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9
What Might Life in the United States
Be Like if It Is Not Competitive in
Science and Technology?
Since World War II, the United States has led the world in science and
technology, and our significant investment in research and education has
translated into benefits from security to healthcare and from economic com-
petitiveness to the creation of jobs. As we enter the 21st century, how-
ever, our leadership is being challenged. Several nations have faster growing
economies, and they are investing an increasing percentage of their resources
in science and technology. As they make innovation-based development a
central economic strategy, we will face profoundly more formidable com-
petitors as well as more opportunities for collaboration. Our nation’s lead
will continue to narrow, and in some areas other nations might overtake us.
How we respond to the challenges will affect our prosperity and security in
the coming decades.
To illustrate the stakes of this new game, it is useful to examine the
changing nature of global competition and to sketch three scenarios for US
competitiveness—a baseline scenario, a pessimistic case, and an optimistic
case. The scenarios demonstrate the importance of maintaining the nation’s
lead in science and technology.
“THE AMERICAN CENTURY”
In the second half of the 20th century, the United States led the world in
many areas. It was the world’s superpower, it had the highest per capita
income of any major economy, it was first among developed countries in
economic growth, and it generated the largest share of world exports—with
less than 5% of the world’s population, it consumes 24% of what the world
204
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205
WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
produces.1 US-based multinational corporations dominated most industrial
sectors. In the 1990s, the United States experienced the longest economic
boom in its history, driven in large part by investments in information tech-
nology and by accelerating productivity.
Central to prosperity over the last 50 years has been our massive invest-
ment in science and technology. Government spending on research and de-
velopment (R&D) soared after World War II, and government spending on
R&D as a percentage of the gross domestic product (GDP) reached a peak
of 1.9% in 1964 (it has since fallen to 0.8%2). By 1970, the United States
enrolled 30% of all postsecondary students in the world, and more than
half the world’s science and engineering doctorates were awarded here.3
Today, with just 5% of the world’s population, the United States em-
ploys nearly one-third of the world’s scientific and engineering researchers,
accounts for 40% of all R&D spending, publishes 35% of science and engi-
neering articles, and obtains 44% of science and engineering citations.4 The
United States comes out at or near the top of global rankings for competi-
tiveness. The International Institute for Management Development ranks
the United States first in global competitiveness; the World Economic Fo-
rum puts us second (after Finland) in overall competitiveness and first in
technology and innovation.5
Leadership in science and technology has translated into rising stan-
dards of living. Technology improvements have accounted for up to one-
half of GDP growth and at least two-thirds of productivity growth since
1946.6 Business Week chief economist Michael Mandel argues that, with-
out innovation, the long-term growth rate of the US economy would have
been closer to 2.5% annually rather than the 3.6% that has been the aver-
age since the end of World War II. If our economy had grown at that lower
1Center for Sustainable Energy Systems, University of Michigan, “US Energy System
Factsheet.” August 2005. Available at: http://css.snre.umich.edu/css_doc/CSS03-11.pdf.
2American Association for the Advancement of Science. “US R&D as Percent of Gross
Domestic Product, 1953-2003.” May 2004. Available at: www.aaas.org/spp/rd. Based on Na-
tional Science Foundation data in National Science Board. Science and Engineering Indicators
2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004. Figure 4-5.
3R. B. Freeman. Does Globalization of the Scientific/Engineering Workforce Threaten US
Economic Leadership? Working Paper 11457. Cambridge, MA: National Bureau of Economic
Research, June 2005. P. 3.
4Ibid., p. 1.
5IMD. World Competitiveness Yearbook (2005); World Economic Forum. The Global Com-
petitiveness Report, 2004-2005. New York: Oxford University Press, 2004.
6G. Tassey. R&D Trends in the US Economy: Strategies and Policy Implications. NIST
Planning Report 99-2. Gaithersburg, MD: National Institute of Standards and Technology,
April 1999.
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206 RISING ABOVE THE GATHERING STORM
rate over the last 50 years, he says, it would be 40% smaller today, with
corresponding implications for jobs, wages, and the standard of living.7
NEW GLOBAL INNOVATION ECONOMY
The dominant position of the United States depended substantially on
our own strong commitment to science and technology and on the com-
parative weakness of much of the rest of the world. But the age of relatively
unchallenged US leadership is ending. The importance of sustaining our
investments is underscored by the challenges of the 21st century: the rise of
emerging markets, innovation-based economic development, the global in-
novation enterprise, the new global labor market, and an aging population
with expanding entitlements.
Emerging Markets
Over the last two decades, the global economy has been transformed.
With the fall of the Berlin Wall in 1989, the collapse of the Soviet Union in
1991, China’s entry into the World Trade Organization in 2001, and India’s
recent engagement with international markets, almost 3 billion people have
joined the global trading system in little more than a decade.
In the coming years, developing markets will drive most economic
growth. Goldman Sachs projects that within 40 years the economies of
Brazil, Russia, India, and China (the so-called BRICs) together could be
larger than those of the G6 nations together—the United States, Japan, the
United Kingdom, Germany, France, and Italy (Figure 9-1). The BRICs cur-
rently are less than 15% the size of the G6.8 But India’s economy could be
larger than Japan’s by 2032, and China could surpass every nation other
than the United States by 2016 and reach parity with the United States by
2041.
