Rising to the Challenge U.S. Innovation Policy for the Global Economy (2012) / Chapter Skim
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Chapter 1 The Innovation Challenge
Chapter 1 The Innovation Challenge
Pages 17-60
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Through these challenges, one factor changed little: Thanks to its robust innovation ecosystem and high levels of investments in research, America maintained its leadership in innovation as its entrepreneurs launched new products, companies, and industries, and created high-paying jobs. While America's innovation system has enabled the nation to weather previous competitive challenges, the nature of global competition has changed in fundamental ways.
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Our collective economic growth and competitiveness depend on all our peoples' and economies' capacity to innovate. Open and non-discriminatory trade and investment policies that foster competition, promote access to technology, and encourage the creation of innovations and capacity to innovate necessary for growth are critical aspects of any successful innovation strategy." 4 The World Economic Forum ranks the United States as fifth in innovation capacity.
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21, 2009. 8 See for example, Roger Thompson, Why Manufacturing Matters, Harvard Business School, March 28, 2011.
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U.S. Census Bureau, Foreign Trade, Country and Product Trade, Advanced Technology Products.
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Coping with the Growth of New Competitors The reshaping global environment is affecting U.S. competitiveness.14 The rest of the world has become smarter, more focused, and more financially committed to developing globally competitive national innovation systems -- the networks of public policies and institutions such as businesses, universities, and national laboratories that interact to initiate, develop, modify, and commercialize new technologies.15 14 A recent survey of its alumni by the Harvard Business School supports the view that the United States faces a deepening competitiveness challenge.
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Influential earlier works on global policies to promote innovation include Charles Freeman, Theory of Innovation and Interactive Learning, London: Pinter, 1987; Bengt-Åke Lundvall, ed., National Innovation Systems: Towards a Theory of Innovation and Interactive Learning, London: Pinter, 1992; and Michael Porter, The Competitive Advantage of Nations, New York: The Free Press, 1990. Influential earlier works on global policies to promote innovation include Charles Freeman, Theory of Innovation and Interactive Learning, London: Pinter, 1987; Bengt-Åke Lundvall, ed., National Innovation Systems: Towards a Theory of Innovation and Interactive Learning, London: Pinter, 1992; and Michael Porter, The Competitive Advantage of Nations, New York: The Free Press, 1990.
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cit. An early outline of India's new innovation strategy is found in National Innovation Council, Towards a More Inclusive and Innovative India, September 2010.
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In some cases, for example, a venture capitalist may not realize the true significance of a new idea, meaning that it does not receive the funding needed to develop. In other cases, an individual firm may be reluctant to incur the high costs of research and development for knowledge that will benefit others as much or more than the investor; what economists call "public goods." 22 Clayton M Christensen and Michael Overdorf, "Meeting the Challenge of Disruptive Change" Harvard Business Review, March–April 2000.
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The U.S. has a rich history of public-private partnerships that have provided a platform for successful cooperation.24 What sets the United States apart from most other industrial nations is that there is no overarching national innovation strategy to support, much less coordinate, disparate initiatives to build commercially oriented industries.
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Successful American innovation policies do just that. The Bayh-Dole Act, for example, encourages innovation by changing the incentives faced by university faculty and administrators.32 30 For an illustrative example of barriers to innovation in the food industry, see Sam Saguy, "Paradigm shifts in academia and the food industry required to meet innovation challenges." Trends in Food Science & Technology, Volume 22, Issue 9, September 2011, pp.
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levels in the next five years. Goldman Sachs Global Markets Institute, "The New Geography of Global Innovation," September 2010 http://www.innovationmanagement.se/wpcontent/uploads/2010/10/The-new-geography-of-global-innovation.pdf.
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The Chinese government reports somewhat different estimates of 1.83% for 2011 and 1.76% for 2010. See "Statistical Bulletin on National Science and Technology Expenditures in 2010 and in 2011.
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2.0 1.5 China 1.0 0.5 0.0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 FIGURE 1.2 R&D expenditures as a share of gross domestic product. SOURCE: National Science Foundation, National Center for Science and Engineering Statistics, Science and Engineering Indicators 2012 (NSB 12-01)
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A second major aspect of this relates to favorable access and terms for investment capital. The third factor is infrastructure provision and support, where some high tech industries -- notably the semiconductor industry -- require billions to set up new plants.
