Opinion

The Great Debate

Pittsburgh: A city transformed by R&D

September 25, 2009

Phil_Bond_headshot.jpg– Phil Bond is President of TechAmerica, which represents 1,500 companies across the technology industry. The views expressed are his own. —

Will Pittsburgh, with its historical role in two American industrial revolutions, remain a leader in revitalization? Or will it be have to carry the extra burden of uncompetitive national policy?

The first revolution, perhaps a product of geographical chance, made the city and the nation a manufacturing powerhouse. The second, resulting from a tremendous act of will by the people, remade Pittsburgh into a great research and development (R&D) center that could help lead us out of the current recession. These hardworking Americans are going to need smart policy from Washington if their technology revolution, and efforts to emulate it across the country, are to continue.

For many years now, there has been too much talk inside the beltway about pro-innovation economic policies and too little action. Case in point: Congress has yet to take action to extend the R&D tax credit, due to expire at the end of 2009, that is so vital to the U.S. keeping its innovation edge and helping other cities do what Pittsburgh accomplished – achieve economic revitalization.

R&D creates new industries and products, new solutions to our toughest challenges and many new jobs. In Pittsburgh, R&D and testing labs account for the second highest category of high-tech employment, generating thousands of good, high-paying jobs, according to TechAmerica’s latest Cybercities research. Nationwide, at least 70 percent of R&D investments are spent directly on employment.

This tax credit applies only to R&D performed in the United States, and it stands as the only broad incentive offered by the federal government for private-sector investments in R&D. Without it, many companies based here might not chose to make potentially risky R&D investments because the return on those investments would be insufficient. Meanwhile, other countries around the world offer much more robust incentives to lure companies to their shores.

America’s tax credit, once a world-leading policy, is now comparatively modest – especially when you consider that in the long-term, nearly two dollars are generated for every dollar of tax benefit. To bolster the U.S. economy and create jobs, Congress should strengthen the credit and make it permanent.

Certainly at a minimum, Congress should provide companies with a multi-year extension so that companies can consider it when making hiring or investment decisions. The credit has been allowed to elapse time and time again, and there appears to be little chance that it will be reauthorized before it does so again on December 31, 2009.

Just as President Obama has pointed to the re-invention of Pittsburgh, he has recognized the threat posed by our seeming indifference to R&D.

“It is only by building a new foundation that we will once again harness that incredible generative capacity of the American people,” the president said earlier this year. “All it takes are the policies to tap that potential — to ignite that spark of creativity and ingenuity — which has always been at the heart of who we are and how we succeed.”

Strong words. And now bold action is called for – we need those policies in place now, beginning with the R&D tax credit. We are not asking the government for a handout, but the means for ensuring the U.S. global competitive position so that the “ecology of innovation” flourishes in America once again. That’s just smart policy.

An Ernst & Young study found that the credit has spurred $6.4 billion in investments across 18,000 companies in all 50 states. In 2008, that should have led to $18.6 billion in new economic activity. Instead, companies were faced with a nine-month lapse of the credit, jeopardizing as much as $51 million in growth – and 388 jobs – per day.

This is not an America-first rally cry. The world has changed. It is a more inter-connected place. Not long ago there was no G20, just the G8. With the G20 nations from around the world meeting in Pittsburgh to discuss pressing economic issues, now is the time for Americans to re-examine our priorities and ask ourselves how we went from offering the most lucrative R&D tax credit in the world to the 17th most attractive, behind many of the other countries present at today’s summit.

America’s renewed leadership in R&D can help drive the economic recovery. Just as America, in cities like Pittsburgh, worked itself and the world out of the darkness of the Great Depression, a national commitment to R&D can and will allow us to innovate our way out of the current dimness into a new dawn.

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