The enormous populations of the BRICs (China’s population is now
4.4 times and India’s is 3.6 times the size of the US population9) mean that
even though per capita income in those nations will remain well below that
in the developed world, the BRICs will have a growing middle class of
consumers. Within a decade, nearly 80% of the world’s middle-income con-
sumers could live in nations outside the currently industrialized world.
7M. J. Mandel. Rational Exuberance: Silencing the Enemies of Growth and Why the Future
Is Better Than You Think. New York: Harper Business, 2004. P. 27.
8Goldman Sachs. Dreaming with the BRICs: The Path to 2050. Global Economics. Paper
No. 99. New York: Goldman Sachs, October 2003.
9US Census Bureau Data Base. “Total Mid-Year Population, 2004-2050.” Available at: http:
//www.census.gov/ipc/www/idbsprd.html.
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207
WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
50,000
GDP (billions of 2003 US$)
40,000
China
30,000 India
Russia
20,000 Japan
US
10,000
0
2000 2010 2020 2030 2040 2050
FIGURE 9-1 Projected growth of emerging markets for selected countries, in billions
of constant 2003 US dollars, 2000-2050.
SOURCE: Goldman Sachs. Dreaming with the BRICs: The Path to 2050. Global
Economics. Paper No. 99. New York: Goldman Sachs, October 2003.
China alone could have 595 million middle-income consumers and 82 mil-
lion upper-middle-income consumers,10 a combined number that is double
the total projected population of the United States in that period. China’s
domestic market is already the largest in the world for more than 100 prod-
ucts. With 300 million subscribers and rising, China already is by far the
biggest mobile-telephone market in the world. Only a small fraction of its
population has Internet access, but China still has 100 million computer
users, second only to the United States. China has become the second larg-
est market for personal computers, and it will soon pass the United States.11
Many US companies—including Google, Yahoo, eBay, and Cisco—expect
China to be their largest market in the next 20 years.12
For decades, the United States has been the world’s largest and most
sophisticated market for an enormous range of goods and services. US con-
sumers have stimulated productivity around the world with our apparently
insatiable demand. Foreign multinational companies have invested in the
10P. A. Laudicina. World Out of Balance: Navigating Global Risks to Seize Competitive
Advantage. New York: McGraw-Hill, 2005. P. 76.
11C. Prestowitz. Three Billion New Capitalists: The Great Shift of Wealth and Power to the
East. New York: Basic Books, 2005. P. 74.
12D. Gillmor. Now Is Time to Face Facts, Make Needed Investment. San Jose Mercury
News, March 14, 2004.
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208 RISING ABOVE THE GATHERING STORM
United States to gain access to our markets, giving this nation the largest
stock of foreign direct investment in the world and employing 5.4 million
Americans.13 New products and services are designed, marketed, and
launched here. Technical standards are set here. But as other markets over-
take us, we could lose these advantages.
Innovation-Based Development
Driving the rapid growth in developed economies and in emerging mar-
kets is a new emphasis on science and technology. A report of the President’s
Council of Advisors on Science and Technology (PCAST) notes, “Other
countries are striving to replicate the US innovation ecosystem model to
compete directly against our own.”14 Through investments in R&D, infra-
structure, and education and aided by foreign direct investment, many na-
tions are rapidly retooling their economies to compete in technologically
advanced products and services.
One sign of this new priority is increased R&D spending by many gov-
ernments. The European Union (EU) has stated its desire to increase total
R&D spending (government and industry) from less than 2% of GDP to
3% (the United States currently spends about 2.7%).15 From 1992 to 2002,
China more than doubled its R&D intensity (the ratio of total R&D spend-
ing to GDP), although the United States still spends significantly more than
China does both in gross terms and as a percentage of GDP. Other nations
also have increased their numbers of students, particularly in science and
engineering. India and China are large enough that even if only relatively
small portions of their populations become scientists and engineers, the size
of their science and engineering workforce could still significantly exceed
that of the United States. India already has nearly as many young profes-
sional engineers (university graduates with up to 7 years of experience) as
the United States does, and China has more than twice as many.16
Multinational corporations are central to innovation-based develop-
ment strategies, and nations around the world have introduced tax benefits,
subsidies, science-based industrial parks, and worker-training programs to
13Organization for International Investment. “The Facts About Insourcing.” Available at: http:
//www.ofii.org/insourcing/.
14President’s Council of Advisors on Science and Technology. Sustaining the Nation’s Inno-
vation Ecosystems, Information Technology Manufacturing and Competitiveness. Washing-
ton, DC: White House Office of Science and Technology Policy, December 2004. P. 15.
15Organisation for Economic Co-operation and Development. Science, Technology and
Industry Outlook 2004. Paris: OECD, 2004. P. 25. Available at: http://www.oecd.org/
document/63/0,2340,en_2649_ 33703_33995839_1_1_1_1,00.html.
16McKinsey and Company. The Emerging Global Labor Market: Part II—The Supply of
Offshore Talent in Services. New York: McKinsey and Company, June 2005.
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209
WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
lure the owners of high-technology manufacturing and R&D facilities.
