UT Austin Plan II Honors Senior Thesis

Overview 

    "Keys to Success: A Policy Roadmap for the Fourth Industrial Revolution" seeks to provide a policy guide for lawmakers at the advent of a new industrial era. Just as the Third Industrial Revolution replaced physical labor with the advent of automated mass production technology, the Fourth Industrial Revolution will constitute technological advances that replace mental labor. Some of these technologies, such as varying degrees of artificial intelligence and automated decision-making, are already being used today in social media and natural language processing. Both allies and adversaries of the United States are investing heavily to get ahead in this era. For the prior two industrial revolutions, America was at the forefront, producing technological breakthroughs that drastically improved the standard of living for millions around the world. America’s leadership role can be owed in a significant part to its technological superiority, especially in military and advanced technology applications.

    At the start of the next industrial age, this thesis attempts to look back and analyze the policy environment leading up to and through the Third Industrial Revolution (also known as the “Digital Revolution” or “Internet Revolution”), isolate key policy levers material to the creation of innovative output during this period, and provide a roadmap for policymakers that outlines the optimal policy environment required to maximize the United States’ share of economic output in the advanced industries of the Fourth Industrial Revolution.

Conclusions and Proposed Policy Recommendations

    The federal policy levers most material to the development of Third Industrial Revolution-related innovative output, in order, are science & technology, fiscal & financial, education, commerce, and immigration. 

Science & Technology Policy

•  “Public Steeples”: combine Terman’s “steeple strategy” with increased public R&D, focusing resources with the greatest spillover potential to theoretical areas of future relevance to industry
• Government as a Lead Consumer: reestablishing the federal government’s role as a promoter of nascent fields of innovation through procurement programs for defense, education, or public health applications

Fiscal & Financial

• Maintain Low Tax Regimes: reducing the capital gains tax and corporate income tax burdens, particularly for smaller enterprises
• Capital Tranche #2: explore avenues to unlock untapped sources of capital (similar to the ERISA-rule relaxation for pension funds) and/or more efficiently allocate available capital via digital assets, which might include regulation to speed their adoption and proliferation

Education

• Accelerated Education Directorate: provide matching funds to states to promote the creation of future-skills programs (heavy emphasis on STEM and computer science education) via specialized magnet schools and/or a digitally accessible curriculum
• Cluster Building: prioritize the cultivation of innovation clusters centered around larger research universities via bidirectional exchange models between universities and local industry

Commerce

• Balanced Antitrust Posture: promoting consumer preference in platform systems (metaverses, automated transportation services) by promoting systems compatibility between services
• Employee Mobility: examining the implications of a federal statute restricting the use of non-compete contracts

Immigration

• Targeted Immigration: promoting high-skill immigration by easing unreasonable visa and green card burdens

Implications

    These results can be interpreted in two ways. First, they can be interpreted as “what mattered and what did not matter” for innovative output. For example: “Commerce policy ranked lower on influence. Thus, reforming antitrust posture will not provide the greatest value add to future innovation.” Such a view attempts to determine materiality to innovation and inherently assumes that what transpired over the Third Industrial Revolution was the best result possible or as close to it as we would likely have gotten. 

    Second, the rankings can be interpreted as “the federal government’s particular method of promoting innovation for that era.” This view does not assume that the United States’ performance is optimal. For example, although Immigration was not an influential policy lever during the Third Industrial Revolution, studies have demonstrated that high-skill immigrants have a positive effect on innovation as measured by patenting. A policymaker might take the view that the federal government did not properly harness a potentially material lever, and that doing so would have improved aggregate innovative output.

    For policymakers looking to formulate a policy framework, these results provide a starting point that can be modified to fit the available resources, capabilities, and objectives of the era. The goal should be to formulate a policy roadmap that will, at minimum, permit the successful advent of the Fourth Industrial Revolution. At best, it will optimize innovative output through the Fourth Industrial Revolution. Such a roadmap would be a forecast, and, consequently, inherently uncertain. Additionally, this roadmap would be founded on inherent assumptions about the nature of innovation across eras, namely, that “this time is the same as last time.” This paper recognizes that such simplifying assumptions, while important for the policymaking exercise, limit confidence in a final product. 

Caveats

    This policy ranking does not attempt to prove causality. Analytical social science studies in history all face the same problem: there can be no “control” against which to analyze the behavior(s) of interest. This analysis will never be able to determine whether federal policy caused, or was central to inducing, critical Third Industrial Revolution technologies like the integrated chip, for example. However, at a minimum, we can determine that the policy environment, outlined by the status of the five levers above, permitted the advent of the Third Industrial Revolution and its constituent innovations. We know this because the Third Industrial Revolution occurred. 

    It is true that there might have been greater innovative output had the levers been positioned differently. That is something this paper cannot take a position on. However, it is possible to analyze the effects of certain policy actions (e.g., the effect of public R&D “spillover effects” on innovation) to infer that such actions are likely innovation-promoting, and, consequently, would be associated with greater aggregate innovative output.