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Chapter 3
Findings
A fundamental challenge in making recommendations to improve the
U.S. innovation system is that it arguably remains the best in the world. The
U.S. is home to the vast majority of the world’s leading research universities. It
has wide and deep capital markets, receptivity to innovative products, a culture
and legal system that encourage entrepreneurship, and substantial public and
private investments in research and development. The country also makes
substantial investments in national security that can generate new products and
develop new platform technologies.
The challenge for the United States is that the global environment is
changing substantially and rapidly. Some of these changes, although they may
require adjustments, are nonetheless quite positive, involving the production of
more and better research and more and better-trained students. Globally, these
trends represent a potential improvement in human welfare. On the other hand,
changes in the competitive environment and, in particular, other countries’ focus
on the application, commercialization, and local production of new technologies
and new products pose challenges to the long-term health of the U.S. innovation
system. A global system in which the U.S. does the research and other countries
capitalize on the results to enhance the competitiveness and competency of their
own economies is not in the U.S. national interest, nor is it sustainable.
Moreover, the security dimension of a robust U.S. innovation
ecosystem cannot be ignored. U.S. leadership in innovation has been the source
of U.S. economic and military power throughout the post-war era. The United
States must continue to lead as an innovator and manufacturer of leading edge
technologies and products, especially in the current environment where other
nations are pursuing active innovation policies to enhance their world role.
Current financial constraints should not dictate U.S. policy in this
crucial arena because the failure to preserve American technological leadership
127
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128 RISING TO THE CHALLENGE
imperils both our long-term prosperity and, very directly, our national security.
Although the U.S. must exercise fiscal prudence as it wrestles with its debt and
deficits, the Committee believes that the investments advocated below will
repay the expenditures in the aggregate, paving the way for the economic
growth necessary to help solve our fiscal problems in the long-term.1
While it is neither desirable nor possible to freeze the global allocation
of production, it is essential that the U.S. recognizes that other countries are
pursuing vigorous policies and programs, at increasing funding levels, to nurture
and grow the industries of the future as well as revitalize those of today. Some
of these policies are mercantilist in nature and include measures that distort the
international location of productive activity through national regulation of
investment and trade, forced technology transfer, and toleration if not promotion
of intellectual property violations that undercut the basis for a rules-based
trading system.
Success in promoting innovation – from invention through
commercialization – is necessary not only for reasons of national security but to
preserve and enhance the economic well-being of the American people. It is the
key to maintaining the promise that the opportunities for each future generation
will be better than those enjoyed by the preceding one.
This chapter presents the Committee findings. There are seven major
findings, which are further elaborated in sub-findings. The organization of these
findings and sub-findings is presented in an outline, below, as a guide to the
reader.
1
Although the Committee did not do a cost-benefit analysis of the policies and investments
recommended in this report, the economics literature strongly suggests that investments in research,
education, and infrastructure contribute to U.S. economic growth. See for example, Robert M.
Solow, "A Contribution to the Theory of Economic Growth," Quarterly Journal of Economics,
1956, 70(1):65-94. Robert M. Solow, “Technical Change and the Aggregate Production Function,”
The Review of Economics and Statistics, 1957, 39 (3): 312-320. Richard Nelson, Technology,
Institutions and Economic Growth, Cambridge MA: Harvard University Press, 2005. Dale W.
Jorgenson et al., Productivity: Information Technology and the American Growth Resurgence,
Cambridge MA: MIT Press, 2005.
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FINDINGS 129
OUTLINE OF FINDINGS
1. The future economic prosperity and security depends on sustaining the
nation’s capacity to innovate—that is, translate our investments in
research into new products for the market and new solutions for
national missions.
a. The global environment is changing rapidly
b. A vibrant national innovation ecosystem is an essential component
of U.S. security
c. The importance of innovation for jobs and technological leadership
2. Pillars of the U.S. Innovation System
a. The role of research universities
b. Research and development by the private sector
c. Federal support for emerging technologies
d. Public-private partnerships for the development of new
technologies
e. Small business entrepreneurship
f. Talented immigrants
3. Advantages and Challenges in the U.S. Innovation System
a. U.S. advantages
i. An open innovation system
ii. Strong intellectual property rights
iii. Bankruptcy laws that permit risk sharing and recovery
iv. Worker mobility
b. Challenges for the U.S.
i. Fiscal constraints
ii. Declining federal R&D intensity
iii. Decline in university funding amid new challenges
iv. High non-production costs
v. Infrastructure and broadband enablers
4. Governments around the world have made the development of a
globally competitive, innovation-led economy a top strategic priority.
a. Developing national strategies
b. Increasing commitments to R&D
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130 RISING TO THE CHALLENGE
c. Emulating global best practices
d. Pursuing mercantilist policies
e. Expanding universities
f. Providing early-stage finance
g. Attracting global talent
h. Focusing on building innovation clusters and science parks
5. U.S. leadership in innovation is eroding
a. The emergence of major global competitors
b. Growth of innovative regions around the world
c. Growth of offshore research centers
6. Capturing the Benefits of Investments in R&D
a. Research is a global public good
b. The need for a strategic approach
c. An institutional focus on translational research and applications
d. A focus on manufacturing
e. Trade and innovation are closely linked
7. Opportunities for Cooperation:
a. New opportunities and common challenges
b. Greater outreach
c. The internet and cross-border data flows
d. Greater awareness
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FINDINGS 131
FINDINGS IN DETAIL
1. The future economic prosperity and security depends on sustaining
the nation’s capacity to innovate—that is, translate our investments
in research into new products for the market and new solutions for
national missions. Other nations are focused on developing greater
capacity to translate research into marketable products. Although the
U.S. innovation system remains the world’s most dynamic and
productive, America’s continued standing as the premier location for
producing new technologies and new high-technology products and
services is no longer assured.
The Global Environment is Changing Rapidly2: As identified in
a.
earlier Academy reports, there are disturbing trends, notably
between what the United States is doing and what it needs to do,
compared with what the rest of the world is doing in terms of
investments in education, infrastructure, research, new
technologies, and measures to bring new technologies to the
market.3 The U.S. international position as a location for the
production of new processes and products is declining relatively as
other nations, especially emerging economies, have accelerated
their efforts to catch-up technologically.4
b. A Vibrant National Innovation Ecosystem is an Essential
Component of U.S. Security: Leadership in innovation has been
the source of U.S. economic and military power throughout the
2
For an overview of new trends in global innovation, see Chapter 1 of this report.
