More On Using Taxes To Spur Innovation

In my previous post, I personalized the elegantly-written letter that the President of Renssalaer Polytechnic Institute drafted on the topic of how to build an "innovation ecosystem."  I believe unequivocally that this thesis can be applied in large part fo a number of industries, and I wrapped it around a discussion about game-based learning and innovation in our education system.  I would like to spend this post focusing on one of the critical pieces that game-based learning and other educational technologies are lacking:  access to a healthy pipeline of investment capital.

I raised an idea that is not a new one by any means:  how to better leverage the mechanisms that the government has at its disposal in order to jumpstart this emerging ecosystem.  Using the government's resources for effectively would create incentives to spur more development of these critical learning tools, so that the economic system can be moved into equilibrium.  At present, there is an excess demand and little to no supply, and suppliers are discouraged due to immature funding models.  As previously mentioned, a healthy ecosystem needs more than just foundation/nonprofit and government grants to be "sustainable."

In an August 17, 2009 BusinessWeek article,  the case is made that the current tax code is outdated and has resulted in the United States having higher effective corporate tax rates compared to those of other nations.    How do we make the tax code more "internationally competitive"?  Allow businesses to capture most or ALL of the benefits of their investments in R&D, workforce training and new machinery and equipment, particularly IT.  I would also add early-stage businesses to this definition.   As quoted from the article:  "There is a new body of thinking, called "Innovation Economics," that is based on a view that economies differ by time and place and the only way to make effective policy is to pragmatically analyze each situation.  Market forces alone often do not produce optimal outcomes and that public policy, including tax policy, that corrects these mismatches can enhance societal welfare."

So how does the author suggest we use the tax code to provide such "innovation incentives"?  Congress should considering doing the following:

• Expand the R&D tax credit by increasing the Alternative Simplified Credit rate from 14% to between 20% and 40%, depending on how much investments are increased.
• Broaden the definiition of "qualified R&D" from beyond that involved in inventing a product to that involved in developing a production process.
• Broaden the current flat credit for collaborative energy-related research to any area of research and expand the rate from 20% to 40%.

In addition, our system should encourage investment in new capital equipment, perhaps by allowing companies to write off investments in capital equipment in their first year instead of having to depreciate them over many years.  Further, by allowing employee-training expenditures to be counted as qualified expenditures for the Alternative Simplifed R&D Credit, it would result in creating higher-skilled workers.

I would take this even further.  As mentioned in my previous post, Congress should IMMEDIATELY provide incentives to angel investors and venture capitalists for investments in start up companies within certain industry boundries.  They must make the market for these investors, and once the profit incentives take root (when the industry forces right themselves), these incentives can be gradually rolled back. An interesting blog post by a venture capitalist from T2 Venture Capital a year ago called out the venture capitalists as an industry that thrives on "inefficient markets" because they can seize upon certain "arbitrage" situations that plague such markets.  As the author states, what policies will create a level playing field for all innovators, not just help the large players win bigger?"

Our system needs a healthy staple of risk-seeking capital, fearless entrepreneurs, skilled supporting professionals and a strong social network.  Just listen to experts like Michael Porter.  But most importantly, we need to celebrate and enhance risk-taking.  Successful leaders will tell you that you learn more from failures than successes.  We can NOT be afraid to fail.  It's worse to not try and to try anything.

So if the government wants our education system fixed, do more than just one $5 billion "Race To The Top Fund."  Change the playbook; in fact, maybe we should just blow it up and start from scratch.  Any reason why we still teach our kids in predominantly 30-40 minute class sessions.  A new colleague of mine, one of the architects of the Asia Society International School Studies Network ("ISSN"), uses 90 minute class sessions.  That may seem trivial, but its far from trivial.

Lets start changing the parameters of the playing field and create a fever pitch that our politicians need to hear.  Isn't that how our democracy is supposed to work?  Isn't that how we birthed the Declaration of Independence?  Make your opinion known, and let the viral nature of the Internet take over.

Building A Successful, Sustainable Education Industry Ecosystem

I have been thinking a great deal about education reform and the best way to do it.  I am not a prophet, but I am an experienced strategist, executive at Fortune 100 media companies,  and battle tested entrepreneur. 

While I have met many of the thought leaders in education reform, my particular area of interest is developing games that are fun, engaging and educational.  Research clearly demonstrates how games can lead to successful learning outcomes, and that it's time that this area be nurtured.  It is refreshng to hear educators talk about using learning tools that will "connect" with students.  We've also been saturated with talk about "21st Century Skills."  I too am guilty of using the term.  But how do you build an ecosystem of game-based learning products?  That is a topic I'd like to tee up peripherally today, and perhaps devote additional posts exploring a bit deeper.

A woman I met more than two years ago, Merrilea Mayo, is one of the smartest people I know.  She is also an avid gamer, and a PhD.  Her white papers on games and successful learning outcomes was one of the foundational pieces I absorbed when formulating my own vision for games and learning.  Recently, Merrilea asked me to peer review a white paper on Serious Games for K-12 and the challenges in scaling successful business models.  It got me thinking quite a bit - increase in demand but little supply.  What does that mean?

According to various academic sources, including an interesting letter that Shirley Jackson, President of Renssalaer Polytechnic Institute, presented to the Detroit Economic Club just recently called "Expediting Serendipity:  Building an Innovation Ecosystem."  Many of the elements can be applied to game-based learning products.  An innovation ecosystem depends on, as Ms. Jackson put it, "strategic focus, idea generation, translational pathways and financial, infrastructural and human capital."  ALL of these elements must be abundant and effective if such an ecosystem will be sustainable.    And an intricate set of relationships must be cultivated.  These include academia, industry, labor, the financial sector and government.

