GOVERNMENT

By Grant Gross, IDG News Service - The U.S. government and private industries need to encourage business innovation, because the nation is in danger of losing its edge in technology and in other industries, said Sam Palmisano, chairman and CEO of IBM. Palmisano announced a 12- to 18-month "National Innovation Initiative" through the Council on Competitiveness to study how the U.S. can continue to be a world leader in innovative technologies and other industries. He spoke during the council's annual meeting in Washington, D.C., Thursday. While the U.S. has been "the envy of the world" for its past innovations, the nation needs a national consensus on how to continue to encourage business innovation, Palmisano said. "If we're not careful, the United States will fall out of step with the new realities of innovation," Palmisano said. "If that would happen, innovators will go someplace else. We really need to crank up the energy, crank up the focus of innovation across many sectors of our economy." The Council on Competitiveness was formed in 1986 and pushes for U.S. businesses to remain competitive in world markets and for a higher standard of living. Council members work directly with U.S. political leaders, including the President's Council of Advisors on Science and Technology and the Council of Economic Advisors, to promote issues relating to innovation. Palmisano didn't specifically define "innovation" but he listed Henry Ford's launch of the U.S. auto industry, the mapping of the human genome and the invention of the transistor as examples of U.S. innovation. IBM continues to innovate by being the U.S. company with the most patents issued in the last decade, he said. The National Innovation Initiative has three goals: -- Identify key challenges and opportunities for strengthening innovation in the U.S. -- Develop recommendations for the public and private sectors. -- Create consensus among various groups, including companies, workers and universities, on a strategy for innovation. The initiative, co-chaired by Palmisano and Wayne Clough, president of the Georgia Institute of Technology, will be a "wide-ranging" effort to identify ways to increase innovation, Palmisano said. An interim report should be released in six to nine months. The two chairmen will host a dialog of top leaders of business, academia, labor and government to come up with recommendations on encouraging innovation. If the U.S. government promotes business innovation, U.S. companies will create millions of jobs in the coming years, Palmisano said. The 42 industries represented on the Council of Competitiveness, a nonprofit organization of high-profile CEOs, university presidents and labor leaders interested in U.S. economic growth, should create 13 million jobs in the next two years, if government regulations like free trade agreements continue to allow U.S. companies to market their products worldwide, he said. "The real question, though, for all of us is 'where?'" Palmisano added. "Where are (the jobs) going to be? Today, innovation and job creation can occur anywhere in the world. We don't have this unique formula we had in the past." Countries like India and China are catching up to innovations in the U.S. - not necessarily because they have cheaper labor, but also because they are focusing on science and technology education programs, Palmisano said. "It is much more than wage differential," he said. "We're talking countries that are investing in education and job skills for the future. They're teaching their students the language of modern commerce... beyond English, it's software, finance, genomics." Business excesses in the 1990s have caused Congress to look at ways to regulate industries, Palmisano noted. He didn't identify the dot-com bust or other scandals by name, but said reactions to those scandals have the potential of creating a hostile environment for business investment, he added. Employment and investment growth continue to be sluggish, he said, and the U.S. faces growing budget and trade deficits. While Palmisano didn't recommend any specific changes to government policy, W.J. Sanders, founder and chairman of Advanced Micro Devices decried some congressional efforts to reform the process of granting stock options. One Senate bill, introduced by Senator Ron Wyden (D-Ore.), would require shareholder approval for stock option grants to company executives. Earlier this year, the U.S. Financial Accounting Standards Board voted to require companies to expense stock options in financial statements. Other legislation calls for public companies to report on their stock option plans to the government. "The amount of the stock option and the amount of the award should be determined in a free and competitive market," Sanders said. "Let's not have some regulatory body get in the way of free and open competition." Sanders called for companies to create an environment that allows innovation. "Ideas come from individuals," he said. "They don't come from organizations or companies... so the organizations (must allow) the freedom to provide the environment that will foster innovation." The IDG News Service is a Supercomputing Online affiliate.