China uses those tools and its enormous potential market to encourage
technology transfer to Chinese partner companies.17 Most of the world’s
leading computer and telecommunications companies have R&D invest-
ments in China, and they are competing with local high-technology enter-
prises for market share. High-tech goods went from about 5% of China’s
exports in 1990 to 20% in 2000. Foreign enterprises accounted for 80% of
China’s exports in capital- and technology-intensive sectors in 1995, but
they were only responsible for 50% by 2000. The United States now has a
$30 billion advanced-technology trade deficit with China.
There was once a belief that developing nations would specialize in
low-cost commodity products and developed economies would focus on
high technology, allowing the latter to maintain a higher standard of living.
Developing nations—South Korea, Taiwan, India, and China—have ad-
vanced so quickly that they can now produce many of the most advanced
technologies at costs much lower than in wealthier nations. Most analysts
believe that the United States, Europe, and Japan still maintain a lead in
innovation—developing the new products and services that will appeal to
consumers. But even here the lead is narrowing and temporary. And while
the United States does currently maintain an advantage in terms of the avail-
ability of venture capital to underwrite innovation, venture capitalists are
increasingly pursuing what may appear to be more promising opportunities
around the world.
The Global Innovation Enterprise
Among the most powerful drivers of globalization has been the spread
of multinational corporations. By the end of the 20th century, nearly 63,000
multinationals were operating worldwide.18 Over the last few decades, cor-
porations have used new information technologies and management prac-
tices to outsource production and business processes. Shifting from a verti-
cally integrated structure to a network of partners allows companies to
locate business activities in the most cost-efficient manner. The simulta-
neous opening of emerging markets and the rapid increase in workforce
skill levels in those nations helped stimulate the offshore placement of key
functions. First in manufacturing, then in technical support and back-office
17E. H. Preeg. The Emerging Chinese Advanced Technology Superstate. Arlington, VA:
Manufacturers Alliance/MAPI and Hudson Institute, 2005; K. Walsh. Foreign High-Tech
R&D in China: Risks, Rewards, and Implications for US-China Relations. Washington, DC:
Henry L. Stimson Center, 2003.
18United Nations Conference on Trade and Development. World Investment Report 2004:
The Shift Towards Services. New York and Geneva: United Nations, 2004.
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210 RISING ABOVE THE GATHERING STORM
operations, next in software design, increasingly sophisticated work is be-
ing performed in developing economies. Innovation itself is being both
outsourced and sent offshore.19 This is all part of the process that Thomas
Friedman calls “the flattening of the world.”20
Locations that combine strong R&D centers with manufacturing capa-
bilities have a clear competitive advantage. Hence, in addition to the avail-
ability of scientists and engineers whose salaries are a fraction of the sala-
ries of their US counterparts, India and China offer synergies between
manufacturing and R&D. Top-level R&D and design are still conducted
mostly in the United States, but global companies are becoming increas-
ingly comfortable with offshore R&D, and other nations are rapidly in-
creasing their capabilities.21
In 1997, China had fewer than 50 research centers that were managed
by multinational corporations; by mid-2004, there were more than 600.22
Much of the R&D currently performed in developing markets is designed
to tailor products to local needs, but as local markets grow, the most ad-
vanced R&D could begin to migrate there. That said, it should be noted
that the United States also benefits from offshore R&D—the amount of
foreign-funded R&D conducted here has quadrupled since the mid-1980s.
In fact, more corporate R&D investment now comes into the United States
than is sent out of the country.23
The Emerging Global Labor Market
The three trends discussed already—the opening of emerging markets,
innovation-based development, and the global innovation enterprise—have
created a new global labor market, with far-reaching implications.
In the last few years, the phenomenon of sending service work overseas
has garnered a great deal of attention in developed nations. The movement
of US manufacturing jobs offshore through the 1980s and 1990s had major
consequences for domestic employment in those sectors, although many
argue that productivity increases were responsible for most of the reported
19Council on Competitiveness. Going Global: The New Shape of American Innovation.
Washington, DC: Council on Competitiveness, 1998.
20T. L. Friedman. The World Is Flat: A Brief History of the 21st Century. New York: Farrar,
Straus, and Giroux, 2005.
21President’s Council of Advisors on Science and Technology. Sustaining the Nation’s Inno-
vation Ecosystems, Information Technology Manufacturing and Competitiveness. Washing-
ton, DC: White House Office of Science and Technology Policy, December 2004. P. 11.
22R. B. Freeman. Does Globalization of the Scientific/Engineering Workforce Threaten US
Economic Leadership? Working Paper 11457. Cambridge, MA: National Bureau of Economic
Research, June 2005. P. 9.
23K. Walsh. Foreign High-Tech R&D in China: Risks, Rewards, and Implications for US-
China Relations. Washington, DC: Henry L. Stimson Center, 2003.
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211
WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
job losses.24 Until recently, it seemed that jobs in the service sector were safe
because most services are delivered face-to-face and only a small fraction is
traded globally. But new technologies and business processes are opening
an increasing number of services to global competition, from technical sup-
port to the reading of x-rays to stock research to the preparation of income
taxes and even to the ordering of hamburgers at drive-through windows.
There is a US company that uses a receptionist in Pakistan to welcome
visitors to its office in Washington via flat-screen television.25 The transfor-
mation of collaboration brought about by information and communica-
tions technologies means that the global workforce is now more easily
tapped by global businesses. It is important to note, however, that a recent
McKinsey Company report estimates that only 13% of the potential talent
supply in low-wage nations is suited for work in multinational companies
because the workers lack the necessary education or language skills.26 But
that is 13% of a very large number.