3
As a recent National Academies report has noted, “Although many people assume that the United
States will always be a world leader in science and technology, this may not continue to be the case
inasmuch as great minds and ideas exist throughout the world. We fear the abruptness with which a
lead in science and technology can be lost—and the difficulty of recovering a lead once lost, if
indeed it can be regained at all. ”See National Academy of Sciences, Rising Above the Gathering
Storm; Energizing and Employing America for a Brighter Economic Future, Washington, DC: The
National Academies Press, 2007, p. 3.
4
The recent National Academies report S&T Strategies of Six Countries concludes “globalization
has facilitated the success of formal S&T plans in many developing countries, where traditional
limitations can now be overcome through the accumulation and global trade of a wide variety of
goods, skills, and knowledge. As a result, centers for technological research and development
(R&D) are now globally dispersed, setting the stage for greater uncertainty in the political,
economic, and security arenas.” National Research Council, S&T Strategies of Six Countries:
Implications for the United States, Washington, DC: The National Academies Press, 2010. Some
analysts see the focus and investments of others as a challenge and an example of what needs to be
done in the United States. For example, Ernst argues that “China’s innovation policy and its
considerable achievements should serve as a wake-up call for America to mobilize the combined
forces of private industry and government to upgrade its own innovation system.” Dieter Ernst,
“China’s Innovation Policy is a Wake-Up Call for America,” Asia Pacific Issues, No. 100 (May
2011).
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132 RISING TO THE CHALLENGE
post-war era.5 Nations pursue active innovation policies not just
for economic growth and jobs but also to enhance their world role.6
The United States will not be able to meet its defense needs
without a robust economy that is able to and in fact does produce
leading edge technologies and products.7 The composition of the
American economy matters. This will require America building on
its historical strength of melding of private ingenuity and public
support.
c. The Importance of Innovation for Jobs and Technological
Leadership: An assessment of a nation’s economic health must go
beyond simple aggregate measures such as gross domestic product
and include the ability to innovate and manufacture new products
5
As the “Six Countries” report cited above notes, the globalization of innovation “will have a
potentially enormous impact for U.S. national security policy, which for the past half century has
been premised on U.S. economic and technological dominance.” National Research Council, S&T
Strategies of Six Countries: Implications for the United States. Washington, DC: The National
Academies Press, 2010. Bonvillian argues that “defense technology cannot be discussed as though it
is separate and apart from the technology that drives the expansion of the economy—they are both
part of the same technology paradigms.” William B. Bonvillian, “The Connected Science Model for
Innovation – The DARPA Role,” in National Academy of Sciences, Board on Science, Technology,
and Economic Policy, 21st Century Innovation Systems for Japan and the United States: Lessons
from a Decade of Change, Washington, DC: The National Academies Press, 2009, pp. 206-237. See
also David C. Mowery, “National Security and National Innovation Systems,” Journal of
Technology Transfer (2009) 34:455–473. In addition to the security mission, military and defense
related research, development and procurement have been major sources of technology development
across a broad spectrum of industries that account for an important share of United States industrial
production. See Vernon W. Ruttan, Is War Necessary for Economic Growth. Oxford: Oxford
University Press, 2006.
6
For example, as Chinese President Hu Jintao noted in his Report to the 17th National Congress of
the Communist Party of China, “Innovation is the core of our national development strategy and a
crucial link in enhancing the overall national strength.”
7
Jacques Gansler argues that a strong and affordable national security posture must be built on a
healthy economy: “a nation that devotes too many of its resources to the military rather than to the
growth of its economy is likely to weaken its national power.” He further notes that the defense
industry must remake itself through innovation to become responsive and relevant to the needs of
twenty-first-century security. See Jacques S. Gansler, Democracy’s Arsenal, Creating a 21st
Century Defense Industry, Cambridge MA: MIT Press, 2011. Leadership in enabling technologies
such as semiconductors is critical to the U.S. military’s strategy of maintaining technological
superiority, for example. See U.S. Department of Defense, Report on Semiconductor Dependency,
Office of the Undersecretary of Defense for Acquisition, prepared by the Defense Science Board
Task Force, Washington, DC, February 1987. Acceleration of innovation in clean-energy
technologies is vital to the U.S. Army’s new advanced weapons programs and development of
hybrid and electric-drive combat vehicles, which can provide important tactical advantages in the
battlefield. See presentations by Grace Bochenek and Sonya Zanardelli of the U.S. Army Tank and
Automotive Research, Development, and Engineering Center at the National Academies conference
on Building the U.S. Battery Industry for Electric-Drive Vehicles: Progress, Challenges, and
Opportunities, Livonia, Michigan, July 26-27, 2010.
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FINDINGS 133
for the market, and the ability to create and sustain high skilled,
high pay manufacturing jobs.8
Pillars of the U.S. Innovation System9: The U.S. Innovation system is
2.
built on the foundations of its robust research universities, substantial
federal and private support for research and development, vibrant
entrepreneurship including that of immigrants, and the often catalytic
role of public-private partnerships in bringing new technologies to the
marketplace.10 These pillars of the U.S. innovation system need to be
preserved and reinforced.11
a. The Role of Research Universities: Research universities are
engines of the American innovation system and have been a
distinct U.S. competitive advantage in the post-War era.12
Federally funded university research has enabled some of the most
important innovations of the modern economy, including
computing, the laser, the fundamentals of global positioning
systems, numerically controlled machines, the organization and
deployment of the World Wide Web, the revolution in genetics,
and much of modern medicine. 13
b. Research and Development by the Private Sector: Private firms
have conducted two-thirds of R&D in the United States over the
past decade. [See Figure 3.1] Since the late 1980s, nearly all of the
growth in R&D spending in the United States has come from the
8
Nelson argues that “technological advance is the key driving force behind economic growth” and
highlights the importance of history, culture, and institutions in the development of new
technologies. Richard R. Nelson, The Sources of Economic Growth, Cambridge MA: Harvard
University Press, 2000.
9
For an overview of key pillars of U.S. innovation, see Chapter 1 of this report.
10
For example, the June 2011 launch of the Advanced Manufacturing Partnership cited cooperation
between industry, universities, and the federal government as a critical component of the effort to
enhance U.S. manufacturing and innovation. (http://www.whitehouse.gov/the-press-
office/2011/06/24/president-obama-launches-advanced-manufacturing-partnership).
11
The recommendations to strengthen the pillars of the U.S. innovation system amplify key
recommendations of the National Academies report Rising Above the Gathering Storm, op. cit.
