Innovation Nation: Toward a Comprehensive Approach to Boosting U.S. Economic Competitiveness

In Columbus, for example, roundtable participants described government agencies, businesses, and educational institutions working in concert to develop the economy—what one participant called “a strong sense of partnership.” In Pittsburgh, funding from the Build Back Better Regional Challenge was spurring community leaders to enhance and expand existing collaborative efforts, demonstrating that federal place-based spending has the potential to boost competitiveness in less tangible, but nevertheless important, ways.

Roundtable participants also highlighted the importance of specialization to their local competitiveness strategies. In Corvallis, for example, agriculture is viewed as an important area of specialization. “We can put in all the semiconductor manufacturing we want; it won’t change the characteristic that ag[riculture] is our engine, and we need to accelerate that,” said a Corvallis roundtable participant. In Pittsburgh, robotics and automation were seen as sectors in which the region had a competitive edge. Here, too, federal place-based policy can help regions enhance existing strengths by providing funding and other supports to targeted sectors where regions already excel.

Despite participants’ understandable focus on local factors, a clear and consistent set of ideas emerged from the roundtables. These ideas pertain particularly to how federal policymakers can support regional growth.

Education, Training, and Workforce Development: The Core of Competitiveness

The workforce—its supply, training, allocation, recruitment, and retention—emerged as the top issue in every roundtable that BPC hosted. This centrality reflected two major issues. The first was labor market disruptions precipitated by the pandemic, especially the enormous increase in “occupational shifts,” with millions of Americans not merely changing jobs but changing industries. This historically high level of disruption created challenges for employers in filling openings and led many workers to seek new avenues of training.

The second issue reflected in the roundtables’ focus on workforce was technology, particularly AI. In 2023, AI garnered intense popular interest as tools such as ChatGPT gained prominence and investment dollars poured into AI companies. Job displacement through automation is a long-standing concern, and AI advances have again raised fears about the effect on workers. At the same time, roundtable participants recognized that technology presents opportunities and that workers need to learn how to leverage technology for new skill development. In multiple cities there was a sense that roundtable participants were looking for answers about how, as one person put it, workers “fit into a future alongside—not replaced by—new technology.” We need to be sure, another person said, “that we’re investing in retooling and reskilling.”

In response to these issues, cities and counties have been acting. In San Antonio, voters in 2020 overwhelmingly approved a sales tax to fund Ready to Work, an initiative to improve training and help employers find qualified workers. Build Back Better Regional Challenge funding in Pittsburgh is helping companies adopt advanced technologies (including AI) in ways that align with workforce training. Two years ago, the state of Oregon created a $200 million Future Ready Oregon initiative to connect postsecondary institutions with entire industries rather than just specific companies. Workforce development efforts carry a slightly different flavor in Fort Worth, where significant public and private emphasis on entrepreneurship puts the focus on generating new ideas and helping more people gain startup experience.

Roundtable participants acknowledged that workforce development and education must not focus exclusively on technology jobs and skills. In many areas, more traditional sectors such as mining or agriculture need skilled workers. At each roundtable, participants underscored the need for a broad reimagining of current systems and programs. The workforce system, one person asserted to general agreement, is simply “broken.” Comparatively speaking, the United States has less a “workforce system”  and more a “decentralized … complex landscape of choices.” That arrangement has its strengths, yet roundtable participants agreed with researchers that “there is ample opportunity to build a more stable, supportive, and innovative workforce development system.”

New federal programs and spending generated by the CHIPS and Science Act and IIJA have also been accompanied by an emphasis on workforce development. Two cities where BPC held roundtables—Pittsburgh and Columbus—were designated as Workforce Hubs by the Biden administration in May 2023. Through that initiative, the administration works with local elected officials and community leaders to “drive effective place-based workforce development efforts.”[4] Nevertheless, cities and regions face a range of challenges that the federal government can help alleviate.

One of those challenges, highlighted in multiple roundtables, is the federal government itself. Through various programs and initiatives, including those funded through the Workforce Innovation and Opportunity Act of 2014 (WIOA), the federal government provides large amounts of money to education and training programs. Although grateful for the support, those on the receiving end say federal dollars can also come with downsides. Grants from the Department of Labor can be “very, very cumbersome.” An absence of coordination between federal agencies can, according to some roundtable participants, undermine collaboration at the local level.

