America and the World: We’re #40!

In Japan, citizens check in to airlines, pay transit fares, and bank through their cell phones. Average broadband speeds in 15 countries are faster than in the United States. And in Finland, virtually all primary care physicians use electronic health records. Germany leads the United States in innovation and development of solar cells, Denmark leads in wind power, Japan leads in robotics, and the rechargeable lithium-ion batteries at the heart of GM’s vaunted all-electric Volt were designed and manufactured in South Korea.

Not long ago, America’s global leadership in technology innovation was taken as a given. Research from U.S. corporate, academic, and government laboratories reeled off a string of transformative innovations, in everything from transistors, mobile phones, and personal computers to lasers, graphical user interfaces, search engines, the Internet, and genetic sequencing. But other countries have since closed the innovation gap, and in many cases far outpaced the United States. What happened to America’s advantage?

Over the past decade, many of our competitors–from Great Britain and Finland to Japan and South Korea–have created national innovation strategies designed specifically to link science, technology, and innovation with economic growth. These countries proactively anticipate and articulate the intersections among policies in science and technology, R&D, education, workforce training, immigration, tax, trade, intellectual property, and digital infrastructure in creating economic and social welfare. In turn, they have formed innovation institutes to coordinate policy in all these areas.

They have done so because they recognize that technological innovation drives long-run economic growth and that therefore innovation-led economic development must be a focal point of their economic growth strategies. They further recognize that addressing complex and systemic challenges–such as expanding health care, deploying digital infrastructure, achieving sustainable energy production, combating climate change, and producing a skilled, world-class workforce–can only be accomplished through coordinated strategies that leverage the resources of government, industry, and academia. As Rui Grilo, chief of staff for Europe’s Lisbon Strategy and an architect of Portugal’s innovation strategy, bluntly states, “Knowledge, technology, and innovation must be at the core of a country’s national economic policy.”

Unfortunately, the United States, practically alone among the world’s leading economies, conspicuously lacks both a national innovation strategy and an institution to advance one. Once generally recognized as the world’s innovation leader, in recent years the United States has begun to slip noticeably. In February 2009, the Information Technology and Innovation Foundation’s (ITIF) Atlantic Century report ranked the United States sixth out of 40 leading industrialized nations in innovation competitiveness. A March 2009 Boston Consulting Group study ranked the United States eighth out of 110 countries. While those figures aren’t so bad, consider this: ITIF’s report examined the rate of change in innovation capacity over the last decade for 40 countries and found the United States ranked dead last in improvements across a range of 16 key metrics in human capital, innovation capacity, entrepreneurship, IT infrastructure, economic policy, and economic performance.

America’s last-place performance in enhancing its innovation capacity over the past decade is a direct reflection both of other countries’ articulation and aggressive implementation of national innovation strategies, and the United States’ corresponding lack thereof. It’s also a function of an entitlement mentality that believes policies that were good enough to assure U.S. innovation leadership in the past will be sufficient to maintain that leadership in the future. And while the United States once led the way in developing pro-innovation policies–it was the first in the world to offer companies an R&D tax credit and, through the 1980 Bayh-Dole Act, the first to allow universities to patent products originating from federal R&D funds–other countries’ innovation policies have caught up, and in many cases surpassed, those of the United States. For example, U.S. R&D tax credit generosity has fallen to 17th for large companies (18th for small and medium-size enterprises) among OECD countries, and whereas the United States offers only an incremental R&D tax credit, the most aggressive countries have gone to a flat tax credit for R&D expenditures.

In short, other countries have caught up by adopting the best American lessons of free and open markets and complementing them with smart support from government to grow the innovation capabilities of their firms and industries. And while the United States remains near the top of the world’s most innovative countries, it remains so based primarily on residual innovation strengths, not new capabilities it has assembled over the past decade. As Harvard’s Gary Pisano frames America’s challenge, “The competitive advantage of the U.S. economy has to be leveraging our science capacity for economic growth.” Looking at how well other countries have done just that, America has a long way to go.

The countries that lead the world in innovation policy took a three-step approach: They recognized the need to approach innovation systemically; they set a vision and strategy for action, with clearly articulated goals and ambitions; and they implemented institutional reforms to drive their country’s innovation strategy. Take Finland. Its National Innovation Strategy, released in March 2009, emphasizes the need for a national approach to innovation, arguing that “piecemeal policy measures will not suffice in ensuring a pioneering position in innovation activity, and thus growth in national productivity and competitive ability.” That’s why the country placed Tekes, its National Agency for Technology and Innovation, within the Ministry of Employment and Economy, making explicit the linkage between innovation, employment, and economic growth.

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