12
See David C. Mowery and Bhaven N. Sampat, “Universities in national innovation systems,”
Oxford Handbook of Innovation, 2005. See also, John Aubrey Douglass, “Universities, the US
High Tech Advantage, and the Process of Globalization,” Berkeley Research Paper CSHE.8, 2008.
13
As Robert Birgeneau, Chancellor of UC Berkeley has noted, “To suggest that, somehow,
universities are not and should not be engines of economic growth is missing the central point of
how our economy grows and how we create jobs.” Quoted on NPR Morning Edition Date: 08-09-04.
See also Kent Hughes and Lynn Sha, eds., Funding the Foundation: Basic Science at the
Crossroads, Washington, DC: Woodrow Wilson Center, 2006. See Peter McPherson, David
Shulenburger, Howard Gobstein, and Christine Keller, “Competitiveness of Public Research
Universities & the Consequences for the Country: Recommendations for Change,” Association of
Public and Land-Grant Universities, March 2009,
(http://www.aplu.org/NetCommunity/Document.Doc?id=1561).
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134 RISING TO THE CHALLENGE
private sector.14 This investment, which is focused more on the
application and development of knowledge, has yielded numerous
innovations, contributing to U.S. competitiveness and economic
productivity.15 For example, the applied science of drug
development and clinical refinement of compounds carried out by
the private sector is closely linked to new scientific discoveries that
have been translated into new medicines.16 These major
innovations by American private companies are typically built on
platforms developed through long-term substantial U.S. public
investments in basic research.17 It is important to understand that
these public and private research efforts are complementary, with
neither sufficient on its own, and thus the stagnant government
R&D spending is a matter of concern.
14
Industry R&D spending (in constant dollars) has increased over two and a half times during the
past 20 years while federal R&D spending as a percentage of GDP has remained roughly constant.
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.
15
Congressional Budget Office, R&D and Productivity Growth, June 2005,
http://www.cbo.gov/ftpdocs/64xx/doc6482/06-17-R-D.pdf.
16
Benjamin Zycher, Joseph A DiMasi and Christopher-Paul Milne, “The Truth About Drug
Innovation: Thirty-Five Summary Case Histories on Private Sector Contributions to Pharmaceutical
Science,” Medical Progress Report 6, June 2008.
17
As Zycher et al. (op cit) note, “Both NIH-sponsored and private-sector research are crucial for the
advance of pharmaceutical science and the development of new and improved medicines. Research
conducted at universities and government laboratories, often funded by the NIH or other government
agencies, has been an indispensable component of the advance of pharmaceutical science and the
development of new medicines.” As the Venture Capitalist Mary Meeker has remarked more
generally, “Remember: private investment maybe have given us Facebook and Garmin, but public
sector investment gave us the Internet and GPS.”
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FINDINGS 135
Other
Federal
Government
Private
Industry
FIGURE 3.1 Private industry has funded almost two-thirds of R&D in the
United States over the past ten years.
SOURCE: National Science Foundation, National Center for Science and
Engineering Statistics, Science and Engineering Indicators 2012, NSB 12-01
(January 2012), Appendix Table 4-7.
Federal Support for Emerging Technologies:18 The United
c.
States Government has a long history of supporting the
development and domestic production of emerging technologies.
Federal support for new technologies played crucial roles in
developing industries as diverse as the telegraph, radio, airframes,
engines, space, nuclear power, computers, and of course the
internet.19 These pervasive technologies have exerted a significant
18
For a review of support for selected emerging technologies by the U.S. and leading European and
Asian nations, see Chapter 6 of this report.
19
As Vernon Ruttan has observed, “government has played an important role in the development of
almost every general purpose technology in which the United States was internationally
competitive.” Vernon W. Ruttan, Technology, Growth and Development: An Induced Innovation
Perspective, Oxford: Oxford University Press, 2001. See also Linda Cohen and Roger Noll, The
Technology Pork Barrel, Washington, DC: Brookings, 1991. Cohen and Noll observe that there
although there are failures, there are frequent major successes among federal R&D programs. They
count among the successes telegraphy, hybrid seeds, aircraft, radio, radar, computers,
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136 RISING TO THE CHALLENGE
impact on U.S. productivity growth.20 The prospect that Federal
funding for R&D that develops these innovations will diminish due
to budget pressures is therefore a cause for major concern.
d. Public-Private Partnerships for the Development of New
Technologies: Public-private partnerships have often played a
powerful role in accelerating the conversion of new technologies
into commercial products and in preserving the competitiveness of
existing U.S. industries. 21 American research consortia such as
SEMATECH22 and the Department of Energy’s recent Sunshot
Initiative , long-term investments over many decades such as the
Department of Energy’s funding for research and development for
renewables, fossil fuels, and nuclear technologies, and competitive
innovation awards such as the Small Business Innovation Research
Program and the Technology Innovation Program23 are all
semiconductors, and communications satellites. In short, much of the foundation for the modern
economy. At the same time, Cohen and Noll stress that political capture by distributive
congressional politics and industrial interests are one of the principal risks for government-supported
commercialization projects.
20
See National Research Council, Funding a Revolution: Government Support for Computing
Research, Washington, DC: National Academy Press, 1999. For a review of the positive impact of
computers, communications technologies, and software on U.S. total factor productivity, see Dale
W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, Productivity, Volume 3: Information Technology
and the American Growth Resurgence, Cambridge MA: MIT Press, 2005. For a review of the
positive impact of U.S. investments in energy technologies, see National Research Council, Energy
Research at DoE: Was It Worth It? Energy Efficiency and Fossil Energy Research 1978 to 2000,
Washington, DC: National Academy Press, 2001.
21
A National Research Council Committee led by Gordon Moore concluded that “public-private
partnerships, involving cooperative research and development activities among industry, government
laboratories, and universities, can play an instrumental role in accelerating the development of new
technologies to the market.” See National Research Council, Government-Industry Partnerships for
the Development of New Technologies, C. Wessner, ed., Washington, DC: The National Academies
Press, 2003, page 23. For a brief summary of the role of public-private partnerships through U.S.
history, see Box 2.4 in Chapter 2 of this report. According to Kent H. Hughes, public-private
collaboration played a key role in the recovery of the U.S. economy from its last period of economic
malaise. He argues that similar collaboration is needed to address the competitive challenges of the
21st Century. Kent Hughes, Building the Next American Century: The Past and Future of American
Economic Competitiveness, Washington, DC: Woodrow Wilson Center Press, 2005.