Other roundtable participants cited additional barriers that workers face, including affordable, high-quality child care. The opportunity exists, they said, to bring more people into the workforce by assisting with child care. Small employers—a large source of employment demand in each city—have difficulty not only finding qualified workers but also attracting them. Offering benefits such as assistance with child care is costlier for these smaller businesses.

Potential opportunities for bipartisan federal action to address these and other challenges are on the horizon. WIOA is overdue for congressional reauthorization, and the Strengthening Career and Technical Education for the 21^st Century Act of 2018 (also known as the Perkins Act) is up for reauthorization this year. Also overdue are the Higher Education Act and Every Student Succeeds Act, which pertain to elementary, secondary, and postsecondary education. In December 2023, the House Committee on Education and the Workforce approved a bipartisan WIOA bill alongside a bipartisan bill that would permit Pell Grants to be used for short-term training programs. Such steps are encouraging and echo a clear message for lawmakers that emerged from our roundtables: The United States needs a comprehensive, long-term strategy regarding education systems and workforce programs.

What do roundtable participants suggest should be included in such a strategy? From the discussions we held around the country, we assembled a set of guiding principles for policymakers:

• Coordination—In too many places, connections between employers and education and training providers are fallow. As noted above, lack of coordination at the federal level makes life harder at the local level. As they consider different education and workforce bills, members of Congress should prioritize ways to incentivize and support local and regional coordination.
• Connection—Workforce and education challenges cannot be addressed in a vacuum. Inextricable from them are such issues as child care and the “benefits cliff” that can deter people from seeking work. Shortages of affordable housing have also weighed on workforce development efforts in some places.
• Future-Oriented—Policymakers are not typically known as foolproof prognosticators. Funding that might be appropriated this year for a program that is already four years overdue for reauthorization might not be at the cutting edge of where workforce and education funding needs to be. Employers across the country, meanwhile, are wrestling with decisions about automation, hiring, and how to help their employees prepare for what is next. Learning from those on the frontlines is invaluable for policymakers.
• Flexibility—Delays in congressional reauthorization of WIOA and other bills have not prevented states and localities from taking steps to address their workforce needs. Nevertheless, lack of reauthorization means that potentially outdated program structures can persist and limit the ability of states to innovate. WIOA is already designed to let states determine the best deployment of dollars, but additional flexibility in this and other federal programs is warranted.
• Streamline—Taxpayers have an understandable interest in ensuring that their dollars are spent wisely. According to some roundtable participants, purported accountability mechanisms established around, for example, workforce funding from the federal government have evolved into “an incredibly bureaucratic system … for a small amount of money.” If the federal government continues to finance workforce and education programs, roundtable participants suggested that it find more straightforward means of delivery.

Infrastructure Means More than You Think

Regional growth requires infrastructure—and infrastructure can support further growth. This idea emerged as a clear takeaway from the roundtables. In some of the cities—such as Fort Worth, San Antonio, and Columbus—rapid population growth necessitates continued infrastructure investments. In other regions, new infrastructure, such as high-speed internet, is a means of enhancing their residents’ ability to thrive.

Roundtable participants did not limit their emphasis on infrastructure to simply making calls for more money. They identified specific ways in which infrastructure can offer a competitive advantage for not only their regions but also the country: Water security, for example, is hugely important in many areas. The reliability and affordability of electricity, too, tops the agenda for many local leaders.

Infrastructure for these participants also goes beyond the physical. “Intellectual” infrastructure is as important as physical infrastructure, they said. To some, this need includes shortening long permitting timelines to get a physical project approved. For others, “intellectual” infrastructure included the often-convoluted commercialization processes inside universities. In many regions, universities are anchor institutions that conduct enormous amounts of research. Commercialization of that research, however, remains underdeveloped in some places. Spinning out research through entrepreneurship “remains a tiny part of what they do because that’s not what is considered safe,” noted one participant.