Forrester Research estimates that 3.4 million US jobs could be lost to
offshoring by 2015.27 Ashok Bardhan and Cynthia Kroll calculate that more
than 14 million US jobs are at risk of being sent offshore.28 The Information
Technology Association of America (ITAA), Global Insight,29 and McKinsey
and Company30 all argue that those losses will be offset by net gains in US
employment—presuming that the United States takes the steps needed to
maintain a vibrant economy. Many experts point out that the number of
jobs lost to offshoring is small compared with the regular monthly churning
of jobs in the US economy. McKinsey, for example, estimates that about
225,000 jobs are likely to be sent overseas each year, a small fraction of the
total annual job churn. In 2004, the private sector created more than 30
million jobs and lost about 29 million; the net gain was 1.4 million jobs.31
24American Electronics Association. Offshore Outsourcing in an Increasingly Competitive
and Rapidly Changing World: A High-Tech Perspective. Washington, DC: American Elec-
tronics Association, March 2004.
25S. M. Kalita. Virtual Secretary Puts New Face on Pakistan. Washington Post, May 10,
2005. P. A01.
26McKinsey and Company. The Emerging Global Labor Market: Part II—The Supply of
Offshore Talent in Services. New York: McKinsey and Company, June 2005. P. 23.
27Forrester Research. Near-Term Growth of Offshoring Accelerating. Cambridge, MA:
Forrester Research, May 14, 2004.
28A. Bardhan and C. Kroll. The New Wave of Outsourcing. Fisher Center Research Reports
#1103. Berkeley, CA: University of California, Berkeley, Fisher Center for Real Estate and
Urban Economics, November 2, 2003.
29Information Technology Association of America. The Impact of Offshore IT Software
and Services Outsourcing on the US Economy and the IT Industry. Lexington, MA: Global
Insight (USA), March 2004.
30McKinsey and Company. Offshoring: Is It a Win-Win Game? New York: McKinsey and
Company, August 2003.
31US Bureau of Labor Statistics. “NEWS: Business Employment Dynamics: First Quarter
2005.” November 18, 2005. Available at: http://www.bls.gov/rofod/3640.pdf.
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212 RISING ABOVE THE GATHERING STORM
Once again, this suggests that the US economy will continue to create new
jobs at a constant rate, an assumption that in turn depends on our contin-
ued development of new technologies and training of workers for the jobs
of the 21st century. Economists and others actively debate whether out-
sourcing or, more generally, free trade with low-wage countries with rap-
idly improving innovation capacities will help or hurt the US economy in
the long term.32 The optimists and the pessimists, however, agree on two
fundamental points: in the short term, some US workers will lose their jobs
and face difficult transitions to new, higher skilled careers; and in the long
term, America’s only hope for continuing to create new high-wage jobs is to
maintain our lead in innovation.
Aging and Entitlements
The enormous and growing supply of labor in the developing world is
but one side of a global demographic transformation. The other side is the
aging populations of developed nations. The working-age population is al-
ready shrinking in Italy and Japan, and it will begin to decline in the United
States, the United Kingdom, and Canada by the 2020s. More than 70 mil-
lion US baby boomers will retire by 2020, but only 40 million new workers
will enter the workforce.33 Europe is expected to face the greatest period of
depopulation since the Black Death, shrinking to 7% of world population
by 2050 (from nearly 25% just after World War II).34 East Asia (including
China) is experiencing the most rapid aging in the world. At the same time,
India’s working-age population is projected to grow by 335 million people
by 2030—almost equivalent to the entire workforce of Europe and the
United States today.35 Those extreme global imbalances suggest that immi-
gration will continue to increase.
Population dynamics have major economic implications. The
Organisation for Economic Co-operation and Development (OECD)
32W. C. Mann. Globalization of IT Services and White Collar Jobs. Washington, DC: Insti-
tute for International Economics, 2003; J. Bhagwati, A. Panagariya, and T. N. Srinivasan.
“The Muddles Over Outsourcing.” Journal of Economic Perspectives 18(Summer 2004):93-
114 offer examples of the optimist view; R. Gomory and W. Baumol. Global Trade and
Conflicting National Interests. Cambridge, MA: MIT Press, 2001; P. A. Samuelson. “Where
Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Glo-
balization.” Journal of Economic Perspectives 18(Summer 2004):135-146 offer a more pessi-
mistic perspective.
33P. A. Laudicina. World Out of Balance: Navigating Global Risks to Seize Competitive
Advantage. New York: McGraw-Hill, 2005. P. 49.
34United Nations, Department of Economic and Social Affairs, Population Division. “The
World at Six Billion.” October 12, 1999. Available at: http://www.un.org/esa/population/
publications/sixbillion/sixbillion.htm.
35P. A. Laudicina. World Out of Balance: Navigating Global Risks to Seize Competitive
Advantage. New York: McGraw-Hill, 2005. P. 62.