22
See Kenneth Flamm and Qifei Wang, “Sematech Revisited: Assessing Consortium Impacts on
Semiconductor Industry R&D,” in National Research Council, Securing the Future, Regional and
National Programs to Support the Semiconductor Industry, C. Wessner, ed., Washington, DC: The
National Academies Press, 2003. See also Thomas R. Howell, Brent L. Bartlett, and Warren Davis,
Creating Advantage: Semiconductors and Government Industrial Policy in the 1990s,
Semiconductor Industry Association and Dewey Ballentine, 1992.
23
For a review of these programs and the challenges they address, see National Research Council,
An Assessment of the Small Business Innovation Research Program, C. Wessner, ed., Washington,
DC: The National Academies Press, 2008. See also National Research Council, The Advanced
Technology Program, Assessing Outcomes, C. Wessner, ed., Washington, DC: National Academy
Press, 2001. Also Lewis M. Branscomb and Philip E. Auerswald, Between Invention and
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FINDINGS 137
examples of public-private collaboration among researchers,
private companies, entrepreneurs, and government agencies.
e. Small Business Entrepreneurship: “Equity-financed small firms
are a key feature of the U.S. innovation system, serving as an
effective mechanism for capitalizing on new ideas and bringing
them to the market.”24 In the United States, small firms are also a
leading source of employment growth, generating a very high
percentage of net new jobs in recent years.25 These small
businesses also employ nearly forty percent of the United States’
science and engineering workforce.26 Small businesses renew the
U.S. economy by introducing new products and new lower cost
ways of doing things, often with substantial economic benefits.
They play a key role in introducing technologies to the market,
often responding quickly to new market opportunities. 27
f. Talented Immigrants: America’s ability to attract the world’s
best and brightest technological and entrepreneurial talent is an
important element of its economic success and global leadership.
Innovation: An Analysis of Funding for Early-Stage Technology Development, NIST GCR 02–841,
Gaithersburg, MD: National Institute of Standards and Technology, November 2002.
24
See National Research Council, An Assessment of the SBIR Program, op. cit., See also Zoltan J.
Acs and David B. Audretsch, Innovation and Small Firms, Cambridge, MA: MIT Press, 1990. See
also Zoltan J. Acs and David B. Audretsch, “Entrepreneurship, Innovation and Technological
Change,” Foundations and Trends in Entrepreneurship 1, no. 5 (2005): 1-65 and Boyan Jovanovic,
“New Technology and the Small Firm,” Small Business Economics, 16(1) (2001): 53-55. The Small
Business Administration’s Office of Advocacy defines a small business as an independent business
having fewer than 500 employees. Access at http://web.sba.gov/faqs/faqIndexAll.cfm?areaid=24.
25
According to Robert Litan of the Kauffman Foundation,” Between 1980 and 2005, virtually all net
new jobs created in the U.S. were created by firms that were 5 years old or less.” See also Small
Business Administration, Office of Advocacy, “Small Business by the Numbers,” 2006. This net
gain depends on the interval examined since small firms exhibit a much higher frequency of entries
and exits than large firms. For a discussion of the challenges of measuring small business job
creation, see John Haltiwanger and C. J. Krizan, “Small Businesses and Job Creation in the United
States: The Role of New and Young Businesses.” In Are Small Firms Important? Their Role and
Impact, Zoltan J. Acs, ed. Dordrecht: Kluwer, 1999. For a recent robust finding that small
businesses do create more jobs, see David Neumark, Brandon Wall, and Junfu Zhang, “Do Small
Businesses Create More Jobs? New Evidence for the United States from the National Establishment
Time Series,” The Review of Economics and Statistics, February 2011, Vol. 93, No. 1, Pages 16-29.
26
Specifically, from 1993 through 2009:Q2, small firms (firms with fewer than 500 employees)
accounted for 65 percent of net new jobs. Brian Headd, An Analysis of Small Business and Jobs,
U.S. Small Business Administration, Office of Advocacy, March 2010. The report also noted that
using a different data source and time period (1993-2006), small business accounted for 88 percent
of net new jobs. Research commissioned by the Small Business Administration has also found that
scientists and engineers working in small businesses produce fourteen times more patents than their
counterparts in large patenting firms in the United States—and these patents tend to be of higher
quality and are twice as likely to be cited.
27
For an extended discussion of the empirical evidence supporting the finding of high innovation
performance of small firms, see Zoltan J. Acs and David B. Audretsch, Innovation in Large and
Small Firms, An Empirical Analysis, The American Economic Review Vol. 78, No. 4, 1988, pp. 678-
690.
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152 RISING TO THE CHALLENGE
10
8.9
9
8
Percent of World R&D Expenditures
2002 2007
7
6
5.0
5
4
3.6
2.8
3
2.2
2
1.6
1
0
China Rep. of Korea India
FIGURE 3.4 China, Korea and India increased their share of world spending on
R&D from 9.4% to 14.7% from 2002 to 2007.
SOURCE: UNESCO, UNESCO Science Report 2010 (UNESCO Publishing,
Paris, 2010).
b. Growth of Innovative Regions around the World84: Innovation
hubs like Silicon Valley, greater Boston, San Diego, Austin, and
Seattle have for decades been magnets for the world’s brightest
and most visionary innovators, technology entrepreneurs, and
financiers. Now these hubs face greater competition as places to
commercialize new technology and launch new companies. Taipei,
Shanghai, Helsinki, Tel Aviv, Bangalore, Hyderabad, Singapore,
Sydney, and Suwon,85 are among the many cities that now boast
84
Chapter 7 highlights national and regional programs to develop innovation clusters around the
world.
85
Home to a large Samsung Electronics factory, Suwon, South Korea is a major educational center
that is home to 14 university campuses. For a review of the impact of Korean innovation clusters,
including Suwon, see Doohee Lee, “Regional Innovation Activity: The Role of Regional Innovation
Systems in Korea.” KIET Occasional Paper No. 78, February 2010.
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FINDINGS 153
high concentrations of technology entrepreneurs and are
increasingly able to launch innovative companies.86
Growth of Offshore Research Centers:87 American
c.
multinational corporations in sectors ranging from pharmaceuticals
to software have, in recent years, set up advanced R&D centers in
countries such as India, China, and Russia.88 This trend was
made possible by the liberalization of state controls in these
countries, and driven at least initially by the availability of skilled
graduates, and lower costs and the need to deploy and adapt
products suited to these large, rapidly growing markets.89 While
these R&D centers develop and adapt technologies to domestic
markets of the countries where they are located, they also plan to
develop products for the global market. Increasingly, these centers
are a part of the integrated innovation system of global enterprises
including GE, IBM, Intel, 3M, and Microsoft that connects
company research across borders.90
86
According to a map of global innovation clusters by the McKinsey Global Institute and World
Economic Forum, some U.S. cities are losing ground to these and other emerging “hot springs” of
innovation in Asia and Europe. See Juan Alcacer and McKinsey & Co., “Mapping Innovation
Clusters,” McKinsey Digital, March 19, 2009,
(http://whatmatters.mckinseydigital.com/flash/innovation_clusters/). Also see Andre Andonian,
Christoph Loos, and Luiz Pires, “Building an Innovation Nation,” McKinsey & Co., March 4, 2009.
