Product Inventor, Policy Innovator
Minnesota’s strength in technology has come from the spirit of risk-taking individuals and helped by lawmakers who understood how important it is to support them
When Earl Bakken and his brother-in-law were tinkering around with medical electronic equipment in a garage near the U of M, Minnesota was hardly the state we know today. In 1949, few Minnesotans had more than a high school diploma and many had stopped school at the eighth grade. In terms of prosperity, Minnesota was perfectly average. We ranked 25th in per capita income.
The brotherly partnership that gave birth to Medtronic can be considered a seminal event in our state’s history. It was the beginning of what we today consider a medical device cluster. Small and medium-size companies have popped up around our biggest medical companies. They have helped each other and our state grow more prosperous. None of this happened overnight.
For much of the past 60 years, Minnesota’s education level and wealth have risen slowly and steadily along with the national average. Economists tell us it was in the 1980s and ’90s when Minnesota became more productive and prosperous than average. And that’s when Minnesota created the Research and Development tax credit, another key ingredient in our economic success story.
More than 30 years later, an R&D credit isn’t just used across the country, it’s also popular around the world. It is recognized as an incentive to help entrepreneurs and innovators develop new products and new ways of doing things. Along the way, lawmakers have found ways to tweak the credit and make it more efficient.
Last year, the Minnesota legislature expanded the R&D credit in a number of significant ways. It is now refundable and available to S-corporations, which means it can be claimed by many of partnerships and individuals involved in medical-device startup companies.
On the federal level, a bipartisan group of lawmakers is looking to make even more changes, including establishing a permanent R&D tax credit. Minnesota Congressman Erik Paulsen sees his bill as imperative for the hundreds of med-tech companies that call our state home. For starters, it would allow these innovators to make long-term decisions for their business knowing the credit won’t suddenly disappear. More importantly to smaller, new companies, it could make it easier to apply for the credit, rather than wading through the more expensive and time-consuming process that currently exists.
A R&D expansion could create 162,000 U.S. jobs in the short run, according to a study by the Information Technology and Innovation Fund (ITIF). The group also says it would lead to nearly 4,000 new patents.
As we look back on Minnesota’s steady growth, it would seem it was an easy decision to prioritize education along with research and development. Minnesota became the envy of other states, but now we live in a world that recognizes the value of good schools and cutting-edge support for innovation.
When I met Earl Bakken last December, he reminded me that he built Medtronic based on his belief that “failure is closer to success than inaction.” Clearly, the work of research and development is going to sometimes lead to failure. As our state reaps the rewards of pioneering enterprise work, we must be willing to also accept risk when innovators head down a promising but uncertain path. mb
