Blueprint for honing America's entrepreneurial edge

It should boost R&D spending, improve the education system, and lure the brightest immigrants.

Economists haven't arrived at the perfect policy formula to spark innovation-led growth. But many of them support a multipart strategy that includes encouragement for investment and research, improved education, and a focus on enhancing the general climate for business.

"It's simply wrong that entrepreneurs are born. People can be educated about it," says Mauro Guillen, an expert on entrepreneurship at the University of Pennsylvania's Wharton School. "Giving people the tools ... is very important."

Here are proposals favored by many innovation-oriented economists:

•Boost investment. This could be done by expanding tax incentives for companies that invest in research or capital equipment.

•Improve education. Teaching business and problem-solving skills to a wider range of students is one answer. Mr. Guillen adds that the United States has world-leading universities, but has a primary education system that lags far behind other developed nations.

•Upgrade the nation's toolbox. In addition to policies that support the "supply" of innovation, such as R&D tax credits, the US government can fuel demand for innovation by investing in 21st-century infrastructure, says Rob Atkinson of the Information Technology and Innovation Foundation. Smart power grids are one example. Such improvements can be a "platform technology" on which private-sector entrepreneurs can build their own new creations.

•Lure the brightest. Do more to encourage highly trained immigrants to come to the US – not just to study but to stay and work. Whether by starting businesses or in other ways, they tend to enrich the economy. "That's as close as you can get to a free lunch in the world of economics," says Dane Stangler, an expert on entrepreneurship at the Kauffman Foundation in Kansas City. One possible approach, offered by Mr. Atkinson: If you get a graduate degree in the US, you get a green card.

•Tidy up the economic house. Steps might include bringing government deficits down below the rate of economic growth – so that the nations's public debt stops growing. Tougher enforcement of trade laws, similarly, could help boost US exports and bring the trade deficit down to a more sustainable level.

Another broad challenge is to find a balance between dynamism and social welfare. Often technological change is disruptive, and the rise of the Internet and global competition in recent years has coincided with widening inequality of incomes in the US.

Jim Manzi, a business leader in the high-tech arena, recently framed the problem this way, writing in National Affairs, a new quarterly magazine: "We are between a rock and a hard place. If we reverse the market-based reforms that have allowed us to prosper, we will cede global economic share; but if we let inequality and its underlying causes grow unchecked, we will hollow out the middle class – threatening social cohesion, and eventually surrendering our international position anyway."

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