At some roundtables, participants pointed to strong local partnerships between universities and industry that were addressing the commercialization challenge. Oregon State University, for example, has a research program on sustainable packaging in concert with regional manufacturers. The university also works closely with wineries in Oregon on technologies to mitigate the effects of wildfire smoke on grapes.

Another piece of the “intellectual” infrastructure discussed at nearly every roundtable was demographic inclusion. To strengthen competitiveness, roundtable participants said, the country needs to ensure it is drawing on the talents of the entire population. “Authentic inclusion,” one person stressed, “breeds innovation.”

Stay Globally Oriented

From the perspective of roundtable participants, national policymakers’ rhetoric and actions signal a turn away from global engagement. Terms like “decoupling” and “de-risking” get tossed around by many in Washington. Academic research has looked at the effects of policymakers’ attempts to “reshore” or “friend-shore” production and reconfigure supply chains.^[4]

Roundtable participants did not spend time considering these issues in the abstract. They recognized the necessity of some change from the peak period of globalization, yet they had a clear message for policymakers: The United States must remain globally oriented. In San Antonio, many of those in attendance pointed repeatedly to the closeness of the southern border: “Our proximity to Mexico is a big part of our competitiveness.” While acknowledging that immigration at the border is a vexing challenge for Washington, they saw the market opportunities beyond that: “The pathway to Central and South America is a big one for us in terms of competitiveness.”

In Corvallis, discussion turned to “tradable goods,” those products and services that a locality can sell beyond its borders. One tradable good generating high levels of attention from policymakers is semiconductors. Oregon’s state government has allocated funding to leverage federal subsidies and incentives in the sector. Yet agricultural products are another important tradable good for Oregon and many other states: “How can Oregon be part of global solutions to the challenge of food waste and hunger?” While supporting federal policymakers attempts to “reshore” production and promote “Buy American” initiatives, roundtable participants hoped that such actions would not undercut efforts to get their regions to think globally.

Shaping the Future: Reframing America’s Competitiveness Narrative

Strategy necessarily involves trade-offs; if the government chose to include everything in its competitiveness strategy, it would not be an effective one. Nevertheless, between the competitiveness agenda Washington currently has and the one that many Americans say they want, several missing pieces emerge. The competitiveness strategy of restrict and invest has much to say for it; yet it risks failure if some investments are conceived too narrowly. In many places, for example, workforce challenges already threaten to undermine a revival of semiconductor manufacturing–construction workers are needed to build the plants and workers must be found to run them. The competitiveness agenda that Americans say they want also assumes certain conditions. Having a skilled and flexible workforce involves training as well as policies that reduce barriers to labor market participation.

Creating a robust national competitiveness strategy requires considerations centered on global competitors (e.g., China) and bolstering local and regional competitiveness at home. Based on what we heard in the regional roundtable discussions, we outline four areas of policymaking that would broaden America’s competitiveness agenda. BPC has active efforts underway in each.

Mental and Behavioral Health

As roundtable participants noted, people are the most basic component of economic growth and competitiveness. Labor, along with capital, is fundamental to the “production function” that economists use to gauge output. Over the second half of the 20^th century, the American economy outperformed every other nation in no small part because the overall population grew—thanks to the post-World War II baby boom, immigration, and influx of women in the labor force.

Quality of labor matches quantity in importance. The public high school movement of the late 19^th and early 20^th centuries, followed by growth in postsecondary education, helped ensure that American workers grew in skill and knowledge alongside technological advancements.^[5] As discussed earlier, public and private leaders around the country recognize today that worker supply and capability are critically important factors. Recruitment, training, and credentialing help workers continue to develop new skills.

Yet, another aspect of labor quality has become a point of national concern over the last decade: the mental and behavioral health of Americans. A roundtable participant in Fort Worth noted that investing in workers’ mental health is critical for individual, organizational, and overall economic performance. Survey findings bear this view out. Gallup has estimated that “fair or poor mental health” among American workers costs the U.S. economy billions of dollars each year.

In January 2024, BPC launched a task force to address the mental health and substance use crises among one particular population: American youths and young adults. Rates of persistent sadness, anxiety, suicide attempts, self-injury, and drug overdose have risen sharply among young Americans—especially intensifying during the COVID-19 pandemic.

