Innovation Waning, U.S. Leaders Worry
Is America losing its innovative edge?
That's the fear of a growing number of tech-industry leaders, who say U.S. companies are focusing on short-term gains at the expense of the country's long-term technological dominance.
"The trend lines show that we are not maintaining the kind of coordinated support behind innovation that we need to," Pascal Levensohn, a managing partner of Levensohn Venture Partners, said in a recent technology conference speech. "Innovation and entrepreneurship, the crucial growth engines of the U.S. economy, are at risk of stalling out."
Echoing the concerns of many, he warned that the U.S. was in danger of losing its technological edge unless leaders enacted new approaches to pursuing and funding innovation.
He said three major trends have produced a "technology investment plight": a growing focus on incremental innovation rather than basic research, declining research spending and the global recession.
For the past two decades, companies have emphasized incremental innovation and commercialization at the expense of basic research. Pure, open-ended scientific research eventually leads to breakthrough innovation, as was the case with development of the laser and the Internet, for example.
But that kind of research is expensive and doesn't always pay off right away.
At the same time, later-stage spending on research and development -- research geared directly toward new products -- has been declining as a percentage of the nation's gross domestic product, even as other nations bolster their R&D investment.
Exacerbating both trends is the global financial crisis and failure of large U.S. financial institutions, which are severely curtailing an already diminished pool of venture capital to fund future innovation.
Recent studies seem to support fears of falling behind.
Using 16 indicators to assess global competitiveness, a report by the nonpartisan think tank Information Technology and Innovation Foundation says that of the 40 nations and regions it surveyed, the U.S. has made the least progress on improving international competitiveness and innovation over the past decade. China and Singapore rated first and second in showing the most improvement.
"The U.S. still has enormous strengths in capacity and performance," said Robert Atkinson, an author of the ITIF report. "But we're in worse shape than people think. We've been losing ground relative to every other nation."
The U.S. placed sixth overall in the ITIF benchmark study measuring countries' knack for innovating and competing. Singapore was first, followed by Sweden, Luxembourg, Denmark and South Korea.
The U.S. rates No. 4 in government research spending as a percentage of GDP. But spending grew just 1% a year on average from 1999 to 2006. Ireland had the biggest rise, with a 52% increase. Spain was up 47% and South Korea 33%.
The most recent data from the National Science Foundation shows a $3.5 billion decline in 2008 from the previous year, to $113.2 billion, in U.S. federal funds for R&D. In contrast, from 1996 to 2003, federal R&D spending rose a cumulative 7%. From 2004 to 2008 it fell 2.1%, the NSF reports.
Not everyone sees the trend as dire. The "Global Competitiveness Report" by the World Economic Forum has ranked the U.S. first in global competitiveness for the past two years.
Still, a study issued this month by the Kauffman Foundation says very few of the foreign students now in college or who had graduated by the end of 2008 want to stay in the U.S. permanently.
Of those planning to leave, a majority see better economic opportunities in their home country. Others in this group worry about getting a job in the U.S. and a work visa. The study, "Losing America's Best and Brightest: America's New Immigrant Entrepreneurs," surveyed 1,224 foreign nationals currently in the U.S. It says foreign students receive nearly 60% of all engineering doctorates and more than half of all doctorates in math, computer sciences, physics and economics awarded in the U.S.
"Losing them is an economic tragedy, "said Vivek Wadwha, a Duke University professor who conducted the study.
Judith Estrin, author of "Closing the Innovation Gap" and a former chief technology officer at Cisco Systems CSCO, says the U.S. is reaping the benefits of seeds planted years and decades ago, but has not planted enough seeds to fuel innovation on the road ahead.
"We have become increasingly short-sighted with our views about innovation," she said. "We have become more focused on incremental innovation. There's not enough of a focus on breakthrough, disruptive innovation."
Examples include the Apple AAPL iPhone and social-networking sites such as Facebook, Estrin and Levensohn say. The iPhone, though widely popular, was a technical advance on technologies already widely in use. The same goes for social-networking sites.
"We're just playing around the edges," Levensohn said.
Another sign that America may be losing its edge was a report in January from IFI Patent Intelligence, which suggested America's long-standing dominance of new U.S. patents may be slipping.
IBM IBM tops the list as the company with the most patents filed by a wide margin. But the U.S. holds only four of the top 10 slots, compared with five for Japan. American companies captured only 49% of U.S. patents granted in 2008, down from 50% in 2007.
"What's clear is that many of the world's largest companies are placing a higher priority on protecting their intellectual property," Diane Slaughter, general manager of IFI, said in a statement when the results were released. Others aren't as worried about China, India and other fast-growing regions.
"The idea that Asian governments have had any success coordinating or leading useful innovation flies in the face of all evidence," said Amar Bhide, a professor of business at Columbia University.
An example comes from Japan's Fifth Generation Computer Systems project, a massive government-industry collaboration in the 1980s. The goal was a supercomputer a generation ahead of the most powerful computers of the time. It was a commercial failure.
"Silicon Valley has great national assets, but I also say that Bentonville, Arkansas (home of Wal-Mart), is at least as important," Bhide said, referring to Wal-Mart's widely acclaimed computerized retail system.
As for the iPod, Bhide says it doesn't matter that several core components inside the handset were made in Europe and Japan.
"The value of the iPod to the U.S. economy is far greater than the production of the iPod. It has transformed many sectors of the U.S. economy," he said."The strength of the U.S. has been to take new technology and, regardless of where it originates, weave that into our daily lives."