87
See also the discussion in Chapter 1 on the “Growth of Foreign Research Centers of U.S.
Multinationals.”
88
For a review of the drivers and impacts of the growth of advanced R&D centers in emerging
economies, see OECD, Science, Technology and Industry Outlook, Chapter 4 “The
internationalisation of R&D”, Paris: OECD, 2006. See also Pete Engardio, Aaron Bernstein, and
Manjeet Kripalani, “The New Global Job Shift” BusinessWeek, February 3, 2003 and UNCTAD,
Globalization of R&D and Developing Countries, New York: United Nations, 2005.
89
Ashok Deo Bardhan, and Dwight M. Jaffee, “Innovation, R&D and Off-shoring,” University of
California at Berkeley: Fisher Center Research Reports, 2005.
90
For example, GE has recently moved its X-ray business headquarters from Wisconsin to China.
Wall Street Journal, “GE Bases X-Ray Unit in China,” July 26, 2011. For a perspective from IBM
on the globalization of its research and development operations, see Mark Dean, “ICT development
in U.S. and Chinese Contexts”, in National Research Council, Building the 21st Century, U.S. China
Cooperation in Science, Technology, and Innovation, op cit. See also Gert Bruche, “A new
geography of innovation – China and India rising,” in Karl P. Sauvant et al. (eds.) FDI Perspectives:
Issues in International Investment, New York: Vale Columbia Center on Sustainable International
Investment (January 2011). Bruche notes that while” the dominant share of MNE R&D in China
and India comprises routine activities adapting existing designs or processes, or providing modular
contributions transformed into innovative products and processes in the triad's higher order R&D
centers … scattered evidence points to fast learning and upgrading processes resulting in ever more
centers and CROs taking on selective regional or global roles as centers of excellence within MNEs
global innovation networks.” According to Roland Berger, for example, 3M corporation has R&D
locations in 30 countries supported by a central research center at corporate headquarters in St. Paul.
Robert Ohmayer, “Globalization of R&D: Drivers and Success Factors,” Roland Berger Strategy
Consultants, April 19, 2007.
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154 RISING TO THE CHALLENGE
Capturing the Benefits of Investments in R&D:91 A key challenge for
6.
the United States is to capture an important part of the economic
benefits of its substantial investments in basic research in an era when
other countries are adopting policies and programs focused on
translating nationally and globally sourced research into domestic
production of new products for the market.92
a. Research as a Global Public Good: Other nations have
intensified their efforts to capture the economic value of the
world’s research efforts, including those financed by U.S.
taxpayers. Although the U. S. federal government remains the
world’s largest sponsor of basic research, and total federal R&D
spending reached $148 billion in FY 2010, traditional trading
partners and emerging nations alike are more focused than the U.S.
in seeking to capture the economic value of these tremendous
public investments by channeling their efforts on translating new
technology into commercial applications and job-generating
industries. 93 Research, especially basic research, is widely
recognized as a public good. The full economic value of basic
research is unlikely to accrue to private investors, hence the
rationale for government support for research.94 In the new world
order of rapid, open global knowledge flows, the gap between
federally funded research and U.S. based commercialization means
that it is possible for foreign enterprises (often with state support)
to capitalize on U.S. investments in basic research. Many countries
have focused on commercializing innovations within their national
borders, with the goal of creating large-scale industries and high
value employment.95 This is an important paradigm shift.
Whereas the commercialization of research funded by the U.S. in
91
See the related discussion, “Capturing the Economic Value of Innovation” in Chapter 1 of this
report.
92
Gary P. Pisano and Willy C. Shih in “Restoring American competitiveness,” Harvard Business
Review 87, Nos. 7-8, (July-August 2009). Some in the U.S. believe that it is inappropriate for
government to support and/or encourage downstream development of commercial products.
Whatever the merits of this view, most big U.S. trading partners do not share it.
93
New growth theory models show that R&D spillovers are a major source of endogenous growth.
See Zvi Griliches, “The Search for R&D Spillovers,” The Scandinavian Journal of Economics, Vol.
94, 1992 Supplement, pp. 29-47. Coe and Helpman add that the tendency of research to spillover
means that R&D investments by other countries can have substantial beneficial effects on domestic
factor productivity. David T. Coe and Elhanan Helpman, “International R&D spillovers,” European
Economic Review, Volume 39, Issue 5, May 1995, pp. 859-887.
94
See Ben S. Bernanke, “Promoting Research and Development: The Government’s Role” Issues in
Science and Technology, Volume XXVII, Number 4, Summer 2011.
95
Carl Dahlman, The World Under Pressure: How China and India Are Influencing the Global
Economy and Environment, Palo Alto: Stanford Economics and Finance, 2011.
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FINDINGS 155
the postwar era took place mostly in the United States, the
globalization of innovative capacity in the 21st Century means that
ideas developed in the United States can now be more easily
developed and commercialized overseas.96
b. The Need for a Strategic Approach:97 Most of America’s major
trading partners do not leave the development of their economies
solely to the workings of the market. They take a more strategic
approach and many are expanding programs and policies aimed at
advancing promising technologies and large-scale domestic
manufacturing in areas such as electric-drive vehicles, renewable
energy equipment, and solid-state lighting in order to secure global
competitive advantage, gain or maintain national competency in
production, and to keep or create high-quality jobs.98 Not all of
these programs succeed; sometimes they fail or need readjustment.
This willingness to readjust and reinvest is fundamental. The
United States takes the same approach with U.S. defense or space
efforts, where failure elicits renewed efforts. The United States is
one of the few industrial nations that have, until recently, tended
not to adopt a strategic approach regarding the composition of its
economy, although particular sectors with political influence
receive substantial support.99 To some extent, this has not mattered
until now due to the momentum gained from past public and
96
Joseph Stiglitz, “Knowledge as a Global Public Good,” in I. Kaul, I. Grunberg and M. Stern, eds.