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WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
projects that the scarcity of working-age citizens will hamper economic
growth rates between 2025 and 2050 for Europe, Japan, and the United
States.36 The Center for Strategic and International Studies (CSIS) estimates
that the average cost of public pensions in the developed world will grow by
7% of GDP between now and the middle of the century; public health
spending on the elderly will grow by about 6% of GDP.37 There are now 3
pension-eligible elders in the developed world for every 10 working-age
adults. Thirty-five years from now, the ratio will be 7 to 10. Here in the
United States, the ratio of adults aged 60 and over to working-age adults
aged 15-59 is expected to increase from .26 to .47 over the same period.38
Those trends have profound implications for US leadership in science
and technology:
• The US science and engineering workforce is aging while the supply
of new scientists and engineers who are US citizens is decreasing. Immigra-
tion will continue to be critical to filling our science and engineering needs.
• The rapidly increasing costs of caring for the aging population will
further strain federal and state budgets and add to the expense columns of
industries with large pension and healthcare obligations. It will thus be-
come more difficult to allocate resources to R&D or education.
• Aging populations and rising healthcare costs will drive demand for
innovative and cost-effective medical treatments.
Taken together, those trends indicate a significant shift in the global
competitive environment. The importance of leadership in science and tech-
nology will intensify. As companies come to see innovation as the key to
revenue growth and profitability, as nations come to see innovation as the
key to economic growth and a rising standard of living, and as the planet
faces new challenges that can be solved only through science and technol-
ogy, the ability to innovate will be perhaps the most important factor in the
success or failure of any organization or nation.
A recent report from the Council on Competitiveness argues that “in-
novation will be the single most important factor in determining America’s
success through the 21st century.”39 The United States cannot control such
global forces as demographics, the strategies of multinational corporations,
36Central Intelligence Agency. Long-Term Global Demographic Trends: Reshaping the Geo-
political Landscape. Langley, VA: CIA, July 2001. P. 25.
37P. G. Peterson. “The Shape of Things to Come: Global Aging in the 21st Century.” Jour-
nal of International Affairs 56(1)(Fall 2002). New York: Columbia University Press.
38R. Jackson and N. Howe. The 2003 Aging Vulnerability Index. Washington, DC: CSIS
and Watson Wyatt Worldwide, 2003. P. 43.
39Council on Competitiveness. Innovate America. Washington, DC: Council on Competi-
tiveness, December 2004.
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214 RISING ABOVE THE GATHERING STORM
and the policies of other nations, but we can determine how we want to
engage with this new world, with all of its challenges and opportunities.
SCENARIOS FOR AMERICA’S FUTURE IN
SCIENCE AND TECHNOLOGY
To highlight the choices we face, and their implications, it is useful to
examine three scenarios that address the changing status of America’s lead-
ership in science and engineering.
Scenario 1: Baseline,
America’s Narrowing Lead
What is likely to happen if we do not change our current approach to
science and technology? The US lead is so large that it is unlikely that any
other nation would broadly overtake us in the next decade or so. The Na-
tional Intelligence Council argues that the United States will remain the
world’s most powerful actor—economically, technologically, and militar-
ily—at least through 2020.40 But that does not mean the United States will
not be challenged. The Center for Strategic and International Studies con-
cludes, “Although US economic and technology leadership is reasonably
assured out to 2020, disturbing trends now evident threaten the foundation
of US technological strength.”41
Over the last year or so, a virtual flood of books and articles has ap-
peared expressing concern about the future of US competitiveness.42 They
identify trends and provide data to show that the relative position of the
United States is declining in science and technology, in education, and in
high-technology industry.43 All of this leads to a few simple extrapolations
40National Intelligence Council. Mapping the Global Future: Report of the National Intelli-
gence Council’s 2020 Project. Pittsburgh, PA: Government Printing Office, December 2004.
41Center for Strategic and International Studies. Technology Futures and Global Power,
Wealth and Conflict. Washington, DC: CSIS, May 2005. P. viii.
42Some of the most prominent publications include A. Segal. “Is America Losing Its Edge?
Innovation in a Globalized World.” Foreign Affairs (November/December 2004):2-8; G.
Colvin. “America Isn’t Ready.” Fortune, July 25, 2005; K. H. Hughes. Building the Next US
Century: The Past and Future of US Economic Competitiveness. Washington, DC: Woodrow
Wilson Center Press, 2005; R. D. Atkinson. The Past and Future of America’s Economy: Long
Waves of Innovation That Power Cycles of Growth. Northampton, MA: E. Elgar, 2004; and
R. Florida. The Flight of the Creative Class: The New Global Competition for Talent. New
York: Harper Business, 2005.
43The Task Force on the Future of US Innovation. The Knowledge Economy: Is the United
States Losing Its Competitive Edge, Benchmarks for Our Innovation Future. Washington,
DC: The Task Force on the Future of US Innovation, February 2005.
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215
WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
for our global role over the next 30 years, assuming that we change nothing
in our approach to science and education.
The US share of global R&D spending will continue to decline.
• US R&D spending will continue to lead the world in gross terms,
but R&D intensity (spending as a percentage of GDP) will continue to fall
behind that of other nations.
• US R&D will rely increasingly on corporate R&D spending.
• Industry spending now accounts for two-thirds of all US R&D.
• Total government spending on all physical sciences research is less
than the $5 billion that a single company—IBM—spends annually on R&D,
although an increasing amount of IBM’s research, like that of most large
corporations, is now performed abroad.
