefits—increasing productivity, creating jobs, and accelerating economic growth. 

That’s why it’s encouraging that the recent Omnibus agreement made significant 

investments in R&D. 

Investments in basic research increased by almost 10 percent over the previous 

year, its largest annual increase since the Recovery Act in 2009. 

Promoting innovation also means extending already developed technologies, like 

broadband, to communities currently without access. 

Today, years after high-speed internet was first made available, 19 million rural 

Americans still lack access. The private sector doesn’t have the incentive to extend 

broadband to remote, hard-to-reach communities. 

The Federal Government must step in and fill the gap. 

We also need smart policies that can help emerging industries grow. Targeted tax 

credits, competitive grants, and prize competitions are all levers Congress can pull. 

The multi-year extension of the wind production tax credit is a good example. It 

is driving investment in wind farms in New Mexico and across the country. 

Earlier this month, I toured the future site of the $1.6 billion Sagamore Wind 

Project in eastern New Mexico, which will be the largest wind farm in our state’s 

history and create up to 300 construction jobs and 30 full-time operations jobs. 

Programs like Laboratory Directed Research and Development (LDRD) authorizing a portion of a lab’s Federal funding for cutting-edge R&D are also vital. 

At Los Alamos National Laboratory in New Mexico, LDRD researchers generally 

account for one-quarter of the lab’s patents and peer-reviewed publications. 

Efforts to help commercialize technology developed at our national labs and research universities help to take a good idea and get it into production and out into 

the marketplace. 

In New Mexico, we’ve seen how commercializing the R&D that takes place in national labs can generate significant economic opportunities. 

I’ll share one example. 

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Descartes Labs is a New Mexico start up that uses artificial intelligence technology developed at Los Alamos National Laboratory to provide analysis and predictions based on satellite images of the earth. 

Early applications are in delivering crop yield forecasts and analyzing trends in 

energy, construction and the environment. 

Today, the company has its headquarters in Santa Fe, has raised close to $40 million in venture money, employs about 70 people, and is a recognized leader in analyzing satellite images. 

We need to help more research turn into innovative startups. 

Access to capital is key for entrepreneurs. Too many promising young companies 

fall to the Valley of Death, or get absorbed by behemoths where their innovations 

stall, because they cannot find the financing they need. 

This is especially tough for innovators in rural areas and smaller cities. Good 

ideas and innovations occur everywhere. But more than three quarters of venture 

capital goes to companies in San Francisco, Los Angeles, New York and Boston. 

Expanding access to capital can help us to tap into the next generation of 

innovators creating new startups and new opportunities. 

Lastly, immigrants are a key source of innovation and entrepreneurship. We cannot jeopardize these enormous contributions through short-sighted immigration policies or by kicking out talented young people. 

I’m an engineer by training. I could talk all day about innovation, R&D and tech 

transfer. 

But, now I look forward to hearing from our witnesses. 

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RESPONSE FROM DR. FURCHTGOTT-ROTH TO QUESTIONS FOR THE RECORD SUBMITTED

BY REPRESENTATIVE MALONEY

1) Last year Alexander Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova 

and John Van Reenen released a National Bureau of Economic Research 

working paper titled, ‘‘Who Becomes an Inventor in America? The Importance of Exposure to Innovation.’’ 

This is not a theoretical paper. The authors create a dataset of 1.2 million 

inventors—defined as individuals who hold patents—and compare it to 

datasets of children with various characteristics. 

The authors find that: 

‘‘ . . . children’s characteristics at birth—their socioeconomic class, 

race and gender—are highly predictive of their propensity to become inventors. Children born to parents in the top 1 percent of the 

income distribution are 10 times as likely to become inventors as 

those born to families with below-median income. Whites are more 

than three times as likely to become inventors as blacks. And 82 

percent of 40-year-old inventors today are men. This gender gap in 

innovation is shrinking gradually over time, but at the current rate 

of convergence, it will take another 118 years to reach gender parity. 

In the second part of their analysis, the authors find that ‘‘exposure to 

innovation during childhood through one’s family or neighborhood has a 

significant causal effect on a child’s propensity to become an inventor.’’ 

In the third part of the working paper, the authors look at the impact 

of financial incentives on inventors’ propensity to innovate. They state that 

their findings ‘‘imply that small changes in financial incentives will not affect innovation significantly.’’ 

What are the policy implications of the empirical findings in this paper? 

Thank you for noting this important paper that focuses on the individuals who 

file patents. The paper finds that individuals who are exposed to innovation at an 

early age are more likely to patent in the future. This result may have some effect 

on teaching methods, particularly for mathematically gifted students. 

I should note that patents are but one measure of innovation and but one form 

of intellectual property. Many individuals and businesses that are widely considered 

as innovative hold few if any patents. 

Indeed, of the five largest corporations in America that I discussed in my prepared testimony—Amazon, Apple, Facebook, Google, and Microsoft—only Apple is 

heavily patent-oriented. The other companies hold substantial portfolios of patents, 

but their business models do not rely on them exclusively. Nor is having a patentoriented business plan a guarantee of success. Businesses such as Kodak and Xerox 

had substantial patent portfolios, but nonetheless entered bankruptcy. 

Still, I believe that the NBER paper has important results that may be relevant 

to education programs, particularly for mathematically gifted students. 

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76 

LAP51NQ082 with DISTILLER


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77 

LAP51NQ082 with DISTILLER


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78 

LAP51NQ082 with DISTILLER


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79 

LAP51NQ082 with DISTILLER


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80 

LAP51NQ082 with DISTILLER


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81 

LAP51NQ082 with DISTILLER


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82 

Æ 

LAP51NQ082 with DISTILLER


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