International Cooperation in the 21st Century, New York: UNDP, 1999. See also Charlotte Hess
and Elinor Ostrom eds., Understanding Knowledge as a Commons, Cambridge: MIT Press, 2007.
97
For a review of how some leading economies are addressing their innovation and growth
challenges, see Chapter 5 of this report. For a review of national support for emerging industries, see
Chapter 6 of this report.
98
China’s most recent Five-Year plan calls for major government investments in seven strategic
industries, including biotechnology, alternative energy, and next-generation information technology.
For details on Germany’s long-term plans to advance transportation-related industries, see German
Federal Government’s National Electromobility Development Plan, August 2009, and for its
information and communications technology strategy, see Federal Ministry of Education and
Research, ICT Strategy of the German Federal Government: Digital Germany 2015, November
2010. Among South Korea’s initiatives targeting specific industries are its plan to invest $12.5
billion over 10 years to become the world’s dominant producer of advanced batteries. See Yonhap
News Agency, “S. Korea Aims to Become Dominant Producer of Rechargeable Batteries in 2020,”
July 11, 2010.
99
To some extent, these initiatives are now being emulated in the U.S. To ensure that the U.S. has a
domestic manufacturing base for advanced batteries, the federal government in 2009 awarded $2.4
billion in grants under the American Recovery and Reinvestment Act to manufacturers of lithium-
ion cells, battery packs, and materials. These grants complemented the $25 billion in debt capital
made available by the federal government to encourage automakers to produce more energy-efficient
cars under the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program. The state of
Michigan has also made significant investments to develop an electrified-vehicle industrial cluster.
The state offered more than $1 billion in grants and tax credits to manufacturers of lithium-ion
battery cells, packs, and components. See chapter 6 on National Support for Emerging Industries in
this volume.
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156 RISING TO THE CHALLENGE
private investments.100 But as the emerging economies have
become richer and more advanced economically, they have moved
up the value-added chain, increasingly producing “the kind of
high-value-added components that 30 years ago were the exclusive
purview of advanced economies.”101 This has created economic
pressures in the developed economies to more rapidly move into
technology-intensive manufacturing industries and knowledge
intensive service industries.
c. An Institutionalized Focus on Translational Research and
Applications:102 Taiwan, Germany, Finland, China, South Korea
and other regions and nations have major institutions focused on
applied and translational research aimed at enabling domestic
companies to develop manufacturing processes and marketable
products. Large, well-funded public-private partnerships such as
Germany’s Fraunhofer-Gesellschaft, Taiwan’s Industrial
Technology Research Institute, Korea’s Electronics and
Telecommunications Research Institute, and Finland’s Tekes have
proven remarkably successful at helping domestic manufacturers
translate new technologies into products and production processes
and remain globally competitive despite high or rising labor
costs.103 The U.S. has no equivalent to these large applied research
institutions that collaborate with industry to capitalize on national
investments in research to develop technology and commercial
products that are produced domestically at large-scale.
d. A Focus on Manufacturing:104 Major U.S. trading partners
understand that a domestic industrial base that can produce
advanced products in high volumes, and the high skilled jobs that
this productive activity generates, is integral to maintaining global
competitiveness in innovation and increases chances of leading in
100
“Cheaper information technology has given greater importance to more productive forms of
capital. The rising contribution of investments in information technology since 1995 has been a key
contributor to the U.S. growth resurgence and has boosted growth by close to a percentage point.”
See National Research Council, Enhancing Productivity Growth in the Information Age, D.
Jorgenson and C. Wessner, eds., Washington, DC: The National Academies Press, 2007, page 21.
101
Michael Spence, “Globalization and Unemployment: The Downside of Integrating Markets,”
Foreign Affairs (July/August 2011).
102
See the related discussion on “Institutional Support for Applied Research” in Chapter 2 of this
report. See also a summary description of the Fraunhofer-Gesellschaft in Chapter 5 of the report.
103
Germany’s Fraunhofer-Gesellschaft has more than 80 research units, including 60 Fraunhofer
Institutes, with a $2.2 billion annual budget to help Germany manufacturers launch new products
and manufacturing processes in 16 industrial clusters. Taiwan’s Industrial Technology Research
Institute has 6,000 staff that collaborates with manufacturers in emerging industries such as flexible
displays, sold-state lighting, photovoltaic cells, and MEMs devices. South Korea’s Electronics and
Telecommunications Research Institute has 1,700 researchers with doctoral and master’s degrees
helping industries such as semiconductors, digital mobile communications, and fuel cells.
104
See the related discussion on “Strengthening Manufacturing,” in Chapter 2 of this report.
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FINDINGS 157
next-generation technologies.105 Therefore, many nations and
regions support their manufacturing sectors with tax holidays,
grants, and credit.106 They also support domestic manufacturing
through trade policy measures and government procurement107 and
programs designed to stimulate large domestic demand in key
industries,108 as well as well-financed institutes to facilitate
adoption and importation of new technologies for large and small
firms alike.109
In the past, the U.S. has successfully driven technology down the
cost curve and up the learning curve with defense procurement.110
105
Suzanne Berger, “Why Manufacturing Matters,” MIT Technology Review, July 1, 2011. Access
at http://www.technologyreview.com/business/37932/. The Indian Government’s recently
announced policies for ICTE industries highlights the requirement for a “concerted effort to boost
manufacturing activity … as robust economic growth in the country is leading to extraordinarily
high demand for electronic products in general and telecom products in particular.” Government of
India, “A Triad of Policies to Drive a National Agenda for ICTE,” (October 10, 2011). Accessed at
http://www.dot.gov.in/NTP-2011/final-10.10.2011.pdf.
106
For example, China, Malaysia, Singapore, and other nations offer 10-year tax holidays to foreign
companies building factories or R&D centers in targeted industries. To convince AMD to build a
silicon wafer plant in Germany in 2004, federal and state governments provided $798 million in cash
and allowances, guaranteed 80 percent of the value of bank loans, and covered the total product cost
of the plant. The Israeli government offered more than $1 billion in aid, including a $525 million to
grant, for Intel’s 300 mm plant in Kiryat Gat and $660 million in tax benefits to upgrade another
plant. Many U.S. states have similar policies, as with Michigan’s focus on electric cars and New
York’s nano initiative in Albany, but often they lack scope, consistency, and/or an overall strategy.
The State Science and Technology Institute (SSTI) lists the leading technology based economic
development programs of U.S. states and regions.