• Most corporate R&D is focused on short-term product development
rather than on long-term fundamental research.
• US multinational corporations will conduct an increasing amount of
their R&D overseas, potentially reducing their R&D spending in the United
States, because other nations offer lower costs, more government incen-
tives, less bureaucracy, high-quality educational systems, and in some cases
superior infrastructure.
The US share of world scientific output will continue to decline.
• The share of US patents granted to US inventors is already declining,
although the absolute number of patents to US inventors continues to
increase.
• US researchers’ scientific publishing will decline as authors from
other nations increase their output.
• The number of scientific papers published by US researchers
reached a plateau in 1992.44
• Europe surpassed the United States in the mid-1990s as the world’s
largest producer of scientific literature.
• If current trends continue, publications from the Asia Pacific re-
gion could outstrip those from the United States within the next 6 or 7
years.45
44National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington,
VA: National Science Foundation, 2004. Table 5-30.
45A. von Bubnoff. “Asia Squeezes Europe’s Lead in Science.” Nature 436(7049)(July 21,
2005):314.
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216 RISING ABOVE THE GATHERING STORM
The US share of scientists and engineers will continue to decline.
• Other nations will have larger numbers of students receiving under-
graduate degrees in science and engineering. In 2000, more than 25 coun-
tries had a higher percentage of 24-year-olds with degrees in science and
engineering than did the United States.46
• The number of graduate degrees awarded in science and engineering
will decline.
• The number of new doctorates in science and engineering peaked
in the United States in 1998.
• By 2010, China will produce more science and engineering doctor-
ates than the United States does.47
• The US share of world science and engineering doctorates granted
will fall to about 15% by 2010, down from more than 50% in 197048
(Figure 9-2).
• International students and workers will make up an increasing share
of those holding US science and engineering degrees and will fill more of
our workforce.
• In 2003, foreign students earned 38% of all US doctorates in sci-
ence and engineering, and they earned 59% of US engineering doctorates.49
• In 2000, foreign-born workers occupied 38% of all US doctoral-
level science and engineering jobs, up from 24% just 10 years earlier.50
Our ability to attract the best international researchers will continue to
decline.
• From 2002 to 2003, 1,300 international students enrolled in US sci-
ence and engineering graduate programs. In each of the 3 years before that,
the number had risen by more than 10,000.51
46National Science Foundation. Science and Engineering Indicators 2004. Arlington, VA:
National Science Foundation, 2004. Appendix Table 2-33.
47R. B. Freeman. Does Globalization of the Scientific/Engineering Workforce Threaten US
Economic Leadership? Working Paper 11457. Cambridge, MA: National Bureau of Economic
Research, June 2005. P. 4.
48Ibid., p. 5.
49National Science Foundation. Survey of Earned Doctorates, 2003. Arlington, VA: Na-
tional Science Foundation, 2005.
50R. B. Freeman. Does Globalization of the Scientific/Engineering Workforce Threaten US
Economic Leadership? Working Paper 11457. Cambridge, MA: National Bureau of Economic
Research, June 2005. P. 36.
51National Science Foundation. Graduate Enrollment in Science and Engineering Programs
Up in 2003, but Declines for First-Time Foreign Students. NSF 05-317. Arlington, VA: Na-
tional Science Foundation, 2005.
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217
WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
2
Ratio of PhDs Granted
1.5
to US Production
China
1
European Union
0.5
0
1975 1989 2001 2003 2010
FIGURE 9-2 China and European Union production of science and engineering
doctorates compared with US production, 1975-2010.
SOURCE: R. B. Freeman. Does Globalization of the Scientific/Engineering
Workforce Threaten US Economic Leadership? Working Paper 11457. Cambridge,
MA: National Bureau of Economic Research, June 2005.
• After a decline of 6% from 2001 to 2002, first-time, full-time en-
rollment of students with temporary visas fell 8% in 2003.52
• Snapshot surveys indicate international graduate student enrollments
decreased again in 2004 by 6%53 but increased by 1% in 2005.
• In the early 1990s, there were more science and engineering students
from China, South Korea, and Taiwan studying at US universities than
there were graduates in those disciplines at home. By the mid-1990s, the
number attending US universities began to decline and the number studying
in Asia increased significantly.54
PCAST observes, “While not in imminent jeopardy, a continuation of
current trends could result in a breakdown in the web of ‘innovation eco-
systems’ that drive the successful US innovation system.”55 Economist Ri-
52Ibid.
53H. Brown. Council of Graduate Schools Finds Declines in New International Graduate
Student Enrollment for Third Consecutive Year. Washington, DC: Council of Graduate
Schools, November 4, 2004; H. Brown. 2005. Findings from 2005 CGS International Gradu-
ate Admissions Survey III: Admissions and Enrollment. Washington, DC: Council of Gradu-
ate Schools. Available at: http://www.cgsnet.org/pdf/CGS2005IntlAdmitIII_Rep.pdf.
54The Task Force on the Future of US Innovation. The Knowledge Economy: Is the United
States Losing Its Competitive Edge, Benchmarks for Our Innovation Future. Washington,
DC: The Task Force on the Future of US Innovation, February 2005.
55President’s Council of Advisors on Science and Technology. Sustaining the Nation’s Inno-
vation Ecosystems, Information Technology Manufacturing and Competitiveness, Washing-
ton, DC: White House Office of Science and Technology Policy, December 2004. P. 13.
