SHAHEEN: WE MUST KEEP AMERICA INNOVATIVE AND COMPETITIVE

The Senator delivered the following speech today during keynote remarks at the Business and Society Conference at Dartmouth’s Tuck School of Business.

February 11, 2011

As prepared for delivery:

Thank you, Dean Danos/Paul.

            It’s great to be here at Tuck. Tuck and all of Dartmouth are among New Hampshire’s great assets. They are an important part of New Hampshire’s economic engine.  I was proud to be an ex officio member of Dartmouth’s Board of Trustees when I was Governor and proud that three people who have worked for me over the years have gone on to attend Tuck.           

            Your conference poses the question: can we innovate our way out?  My answer is: we not only can but we must. We can't compete with India and China for low-wage manufacturing jobs. That is not our future. America’s future is to be the global leader in science and technology. America makes the best, most innovative products and services, and that ingenuity and excellence is our chief economic strength as a nation.

            The overarching challenge facing New Hampshire and the entire country is how we remain competitive in an increasingly global economy.  As a former small business owner, I know it is business, not government, that creates jobs, but I believe government has a critical role to play in fostering the positive business climate we need to remain competitive.           

            How can government help foster that entrepreneurial business climate? Today I want to focus on a few areas that I believe are critical. Boosting R & D, a well-educated work force,  increasing exports, reducing  the national debt,  a comprehensive energy strategy  – I believe all are central to unleashing the innovative spirit that is so alive and well in New Hampshire.

            How do we maintain the creative dominance that has allowed us to lead the world in innovation? Without a doubt we need to boost investment in research and development, and here, government has a critical role to play.

            Even as science and technology have become increasingly important to our economic prosperity, the federal investment in research and development as a percentage of GDP has been declining. This is precisely the wrong way to go when success in the global economy depends on our ability to innovate and develop new technologies and industries.

            The federal government’s investment in basic research is critical. It is research originally financed by the federal government that led to technologies such as the Internet, MRIs and CAT scans, GPS, and even thermal gloves and boots, which are so important for Dartmouth winters, especially the one we’re having.

            It’s become a cliché, I know, to talk about how the Internet has transformed the economy, but I have to say that the Upper Valley is such a great example of the impact the Internet has had. Thirty years ago this was a sleepy rural area where the only jobs were at Dartmouth and Mary Hitchcock, then a small local hospital. That was because of geographic isolation.  Now, because of the Internet, physical distance is irrelevant, and the Upper Valley has become a magnet for innovators.  This would not have happened without the government’s funding of the basic research that gave rise to today’s Internet.

            Increased federal research funding must be complemented by measures to stimulate private sector innovation. Because private-sector companies do not reap all of the benefits from their investment in research and development, companies underinvest in R&D. This is especially true for small businesses. That’s why back in 1991, when New Hampshire was in the midst of a deep recession, I co-sponsored legislation as a State Senator to create the Industrial Research Center at the University of New Hampshire. Now known as the Innovation Research Center, the IRC provides grants to small businesses to work with New Hampshire researchers, including those here at Dartmouth.

            One federal initiative that has been very helpful to New Hampshire innovators is the Small Business Innovation Research, or SBIR, program. In just the last two years, New Hampshire firms received 80 SBIR awards. In the last couple of weeks I visited three companies - Airex in Somersworth, Spire Semiconductor in Hudson, and Active Shock in Manchester  –  that are doing cutting-edge research because of the SBIR program. This research has allowed them to develop new products, add customers and hire new workers. And, of course, Creare, here in Hanover, is a poster child for the SBIR program. The firm can trace more than $670 million of revenues at Creare itself, the firm’s spin-offs, and technology licensees to the commercialization of its SBIR projects. Unfortunately, SBIR has been operating under short-term extensions for a few years now. Short-term extensions are a problem because, as I hear from businesses regularly, they need certainty in planning. We need to pass a long-term reauthorization in this session of Congress.

            Another proven way to stimulate private sector innovation is the federal research and development tax credit. This tax credit was enacted in 1981 – but only on a temporary basis. The credit has actually expired several times, most recently at the end of 2009. We passed an extension this past December that was retroactive, but obviously this uncertainty undermines the credit’s effectiveness. Companies ought to be able to rely on its existence when making investment decisions.  Over the last 30 years we’ve also lost ground to other countries on the size of R&D tax credits. The United States once was the leader in tax incentives for R&D, but by 2009 we ranked behind 23 other countries, including China, Brazil and India.

            It’s time to reform the federal R&D tax credit and make it permanent.