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SOURCE: National Science Foundation, National Center for Science and Engineering Statistics, Science and Engineering Indicators 2012, NSB 12-01 (January 2012) , Appendix Tables 4-1 and 4-7.
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More disconcerting for U.S.-based innovation is the persistence of state capitalism overseas.49 Government support for homegrown industries, which was instrumental in the ascent of Japan and South Korea in industries such as automobiles, electronics, and steel in the 20th century, plays a heavy role in the economic strategies of nations such as China, Russia, and the Gulf States in the 21st century, notes the National Intelligence Council. 50 The council also noted that state-owned enterprises not only are far from extinction, but actually "are thriving, and in many cases seek to expand beyond their own borders."51 State enterprises, especially those based in China, often benefit from privileged access to land, labor, capital, government purchases, and industrial subsidies.
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International Trade Commission detailed China's lack of enforcement of intellectual property rights, discrimination in government procurement against imported technology products or even those made by multinationals in China, and pressure on multinationals to transfer core technology to domestic Chinese companies.58 Due to government policies that favor Chinese producers and compel foreign manufacturers to transfer their technology to sell into the fast-growing domestic market for wind farms, for example, China has become one of the world's biggest producers and exporters of wind turbines and generators. The foreign share of China's annual new purchase of wind power equipment has fallen from 75 percent in 2004 to just 11 percent in 2010.59 [See Figure 1.5]
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manufacturers with alternate but higher priced solar power technologies, such as Solyndra, Evergreen, SpectraWatt, to file for bankruptcy.61 Government bodies also essentially require makers of lithium-ion batteries for cars to manufacture in China in order to sell into the growing domestic automobile market.62 The Chinese government also has refused to allow Chevrolet Volt plug-in hybrid passenger cars to qualify for subsidies totaling $19,300 unless General Motors transfers core technologies to a Chinese 60 Stephen Lacey, "How China Dominates Solar Power: Huge Loans from the Chinese Development Bank are Helping Chinese Solar Companies Push American Solar Firms Out of the Market," Guardian Environment Network, guardian.co.uk, September 12, 2011. 61 Keith Bradsher, "China Benefits as U.S.
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"The indigenous innovation ‘web of policies' is expected to make it difficult for foreign companies to compete on a level playing field in China," according to the U.S. International Trade Commission (ITC)
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If emerging economies such as India and Brazil also rely heavily on state capitalism, the threat to U.S. innovation will grow.
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A number of emerging economies have large pools of highlyeducated science and engineering talent, which can staff major research infrastructures. DuPont India indicated in 2011 that it planned to recruit 800 scientists, mostly PhDs, in the next two years.
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," India Business Insight (April 13, 2012)
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Summer 2006. 90 See Henry Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology, Boston: Harvard Business School Press, 2003.
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Now these hubs face greater competition as places to commercialize new technology and launch new companies. Taipei, Shanghai, Helsinki, Tel Aviv, Hyderabad, Singapore, Sydney, and Suwon, South Korea, are among the many cities that now boast high concentrations of technology entrepreneurs and are launching important companies.95 According to a map of global innovation clusters by the 91 For example, see presentations by Swati Piramal of Nicholas Piramal, Robert Armstrong of Eli Lilly, Kenneth Herd of General Electric, and Ram Sriram of Google in National Research Council, India's Changing Innovation system: Achievements, Challenges, and Opportunities for Cooperation, Charles W
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cities such as Philadelphia, St. Louis, and Indianapolis "silent lakes" or "shrinking pools" while cities such as Shenzhen, Hyderabad, Singapore, and Cheonan, South Korea, are classified as rapidly growing "hot springs." See Juan Alcacer and McKinsey & Co., "Mapping Innovation Clusters," McKinsey Digital, March 19, 2009, (http://whatmatters.mckinseydigital.com/flash/innovation_clusters/)
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One was that other countries were greatly expanding their own finance of university science. The other was that the end of the cold war eroded the political support for programs to support and grow high technology industries in the United States.
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innovation system is provided in Philip Shapira and Jan Youtie, "The Innovation System and Innovation Policy in the United States," Chap. 2 in Rainer Frietsch and Magrot Schüller, editors, Competing for Global Innovation Leadership: Innovation Systems and Policies in the USA, EU, and Asia, Fraunhofer IRB Verlag, Stuttgart, 2010.
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See Pascal Zachary, Endless Frontier: Vannevar Bush, Engineer of the American Century, Cambridge MA: MIT Press, 1999. President Roosevelt's successor, President Truman disagreed, vetoing Bush's NSF legislation.
