Sector focus undermines the IP system and general innovation

The United States is engaged in a competition for technology and innovation leadership with China, with both nations making significant investments in their domestic innovation systems while seeking to undermine the other’s innovation system. The United States, for instance, has implemented export controls and investment restrictions to slow China’s rate of technological innovation, while launching innovation initiatives covering emerging energy technologies, quantum computing, and wireless communications, among other industries.

As the competition intensifies, many policymakers and analysts are caught up in the blow-by-blow of this industrial policy race. However, by focusing on these high-profile policies, they risk overlooking a fundamental driver of innovation: a system of secure and market-based intellectual property (IP) rights.

IP rights are foundational for a strong innovation system. By converting ideas into property, secure IP rights allow firms to safely license their innovations, fostering more collaboration across the economy. A secure IP system also gives market actors the confidence to share their expertise and information with others, expanding the knowledge base of the innovation system. Further, the temporary ownership of an innovation afforded by an effective patent system provides the rents and hence the incentive for entrepreneurs and investors to take on the risks of driving new ideas to the market.

For these reasons, the community of inventors, entrepreneurs, and start-ups repeatedly emphasizes the importance of secure IP rights in providing a path to market entry, growth, and fair participation. This view is validated when taken in the aggregate: academic studies find that secure IP rights positively affect innovation and economic growth in developed economies.