            One of the advantages New Hampshire has over other states is our highly educated and skilled workforce, but clearly we need to dramatically improve math and science achievement in this country.  We must educate the scientists and engineers needed for cutting edge research, and we must train the skilled workforce for the new jobs in new industries that spring from this research. STEM-related fields are expected to be the fastest growing occupations of the next decade, but not enough students in the United States are pursuing education in these fields. It is just not acceptable that American 4th and 8th graders are routinely outperformed by their peers in other countries in math and science. I do want to point out that New Hampshire 4th and 8th graders led the nation on the most recently reported NAEP science test scores. We need to get students excited about Science, Technology, Engineering and Math. New Hampshire is home to a fantastic program that does just that - FIRST, founded by inventor Dean Kamen.  Kamen’s vision was to create a world “where young people dream of becoming science and technology heroes . . .” This year more than 51,000 high-school students nationwide will compete in its flagship program, the FIRST Robotics Competition. A Brandeis University study found that students who participate in FIRST were twice as likely to pursue careers in science and technology. In the coming weeks I’ll be introducing legislation to help give more high school students in New Hampshire and across the country access to non-traditional science, technology, engineering, and math programs, like the FIRST Robotics competition.

            Obviously, American innovators need customers for their products and services. We need to do a better job of opening international markets. I was an advocate for increased exporting when I was governor and I’ve continued that work in the Senate. The fact is this last recession has had a long-term impact on consumer spending and we need to do a better job of tapping the international marketplace. 95 percent of the world’s consumers live outside the U.S., yet only one percent of small businesses export. There’s tremendous room for growth. That’s why I co-sponsored the provisions in the Small Business Jobs Act to boost programs that help small businesses sell their products and services overseas. It’s why I’ve been bringing federal trade officials to New Hampshire to get the word out to New Hampshire companies about the federal resources that are available to them. For example, just last week I brought Fred Hochberg, the chairman of the Export-Import Bank, to the state. The Ex-Im Bank helps finance exports by assuming risks that private financial institutions are unwilling or unable to undertake alone. I intend to do everything I can to help our businesses gain access to new markets.           

            I’ve also been pushing for reform of our defense trade control system - ITAR. It is important to our national security to control the exports of sensitive equipment, software and technology, but our current system was designed decades ago for the Cold War. “Dual-use” products, those that have both commercial and military applications, represent an area of tremendous potential for export growth, but a complex and antiquated set of regulations hampers overseas sales without making us safer. For example, Astronics Luminescent Systems in Lebanon produces lighting systems that can be used in a variety of aircraft, including military aircraft.  Astronics needs a license to export these lighting systems or to even engage in serious discussions with foreign military aircraft manufacturers. These are lighting systems mind you, not missiles. They told me that the current ITAR system is threatening their existing and potential new foreign business. Their customers now tend to look for other overseas sources before committing to U.S. companies because they just don’t want to deal with our export control system. We need a common-sense 21st century export control system that keeps Americans safe and helps our businesses stay competitive.                   

             To ensure America’s competitiveness in the future, we also need to come up with a plan to address the national debt. If we don’t, interest on the national debt will eventually crowd out the private investment companies need to innovate and grow. I’ve been working with a bipartisan group of senators who are committed to working on deficit reduction and comprehensive tax reform. And I try to always look out for wasteful programs.  I recently called for greater oversight of reconstruction funding in Afghanistan and Iraq, where there has been a lot of wasteful spending. For example, the Department of Defense spent $1 million on a water park in Iraq. A water park.  And it closed in a year.  But, as the work of the President’s bipartisan commission showed, seriously addressing the long-term deficit will not be easy. It will require shared sacrifice and looking at both spending and revenue. But we must do it if we want to remain an economic leader.

             One final point.  We need a national energy policy. The world is on the verge of the most significant economic transformation since the Industrial Revolution.   This transformation will be built on a fundamental change in the way we produce and use energy.  Millions of new jobs will be created in alternative energy, energy efficiency and other forms of clean energy.  These jobs aren’t a lock for the United States – they will go to the first countries to invest seriously in clean energy.  China, Germany, and even Brazil, are aggressively vying to lead the charge and secure these new jobs.   I want these jobs to be at places like Mascoma Corporation and SustainX. Mascoma was founded by Thayer engineering professor Lee Lynd and is leading the world in the development of cellulosic ethanol technologies. SustainX, which also grew out of research at Thayer, has developed a break-through energy storage technology. We need a national policy that will create the necessary incentives for consumers and industry to innovate so we can position the United States as a world leader in energy once again.

            Now I know that in some quarters it’s become fashionable to say this country’s best days are behind us. I don’t believe that for a moment. As I travel around New Hampshire I see cutting-edge innovators who are creating jobs and I see young people like you who are ambitious and full of hope. We know what needs to be done. We just need leadership and the will to do it.

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