With the current state of game-based learning, we have academia and in small part, industry working together.  But here's what's missing:

• a robust, diverse,  talent development system for game development
• a large number of existing and emerging suppliers of such content (industry)
• a financial sector that has not been actively investing in these companies due to legacy experiences with the challenging economics of investing in the education sector
• a government system that has, up until recently, been slow to encourage, incent and evangelize these types of pedagogical tools.  The SBIR grant process is cumbersome, tedious, with long lead times and arguably unqualified reviewers evaluating grant applications. 

So to sum up, business models are challenging (as Merrilea correctly points out) because many critical elements remain unfavorable.  So how do you move forward?

Ms. Jackson at Renssalaer has some very salient points (I am referring to her points verbatim here) and I will add my comments in italics:

1. As the education system, like the health care system, is an expression of our basic values, the federal government can take on multiple roles that can drive or influence innovation.  While the "Race To The Top" Fund is a start, they must also provide tax credits or other incentives for private companies developing such products.  A simple criteria can be establised to ensure the products meet some level of educational standard, and "educational" can be loosely defined.
2. The government is the key decision-maker, policy-setter, investor, regulator, consumer, end-user and endorser across multiple fronts, and it must use both regulatory and incentive tools effectively. This is not meant to "overregulate," but to create a roadmap and put its full resources behind executing the roadmap.  The problem with the Education Stimulus bill is that the funds were allocated before a specific, actionable roadmap was made.  With all due respect to the honorable Education Secretary, the "four pillars" do not contain specifics about curriculum, assessment, teacher training, pedagogy, federal vs. state control, etc.
3. States should be incentivized to fund research labs and talent development programs to ensure that human capital is abundant, and diverse.  The only way to change an industry that has been notoriously homogeneous is to align incentives with various metrics, one of which can be diversity (but not the only metric as I do not want to raise affirmative action issues).
4. Not until venture capitalists see a path to signficant ROI will they begin to invest more than just a one-off experiment from time to time.  Perhaps in the short-term to spur investment and innovation, angel investors and venture capital firms can be offered subsidies or tax credits for investments in early-stage companies focusing on K-12 Education Technology, so this definition would be broader than simply game-based learning concepts.
5. A robust innovation ecosystem requires translational pathways that bring discoveries into commercial, or societal use. One area Ms. Jackson propses is possibly granting universities an automatic exemption to patent law for the use of proprietary intellectural property in noncommercial research. This does not dilute the importance of intellectual property, but in certain instances, it absolutely appropriate to spur open-source collaboration amongst researchers. Policy-makers must cultivate new kinds of partnerships between industry, universities and nonprofits.  This is one of major shortcomings of the lack of robust venture capital communities in much of the United States with the exception of CA, MA and NY, and to a lesser extent, TX.
6. Our innovation ecosystem may well require more early-stage government support for potentially transformative business concepts in this space.  We need Centers for Innovation Management which  which can offer expertise targeted by industry, and span across universities in any one geographic cluster.  These centers, some of which are already established in various cities, must foster connections between inventors, entrepreneurs and research facilities, established companies and markets around the globe.

There is more to emphasize here, but major kudos to Ms. Jackson for her logical, comprehensive set of criteria for not just helping rebuild Detroit, but that can build just about any ecosystem, including game-based learning products.

Thanks To Educational Games Research

While I plan my next blog post, I wanted to formally express my gratitute to popular educational games blogger John Rice for his entry of October 10th that promoted this blog.  In the early days of my research of the games and learning niche, a number of thought leaders told me about John and his very thought-provoking blog.  To the best of my knowledge, John has one of the most well-known blogs in the ed tech sector, and he continually raises the questions that many are afraid to ask, or even respond to.

I do not make it a regular habit of carving out time to comment on other blogs, but I do read them regularly.  Video game addiction is one of those "Pandora's Box" questions that has unfairly mischaracterized video games due to the 80/20 rule.  The 20% (in this case far less than that) are overshadowing the value of the remaining 80%.  So I felt compelled to add my perspective and as a result, John and I have found some areas of common interest, and I look forward to cultivating this new relationship over the coming months (and years).

John's blog is certainly one to review if you are an educator, parent, student, or just someone who believes that games can be effectively used in the 21st century learning environment.

A Stark Reminder Of The Challenges Ahead

Thank you to all of my readers for being patient while I worked through a difficult medical situation albeit was never life-threatening.

I am still combing through the many articles in the education trades pertaining to not only the movement towards common standards but also the "Race To The Top" fund.  I promise all of you that I am going to put together a post that you will all be proud of, once I can read these articles thoroughly.

However, as I was recovering, I received a stark reminder of the stereotypes that need to be re-engineered, as they represent a great many people who have historically been resistant to change, and on many occasions due to either being unwilling or unable to observe current behavior or validated research.  

I will let all of you check out well-known John Rice's educational games research blog, but I found his provocative question about whether games can be addictive to trigger some uninformed posts.  See  one such post below and then ask yourself what this means for the efforts to reinvent our education system.

More blog posts coming soon!

Video Game Addiction:  Fact or Fiction?

I think that game addiction is a fact. if the person was a game addiction they will play compulsively, isolating themselves from, or from other forms of, social contact and focusing almost entirely on in-game rather than broader Achievements events.and life it has been proposed for inclusion in the next version of the Diagnostic and Statistical Manual of Mental Disorders (DSM)

New Post Coming Soon

To my loyal readers:

I apologize for not posting in the past few weeks.  After a nearly two month medical situation (not life-threatening), I am now working on a new post and expect to share with all of my readers this week.  Thanks for you support of my insights and I hope you will comment on my writings after you have read them.  I encourage civil discourse both in favor of and in opposition to my points of view.

Stay tuned for the next post.

Al Meyers