Given the intensely personal tragedies that families and individuals struggle with, it may sound crass to highlight mental and behavioral health as a national competitiveness issue. No nation, however, can expect to remain economically robust if its workers—especially its rising generation of workers—struggle with such issues. Sadly, polling finds that many Americans are struggling with health-related challenges. Among Americans not looking for work, 42% said mental health challenges were a factor in their decision.^[6] Compounding the rising need for treatment is the reality that millions of Americans live in places that lack available behavioral health providers.

A meaningful competitiveness agenda in Washington—one that enables Americans and American regions to produce and thrive—should include a focus on strengthening individual resilience and enhancing the delivery of mental health and substance use treatment services.

Immigration

This might be the new third rail of American politics. Everyone knows a fix (or a set of fixes) is sorely needed, but few are willing to grab it and try to achieve political compromise. National competitiveness may be one narrow exception. In the past, proposals for a “startup visa” have enjoyed bipartisan support, with policymakers recognizing the economic and security advantages of attracting entrepreneurs from other countries. Efforts to ease the entry of immigrants with advanced degrees in science and technology have also garnered support from across the aisle as policymakers recognize the importance of a workforce with scientific and technical skills. More broadly, recently introduced bipartisan bills have attempted to alleviate the backlog of green card seekers.

These demonstrations of bipartisan support in a contentious area reflect the important economic contributions of immigrants, especially those considered to be high-skilled. When it comes to technologies and their associated industries deemed critical to U.S. competitiveness, the supply of foreign-born workers and entrepreneurs is especially important. Nearly two-thirds of the top AI companies in the United States have immigrant founders or co-founders. For the foreseeable future, the talent pipeline in AI will depend heavily on foreign talent: 70% of full-time graduate students studying AI-related fields at U.S. universities are international students.

In other areas, foreign-born individuals are also over-represented. Among doctorate holders performing R&D as a major work activity in computer and information sciences and electrical and computer engineering, 80% or more are foreign-born. Much of this R&D activity leads to innovation. A recent study found that while immigrants constitute 16% of all U.S. inventors, they account for nearly a quarter (23%) of total innovation output.

These and other research findings suggest that policymakers would do well to continue identifying and pursuing bipartisan ways to expand immigration pathways for skilled foreign talent. A failure to do so risks diminished competitiveness. The impasse at the federal level has prompted some to call for regional or state-based actions. Localized immigration policies might help enhance the effectiveness of recent “place-based” investments, such as regional technology and innovation hubs. This idea was not discussed at our roundtables but remains a potential option.

Family Supports: Child Care and Paid Leave

For many roundtable participants, the link between child care and competitiveness is clear: If workers cannot work because they cannot afford or access child care, that is bad for them, bad for their employers, and bad for the nation. BPC has quantified this impact: The cost of America’s child care gap, in the form of lost wages, reduced productivity, and lost tax revenues, runs into the hundreds of billions of dollars.

Linking child care and competitiveness as a national imperative has garnered some support from elected officials. The Department of Commerce made disbursement of large semiconductor grants under CHIPS conditional on provision of a child care plan for the awardee’s workforce. Although CHIPS passed with bipartisan support, many lawmakers objected to this provision. At the same time, bipartisan support for historically high levels of federal child care funding (through the Child Care and Development Block Grant) has continued.

Disagreement over the method used by the Department of Commerce to support child care access has not distracted from the economic reality that child care shortages—as well as the lack of paid leave and other family supports—suppress national competitiveness. Among prime-age, nonworking adults  considering returning to work, paid family and medical leave is as important to them as compensation, according to a 2023 BPC-Artemis survey. Parents are making major sacrifices–personally and professionally–to afford child care, BPC found in a series of national parental surveys from 2019-2022.

Agreement exists across the aisle regarding the economic imperative to address these challenges. Bipartisan working groups in the House and Senate dedicated to paid leave are underway, and they are soliciting input from the private sector on how best to approach the issue. In seeking ways to increase supply and options for working families, the business community brings a vital perspective to the table. Tax incentives for employers—such as the 45F tax credit for employer-provided child care credit and the 45S tax credit for employer-provided paid family and medical leave—are starts. In 2022, BPC and the U.S. Chamber of Commerce Foundation launched the Early Childhood and Business Advisory Council to strengthen connections between businesses and early childhood communities in areas where local and state stakeholders have identified child care as a priority. By year two, the Council grew in popularity and expanded to include four additional states.