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218 RISING ABOVE THE GATHERING STORM
chard Freeman says those trends foreshadow a US transition “from being a
superpower in science and engineering to being one of many centers of
excellence.”56 He adds that “the country faces a long transition to a less
dominant position in science and engineering associated industries.”57
The United States still leads the world in many areas of science and
technology, and it continues to increase spending and output. But our share
of world output is declining, largely because other nations are increasing
production faster than we are, although they are starting from a much lower
base. Moreover, the United States will continue to lead the world in other
areas critical to innovation—capital markets, entrepreneurship, and
workforce flexibility—although here as well our relative lead will shrink as
other nations improve their own systems.
The biggest concern is that our competitive advantage, our success in
global markets, our economic growth, and our standard of living all depend
on maintaining a leading position in science, technology, and innovation.
As that lead shrinks, we risk losing the advantages on which our economy
depends. If these trends continue, there are several likely consequences:
• The United States will cease to be the largest market for many high-
technology goods, and the US share of high-technology exports will con-
tinue to decline.
• Foreign direct investment will decrease.
• Multinational corporations (US-based and foreign) will increase their
investment and hiring more rapidly overseas than they will here.
• The industries and jobs that depend on high-technology exports and
foreign investment will suffer.
• The trade deficit will continue to increase, adding to the possibility
of inflation and higher interest rates.
• Salaries for scientists, engineers, and technical workers will fall be-
cause of competition from lower-wage foreign workforces, and broader
salary pressures could be exhibited across other occupations.
• Job creation will slow.
• GDP growth will slow.
• Growth in per capita income will slow despite our relatively high
standard of living.
• Poverty rates and income inequality, already more pronounced here
than in other industrialized nations, could increase.
56R. B. Freeman. Does Globalization of the Scientific/Engineering Workforce Threaten US
Economic Leadership? Working Paper 11457. Cambridge, MA: National Bureau of Economic
Research, June 2005. P. 2.
57Ibid., p. 3.
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WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
Today’s leadership position is built on decisions that led to investments
made over the past 50 years. The slow erosion of those investments might
not have immediate consequences for economic growth and job creation,
but the long-term effect is predictable and would be severe. Once lost, the
lead could take years to recover, if indeed it could be recovered. Like a
supertanker, the US economy does not turn on a dime, and if it goes off
course it could be very difficult to head back in the right direction.
Given that they already have a commanding lead in many key sectors, it
is likely that US multinational corporations will continue to succeed in the
global marketplace. To do so, they will shift jobs, R&D funds, and re-
sources to other places. Increasingly, it is no longer true that what is good
for GM (or GE or IBM or Microsoft) is good for the United States. What it
means to be a US company is likely to change as all multinationals continue
to globalize their operations and ownership. As China and other developing
nations become larger markets for many products and services, and as they
maintain their cost advantages, US companies will increasingly invest there,
hire there, design there, and produce there.
This nation’s science and technology policy must account for the new
reality and embrace strategies for success in a world where talent and capi-
tal can easily choose to go elsewhere.
Scenario 1 is the most likely case if current trends in government poli-
cies continue both here and in other nations and if corporate strategies
remain as they are today. Two other scenarios represent departures from
recent history. As such, they are more speculative and less detailed.
Scenario 2: Pessimistic Case,
America Falls Decisively Behind
In Scenario 1, the United States continues to invest enough to maintain
current trends in science and technology education and performance, lead-
ing to a slow decline in competitiveness. Scenario 2 considers what might
happen if the commitment to science and technology were to lessen. Al-
though that would run counter to our national history, several factors might
lead to such an outcome:
• Rising spending on social security, Medicare, and Medicaid (now
42% of federal outlays compared with 25% in 1975) limit federal and state
resources available for science and technology.58 In 2005, Social Security,
Medicare, and Medicaid accounted for 8.4% of GDP. If growth continues
58W. B. Bonvillian. “Meeting the New Challenge to US Economic Competitiveness.” Issues
in Science and Technology 21(1)(Fall 2004):75-82.
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220 RISING ABOVE THE GATHERING STORM
at the current rate, the federal government’s total spending for Medicare
and Medicaid alone would reach 22% of GDP by 2050.
• The war on terrorism refocuses government resources on short-term
survival rather than long-term R&D.
• Increasingly attractive opportunities overseas draw industrial R&D
funding and talented US scientists and engineers away from the United
States.
• Higher US effective corporate tax rates discourage companies from
investing in new facilities and research in the United States.
• Excessive regulation of research institutions reduces the amount of
money available for actual research.
Those possibilities would exacerbate and accelerate the trends noted in
Scenario 1:
• The availability of scientists and engineers could drop precipitously
if foreign students and workers stop coming in large numbers, either be-
cause immigration restrictions make it more difficult or because better op-
portunities elsewhere reduce the incentives to work in the United States.
• US venture capitalists begin to place their funds abroad, searching
for higher returns.
• Short-term cuts in funding for specific fields could lead to a rapid
decline in the number of students in those disciplines, which could take
decades to reverse.
• If they were faced with a lack of qualified workers, multinational
corporations might accelerate their overseas hiring, building the capabilities
of other nations while the US innovation system atrophies.
