Capital and labor are the blood and body of the U.S. economy, and their value rests substantially on continuing innovation. Since the 1950s, economists have measured the impact of innovations and other factors on gains in U.S. growth and productivity. A recent analysis found that one to two-thirds of those gains can be properly attributed to innovations, a far larger share than from increases in the capital stock and improvements in the skills and education of workers.
Today, however, the nation’s economic progress is at risk. Giant corporations that dominate their respective markets have come up with ways to appropriate valuable innovations created by startups and small companies. This new process of capturing the innovations of others erodes the incentives for creative, entrepreneurial people to figure out how to turn their new ideas into new products and technologies—and degrades the economic conditions and ecosystem that support and promote innovation.
Innovation doesn’t happen by chance. It requires sustained investments in research and development and a political and economic environment that supports startups and new investments. It also requires strict legal protection and enforcement of the property rights to the innovation.
That protection is so important to the country’s long-term progress that it’s in the Constitution: Article 1, Section 8, grants Congress the specific authority to “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
Accordingly, Congress has enacted patent laws to secure the innovator’s exclusive right from infringement and, if she chooses, to sell or license that right to others in return for a share of the economic benefits arising from the innovation.
For the past generation, innovative telecommunications and information technologies have transformed virtually all U.S. industries. At the same time, the process of developing new technologies and other products has changed as the tech industry has become highly concentrated.
Nvidia, Apple, Microsoft, and Alphabet are the four largest companies in the economy, with a combined market cap of more than $12 trillion—or the equivalent of 44% of GDP last year. Managing their enormous operations and markets demands most of their resources and attention. However, to maintain and increase their enormous value, giant companies…
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