As states, businesses, parents, and elected officials have demonstrated, a robust competitiveness agenda, especially one that encourages labor market participation, should include policies that support work and working families.

Fiscal Policy

Competitiveness policy is not costless. Brinkmanship over fiscal policy—how the U.S. government chooses to spend and tax—has become a recurring pastime in Congress. Short-term continuing resolutions to fund the government are the norm instead of appropriation bills that fund individual agencies and their discretionary programs and activities. Billions of dollars authorized in CHIPS, for example, remain unappropriated.

Regarding the national debt, which has surpassed $34 trillion and is only growing, eleventh-hour showdowns over how to raise the debt ceiling call into question Washington’s ability to lead the world’s largest economy and reserve currency. Although such brinkmanship may score short-term political points for one side, it inflicts real harm on the economy, American taxpayers, and the nation’s competitiveness strategy. Getting our fiscal house in order remains central to U.S. competitiveness strategy and should be a top priority of Congress.

During the past decade, both parties have enacted policies enabling the U.S. government’s debt to increase at a faster rate than at any time since the end of World War II. At the current rate of growth, the national debt will be twice the size of the U.S. economy within 30 years. Compounding the challenge is an aging U.S. population, increasing defense and national security demands, higher interest rates, and the need to make the costly transition to clean energy. Concern is growing that over time, elevated borrowing costs across the economy and higher interest payments will force the government to make difficult fiscal trade-offs. Higher borrowing costs could also harm private investment. This deteriorating situation could inhibit U.S. competitiveness policy by reducing spending on national priorities key for innovation—such as national defense, investments in clean energy, education and workforce training, and medical and scientific research—because interest obligations would likely take priority over other issues. This could directly set back the next generation of workers, the most crucial component to the nation’s international comparative advantage.

Meanwhile, on the other side of the federal ledger, the U.S. tax code enables the federal government to collect nearly $5 trillion in revenue each year. Its structure creates incentives that influence the financial and economic decisions of individuals and U.S. businesses. Those actions, in turn, shape the country’s relative global competitiveness. In 2025, lawmakers will have an opportunity to consider significant bipartisan tax reform when trillions of dollars in tax cuts enacted under the 2017 Tax Cuts and Jobs Act (TCJA) are scheduled to expire. BPC has long argued that a competitive U.S. tax code should foster economic growth, support workers and their families, bring in enough revenue to meet the nation’s spending needs, and ensure tax provisions and benefits remain administrable and equitable. Adhering to these principles—or balancing them as best policymakers can—is difficult but key to maintaining U.S. economic leadership.

Conclusion

To be successful, our national approach to competitiveness needs to be comprehensive and to build off the United States’ existing strengths. Policymakers should also consider mental and behavioral health, immigration, paid leave, and fiscal policy. As members of Congress continue to consider competitiveness legislation, they should engage with those doing the work at the local level—the civic leaders, business owners, local elected officials, higher education administrators, and others who offer an important perspective on the ways that America can improve its competitiveness in the global economy.

[1] Anne Case and Angus Deaton, Deaths of Despair and the Future of Capitalism (Princeton University Press, 2020). It should be noted that in the past two years, other researchers have challenged the idea of “deaths of despair” and argued that while the deaths are real, the causal attributions are not.

[2] See for example Guy Michaels, “The Effect of Trade on the Demand for Skill: Evidence from the Interstate Highway System,” Review of Economics and Statistics, November 2008, 683-701.

[3] Linda Weiss, America, Inc.? Innovation and Enterprise in the National Security State (Cornell University Press, 2014).

[4] Lorenzo Caliendo and Fernando Parro, “Lessons from US-China Trade Relations,” Annual Review of Economics, June 2023, 513-547.

[5] Claudia Goldin and Lawrence F. Katz, The Race Between Education and Technology (Belknap Press, 2008).