• Multinationals from China, India, and other developing nations,
building on success in their domestic markets and on supplies of talented,
low-cost scientists and engineers, could begin to dominate global markets,
while US-based multinationals that still have a large percentage of their
employees in the United States begin to fail, affecting jobs and the broader
economy.
• Financing the US trade deficit, now more than $600 billion or
about 6% of GDP, requires more than $2 billion a day of foreign invest-
ment. Many economists argue that such an imbalance is unsustainable in
the long term.59 A loss of competitiveness in key export industries could
lead to a loss of confidence in the US ability to cover the debt, bringing on
a crisis.
59C. Prestowitz. Three Billion New Capitalists: The Great Shift of Wealth and Power to the
East. New York: Basic Books, 2005. P. xii.
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WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
• As innovation and investment move overseas, domestic job creation
and wage growth could stall, lowering the overall standard of living in the
United States.
The rapid pace of technological change and the increasing mobility of
capital knowledge and talent mean that our current lead in science and
technology could evaporate more quickly than is generally recognized if we
fail to support it. The consequences would be enormous, and once lost, our
lead would be difficult to regain.
Scenario 3: Optimistic Case,
America Leads in Key Areas
The relative competitive lead enjoyed by the United States will almost
certainly shrink as other nations rapidly improve their science and technol-
ogy capacity. That means greater challenges for the United States, but it
also presents an opportunity to raise living standards and improve quality
of life around the world and to create a safer world. The United States
might have a smaller share of the world’s economy, but the economy itself
will be larger. For that reason, the success of other nations need not imply
the failure of the United States. But it does require that the United States
maintain and extend its capacity to generate value as part of a global inno-
vation system.
If we increase our commitment to leadership in science and technology,
there are several likely results:
• Although the US share of total scientific output continues to decline,
the United States maintains leadership across key areas.
• US researchers become leaders of global research networks.
• The US education system sets the standard for quality and innova-
tion, giving graduates a competitive edge over the larger number of lower
wage scientists and engineers trained in the developing world.
• Our universities and national laboratories act as centers for regional
innovation, attracting and anchoring investment from around the world.
• Our economy generates sufficient growth to reduce our trade imbal-
ances, reduce the federal budget deficit, and support an aging population.
• Investors continue to find it attractive to place their funds in US
firms seeking to innovate and generate jobs in America.
• US leadership in science and technology supports our military lead-
ership and addresses the major challenges of homeland security.
The rapid worldwide development that has resulted from advances in
science and technology has raised global standards of living, but it also
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222 RISING ABOVE THE GATHERING STORM
spawned a range of challenges that, paradoxically, will have to be solved
through appropriate investments in research:
• To maintain its current rate of growth, by 2020 China will need
to boost energy consumption by 150%, and India will need to do so
by 100%.60 It will be essential to develop clean, affordable, and reliable
energy.
• The increased movement of people around the world will lead to
more outbreaks of communicable diseases. Meanwhile, aging populations
will require new treatments for chronic diseases.
• As the means to develop weapons of mass destruction become more
widely available, security measures must advance.
• In an increasingly interconnected economy, even small disruptions
to communications, trade, or financial flows can have major global conse-
quences. Methods to manage complex systems and respond quickly to emer-
gencies will be essential.
The strains of managing global growth will require global collabora-
tion. Around the world, the growing scale and sophistication of science and
technology mean that we are much more likely to be able to solve those and
other problems that will confront us. Advances in information technology,
biotechnology, and nanotechnology will improve life for billions of people.
The leadership of the United States in science and technology will make a
critical contribution to those efforts and will benefit the lives of Americans
here at home. Each challenge offers an opportunity for the United States to
position itself as the leader in the markets that will be created for solutions
to global challenges in such fields as energy, healthcare, and security.
It is important to recognize that all nations in the global economy are
now inextricably linked. Just as global health, environmental, and security
issues affect everyone, so are we all dependent on the continued growth of
other economies. It is clearly in America’s interest for China, India, the EU,
Japan, and other nations to succeed. Their failure would pose a far greater
threat to US prosperity and security than would their success. In the global
economy, no nation can prosper in isolation. However, it is the thesis of
this report that it is important that such global prosperity be shared by the
citizens of the United States.
60National Intelligence Council. Mapping the Global Future: Report of the National Intelli-
gence Council’s 2020 Project. Pittsburgh, PA: Government Printing Office, December 2004.
P. 62.
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WHAT IF THE UNITED STATES IS NOT COMPETITIVE?
CONCLUSION
It is easy to be complacent about US competitiveness and pre-eminence
in science and technology. We have led the world for decades, and we con-
tinue to do so in many fields. But the world is changing rapidly, and our
advantages are no longer unique. Without a renewed effort to bolster the
foundations of our competitiveness, it is possible that we could lose our
privileged position over the coming decades. For the first time in genera-
tions, our children could face poorer prospects for jobs, healthcare, secu-
rity, and overall standard of living than have their parents and grandpar-
ents. We owe our current prosperity, security, and good health to the
investments of past generations. We are obliged to renew those commit-
ments to ensure that the US people will continue to benefit from the re-
markable opportunities being opened by the rapid development of the glo-
bal economy.
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Representative terms from entire chapter:
roy vagelos