107
Perhaps the most explicit use of government policy to support domestic manufacturers are China’s
“indigenous innovation” regulations, which mandate that purchases of high-tech goods using
government funds favor Chinese-owned companies that own the intellectual property rights to the
products. see James McGregor, “China’s Drive for ‘Indigenous Innovation: A Web of Industrial
Policies, U.S. Chamber of Commerce, Global Intellectual Property Center, APCO Worldwide
(http://www.uschamber.com/sites/default/files/reports/100728chinareport_0.pdf). Also see U.S.
International Trade Commission, China: Intellectual Property Infringement, Indigenous Innovation
Policies, and Frameworks for Measuring the Effects on the U.S. Economy, Investigation No. 332-
514, USITC Publication 4199 (amended), November 2010,
(http://www.usitc.gov/publications/332/pub4199.pdf) and Alan Wm. Wolff, “China’s Indigenous
Innovation Policy,” testimony before the U.S. China Economic and Security Review Commission,
Washington, DC, May 4, 2011.
108
Germany, Spain, and other nations encouraged large domestic industries in photovoltaic cells and
modules, for example, through feed-in tariff systems that compel utilities to purchase solar power at
high rates. See Thilo Grau, Molin Huo, and Karsten Neuhoff, Survey of Photovoltaic Industry and
Policy in Germany and China, Climate Policy Initiative Report, DIW Berlin and Tsinghua
University, March 2011. France and China are using government purchases as one way of promoting
large-scale production of hybrid and electric-drive vehicles.
109
These would include, for example, the Fraunhofer-Gesellschaft in Germany, the Industrial
Technology Research Institute in Taiwan, and the Korea Institute of Industrial Technology in South
Korea., and on a smaller scale, the Industrial Research Assistance Program in Canada.
110
To cite one example, military purchases of integrated circuits were critical to establishment of
America’s semiconductor industry in the 1960s and 1970s. See Kenneth Flamm, Mismanaged
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158 RISING TO THE CHALLENGE
More recently, the federal government has tended to leave this
competition for manufacturing capacity to the states. Some of
these efforts have recorded significant success.111 In other cases,
federal initiatives have reinforced state-based programs, such as in
Michigan, where the federally funded battery initiative has helped
re-shore U.S. production of advanced batteries.112 Nonetheless,
the recent deterioration in the U.S. trade balance in advanced
technology products is a troubling indication that the U.S. high-
technology manufacturing base is losing ground relative to other
global competitors.113 [See 3.5] And there is growing and
authoritative concern that the continued erosion of America’s high-
tech manufacturing base threatens to undermine U.S. leadership in
next-generation technologies114, while at the same time failing to
produce the high value-added employment gains that would follow
expanded U.S. high technology exports. Moreover, some analysts
argue that with respect to maintaining manufacturing
competitiveness and the associated skilled labor and technical
institutions, activity that is lost is difficult to recover. They
therefore argue that it is important for policy makers to be
Trade? Strategic Policy and the Semiconductor Industry, Washington, DC, Brookings Institution,
1996. pp. 27-38. See also William B. Bonvillian and Richard Van Atta, “ARPA-E and DARPA:
Applying the DARPA Model to Energy Innovation,” Journal of Technology Transfer 36 (2011):
469-513. At the state level, California has imposed mandates for fuel economy (leading to
increased demand for hybrids) and reduced the use of incandescent bulbs with various regulations.
111
As noted, New York State’s initiative to support semiconductor manufacturing and other nano-
scale industries has achieved significant impact in terms of jobs, growth, and competency. See
chapter 7 on Regional Innovation Clusters in this volume and Everett M. Ehrlich, A Study of the
Economic Impact of GLOBALFOUNDRIES, June 2011.
112
Michigan has succeeded in developing one of the world’s largest clusters of advanced battery-
related manufacturers. See Chapter 7 on Regional Innovation Clusters in this volume. Whether the
demand will be adequate to support these investments remains to be seen.
113
Advanced technology products defined by the U.S. Census Bureau categorizes U.S. international
trade into 10 major technology areas: advanced materials, aerospace, biotechnology, electronics,
flexible manufacturing, information and communications, life science, optoelectronics, nuclear
technology, and weapons. U.S. Census Bureau, Foreign Trade, Country and Product Trade,
Advanced Technology Products. Because the value of trade in the final product is credited to the
country where the product was substantially transformed, data for products produced with
components from multiple countries are imperfect. To the extent that U.S. imports of advanced
technology products contain components manufactured in the United States and previously exported
(microprocessors, for example) the import value will overstate the actual foreign value-added.
114
This concern has been shared by the PCAST in both the Bush and Obama Administrations. See
President’s Council of Advisors on Science and Technology, Report to the President on Ensuring
American Leadership in Advanced Manufacturing, Executive Office of the President, June 2011.
Also see President’s Council of Advisors on Science and Technology, “Sustaining the Nation’s
Innovation Ecosystems: Information Technology Manufacturing and Competitiveness,” January
2004. In addition see Gregory Tassey, “Rationales and mechanisms for revitalizing US
manufacturing R&D strategies,” Journal of Technology Transfer, DOI 10.1007/s10961-009-9150-2,
2010. (http://www.choosetocompete.org/downloads/PCAST_2004.pdf).
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FINDINGS 159
concerned with the composition of the economy. “One implication
is that long-term policy frameworks should include an evolving
assessment of competitive strength and employment potential
across sectors and at all levels of the human capital and education
spectrum, and a goal of steering or nudging market outcomes to
achieve the social objectives. The structural evolution of the
economy matters and can be influenced in relatively efficient
ways.”115
e. Trade and Innovation are Closely Linked: Trade and
investment measures cannot be ignored when examining the
location of innovation – from invention to commercialization.
Providing a market induces not only original research, but the
ability to achieve scale. Open markets foster innovation, although
there is a strong school of thought in a number of countries abroad
that protection is a more promising tool. For this reason, the
“indigenous innovation” policies of China often have taken the
form of local content requirement placed on foreign investors and
purchasers of goods in China.116 Open markets, the U.S. policy,
can be detrimental to an import-competing industry if another
country’s industrial policies have created distortions in trade and
investment patterns, which can lead to subsidized production and
“dumping” of products in foreign markets.117
115
Michael Spence and Sandile Hlatshwayo, “The Evolving Structure of the American Economy and
the Employment Challenge,” Council on Foreign Relations, Working Paper, March 2011, p. 37.
116
For additional discussion of mercantilist policies, see the section on “21st Century Mercantilism”
in Chapter 1. Chapter 5 provides a further description of China’s trade and innovation policies.