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within the Department of Energy works with a number of these laboratories on high-risk, high-value research and development in the fields of energy efficiency and renewable energy technologies. A review by the National Academies found that "DOE's RD&D programs in fossil energy and energy efficiency have yielded significant benefits (economic, environmental, and national security-related)
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Federal programs aimed at disseminating technology to the private sector include the Hollings Manufacturing Extension Partnership of the Commerce Department. The Private Sector The innovation process itself -- that of developing marketable products -- has traditionally been the realm of the U.S.
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H Fuchs describes DARPA program managers as "embedded agents" in the national innovation ecosystem who maintain constant contact with researchers, track emerging themes, bet on the right people, bring together disconnected researchers, stand up competing technologies against each other, and maintain the systems-level perspective critical to orchestrate these disparate research activities.
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Transformations in the U.S. National Innovation System, 1970-2006," The Information Technology and Innovation Forum, July 2008.
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According to a recent article in the Wall Street Journal, "U.S.'s Afghan Headache: $400-a-Gallon Gasoline." (Dec 6, 2011) , "The cost and difficulty of fuel deliveries in places like Afghanistan is one major reason the Pentagon is working to overhaul the way the armed forces use energy, from developing aircraft that can run on biofuels to powering remote bases with solar panels or wind turbines." 126 United States Department of Defense "Quadrennial Defense Review Report" February 2010.
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An update of this report was recently published called Rising Above the Gathering Storm, Revisited: Rapidly Approaching Category 5, Washington, DC: The National Academies Press, 2010.
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134 See presentation by Roland Schindler, executive director of Fraunhofer, at the National Research Council conference on, Meeting Global Challenges: U.S.-German Innovation Policy, Berlin, May 24-25, 2011. With regard to worker retention, see Klaus Zimmerman, "Germany's Support for Manufacturing and Export Performance." Presentation at the National Academies conference on Meeting Global Challenges: U.S.-German Innovation Policy, November 1, 2010, Washington, DC.
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Much of that funding is direct grants to companies, which match the funds and work in collaborations lasting three to five years with universities and research institutes.140 • Taiwan has demonstrated that focused investments in applied research and a systematic system for absorbing and disseminating foreign 135 See Yena Lim, "The Singapore S&T Park", National Research Council, Understanding Research, Science and Technology Parks: Global Best Practices.
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Unlike most other industrial nations, the United States does not have a comprehensive national innovation strategy.
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President Obama also has unveiled a national innovation strategy that calls for increasing U.S. investments in R&D, higher education, and information-technology and transportation infrastructure.
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154 President Obama's fiscal 2009 budget provided $50 million in regional planning and matching grants within the Economic Development Administration to "support the creation of regional innovation clusters that leverage regions' existing competitive strengths to boost job creation and economic growth." See Executive Office of the President, A Strategy for American Innovation, op.
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While fossil and nuclear subsidies have been long term and therefore bankable, subsidies for renewable energy technologies have been subject to short term changes. In wind technology, unstable funding of the production tax credit has resulted in huge drops in investment – with damaging consequences to the development of a robust U.S.
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Also see Pete Engardio, "State Capitalism," BusinessWeek, February 6, 2009. 163 See Pradeep Haldar, "New York's Nano Initiative," in Growing Innovation Clusters for 21st Century Prosperity.
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Clusters are emerging in renewable energy, aerospace, information technology, and digital media. Catalysts include the nation's first science park connected to a national laboratory -- located next to the Sandia National Laboratories' Albuquerque campus -- and large state investments in early-state capital funds, high-performance computer infrastructure, public-private research partnerships, tax credits for targeted industries, and worker training.167 • West Virginia: Morgantown, West Virginia, has become the hub of rapidly growing clusters in biometrics and new energy technologies by building alliances between industry, national laboratories, and regional universities such as West Virginia University, Carnegie Mellon, and the University of Pittsburgh.
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Porter, "Clusters and Economic Policy: Aligning Public Policy with the New Economics of Competition," Institute for Strategy and Competitiveness White Paper, revised May 18, 2009. 174 Remarks by Ginger Lew, "The Administration's Cluster Initiative," in at the National Academies Symposium on Clustering for 21st Century Prosperity; Summary of a Symposium, February 25, 2010.
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60 RISING TO THE CHALLENGE computer science, and renewable energies. How, then, can the U.S.
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