117
HIER, KEIL and NRC, Conflict and Cooperation in National Competition for High Technology
Industry, Washington, DC: National Academy Press, 1996. For an illustrative study, see Thomas
Howell, Steel and the State; Government Intervention and Steel’s Structural Crisis, New York:
Westview Press, 1988.
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160 RISING TO THE CHALLENGE
60
40
20
0
Billions of Dollars
-20
-40
-60
-80
-100
-120
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
FIGURE 3.5 U.S. trade balance in advanced technology products from 1989 to
2011.
SOURCE: U.S. Census Bureau, Foreign Trade, Trade in Goods with Advanced
Technology Products.
Opportunities for Cooperation:118 The focus and investments of other
7.
nations to accelerate innovation activity opens genuine opportunities
for enhancing cooperation on today’s global challenges concerning the
environment, energy, and health. The globalization of research and
innovation presents valuable opportunities for U.S. firms and federally
funded research institutes to capitalize on offshore R&D initiatives and
growing pools of science and technology talent.119 Yet the United States
118
See the related discussion on “The Way Forward,” including the need to monitor developments
and cooperate globally, in Chapter 2 of this report.
119
“The 20th-century national S&T innovation environment that has been a hallmark of the United
States since World War II, and the model for the world, is evolving into a new 21st-century global
S&T innovation environment in which R&D talent, financial resources, and manufacturing
facilitated by global communications are geographically dispersed and globally sourced.” National
Academy of Sciences, S&T Strategies of Six Countries, op. cit., p. 93.
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FINDINGS 161
currently invests little to stay abreast of foreign science and innovation
policies, and the opportunities they present for cooperation.
a. New Opportunities and Common Challenges: The rapid growth
of R&D activities and research workforces in emerging
powerhouses such as India, China, and Brazil—as well as
improvements in Internet infrastructure—present greater
opportunities for the U.S. to accelerate development of
technologies and address common challenges through global
partnerships.120 The innovation strategies of major trading partners
place a high priority on expanding international cooperation to
accelerate development of technologies and to meet common
global needs such as clean energy and cures for disease.121 This is
because our partners recognize that we face common challenges
and because they hope to benefit from pooling assets. At the same
time, potentially beneficial international cooperation can be
challenging. Matching resources and objectives, while equitably
sharing the results, is often difficult.122
b. Greater Outreach: It is also true that many recognize that the
United States has committed substantial resources to develop
technologies to the point where they can be—with substantial
additional resources—developed into marketable products.
Research organizations of other nations and regions have
established an extensive R&D presence in the U.S. universities to
keep abreast of new technologies123 and U.S. corporations have
established extensive offshore innovation networks.124 U.S.
120
For a review of opportunities as well as challenges for closer U.S. – China cooperation on
research and innovation, see National Research Council, Building the 21st Century, U.S. China
Cooperation in Science, Technology, and Innovation, op. cit. Wagner, Cote and Archambault
suggest that the new global innovation environment can benefit the United States if it take advantage
of “the distributed knowledge base emerging in science and technology.” Caroline S. Wagner,
Gregoire Cote and Eric Archambault, “The Shifting Landscape of Global Science: A Challenge for
United States Policy,” pre-publication version available at
http://www.carolinewagner.org/index.php?option=com_content&view=article&id=107.
121
The national innovation strategies of China, Germany, and India, among others, all call for
greater international research collaboration.
122
Hamburg Institute for Economic Research, Kiel Institute for World Economics, and National
Research Council, Conflict and Cooperation in National Competition for High Technology Industry,
Washington, DC: National Academy Press, 1996.
123
Taiwan’s ITRI, for example, has joint research programs with MIT, the University of California
at Berkeley, Carnegie Mellon University, and Stanford Research Institute. Germany’s Fraunhofer
has seven research institutes based at U.S. universities, including Michigan State University, Boston
University, Massachusetts Institute of Technology, the University of Maryland, the University of
Michigan, Johns Hopkins University, and the University of Delaware.
124
Some 249 of America’s top 500 corporations have overseas R&D facilities, with China and India
the most numerous destinations. Jadeep C. Prabju, Andreas B. Eisengerich, Rajesh K. Chandy, and
Gerard J. Tellis, “ Patterns in the Global Location of R&D Centres by the World’s Largest Firms:
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162 RISING TO THE CHALLENGE
government agencies and national laboratories, however, have a
relatively small offshore presence that limits their ability to learn
from other nations, but could do so.125
c. The Internet and Cross-Border Data Flows: The Internet and
information and communications technologies (ICT) are at the
forefront of developments changing the way business is done
internationally. The Internet and ICT have also transformed the
way R&D activities are performed by “enabling distributed
research, grid and cloud computing, simulation, or virtual
worlds.”126 The Internet, because of its global nature, is
accelerating the “pace and scope of research and innovation, and
encouraging new kinds of entrepreneurial activity.”127 Networked
information systems and data flows have become a core
component of 21st century innovation. It is important that
international consensus be achieved on maintaining the free and
open flow of legitimate data and knowledge across borders so that
the benefits of the Internet and ICT on world growth and
innovation can be preserved and expanded.
d. Greater Awareness: The massive investments in innovation
capacity and ambitious policy initiatives underway around the
world will have an impact on the United States in ways that can
scarcely be imagined today. It can be certain, however, that the
impact will be immense. Not all of these strategies will work, yet
some are likely to transform 21st century global competition, with
profound implications for America's well-being and national
security. Yet the United States currently invests little to track
foreign technology investments, industrial policies, and pro-
innovation policies, much less project their implications into the
future.
The Role of India and China,” paper presented at Druid Summer Conference 2010, Imperial College
London Business School, June 16-18, 2010. IBM, Microsoft, General Electric, Pfizer, and other
U.S. corporations all perform R&D in India and China for products sold around the world. See
Chapter 5 analyses of MNC innovation in India and China in this volume.
125
The U.S. military has a limited number of science and technology representatives overseas. For
example, the Office of Naval Research operates regional offices in places such as Singapore, Prague,
Santiago, and London. In addition, and the staff of many U.S. embassies include officers whose
portfolios cover science, but they often have many additional responsibilities such as health and the
environment, and few may focus on innovative technologies.
126
OECD, “The Future of the Internet Economy,” Policy Brief, June 2008, p. 4. The Internet has
also increased R&D efficiency. Marlo I. Kafouros, “The Impact of the Internet on R&D Efficiency:
Theory and Evidence,” Technovation, Volume 26, Issue 7, July 2006.
127
OECD, “The Future of the Internet Economy,” Ibid.
