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Chapter 2
Sustaining Leadership in Innovation
The United States faces new competitive challenges in the 21st century.
Globalization is diminishing what once were overwhelming American
advantages as the prime location for creating, commercializing, and
industrializing technology. Basic research and world-class engineering talent
now are highly dispersed around the world, especially in important fields such
as nanotechnology, computer science, and renewable energies. How, then, must
the U.S. adapt to maintain its leadership in innovation?
IMPROVING FRAMEWORK CONDITIONS
One of America’s most fundamental strengths as a place to
commercialize innovation has been its overall investment climate. For much of
the post-war era, America’s boasted some of the world’s best transportation,
energy, and communication infrastructure.1 In the 1980s, America’s corporate
tax rates were among the lowest in the industrialized world.2 The U.S. also has
had one of the world’s strongest legal systems for protecting intellectual
property rights.3
1
Michael Porter observed that American communication, power transportation, and transportation
infrastructure was “arguably the best in the world” after World War II, and the fact that
infrastructure companies were privately owned “was a stimulus to investment and innovation.” See
Michael E. Porter, The Competitive Advantage of Nations, New York: Simon and Schuster, 1990,
p. 297.
2
The U.S. statutory corporate tax rate dropped from 52 percent to 35 percent in the 1980s, well
below the average for OECD nations. See Congressional Budget Office, “Corporate Income Tax
Rates: International Comparison,” November 2005 (http://www.cbo.gov/ftpdocs/69xx/doc6902/11-
28-CorporateTax.pdf). Data from M. P. Devereaux, R. Griffith, and A. Klemm, “Corporate Income
Tax Reforms and International Tax Competition,” Economic Policy, vol. 35 (October 2002).
3
The United States still has the lowest rate of computer software piracy in the world, followed by
Japan and Luxembourg, according to the International Data Corporation (IDC). See Business
61
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62 RISING TO THE CHALLENGE
Corporate Taxes: There are concerns that America now is at a
competitive disadvantage in some of these areas.4 After the U.S. cut corporate
taxes in the 1980s, other industrialized nations cut taxes even further. When
state corporate taxes are taken into account, the U.S. corporate statutory rate of
39.3 percent is third highest among OECD nations, which have a median rate of
33 percent.5 What’s more, the tax codes of countries such as Germany,
Singapore, Malaysia, and China favor investment in certain industries through
such incentives as 10-year tax holidays. While U.S. states offer such tax breaks,
the federal government does not. The U.S. is one of the few major trading
nations with a tax code that does not treat investment in globally traded
industrial activity any differently than non-mobile activity.6 This means
“inefficiency and biases in the corporate tax code fail to promote the
productivity and innovative capability of businesses in America, hampering the
economy and indirectly affecting all Americans.” 7 Business advocacy groups
argue that executives find the current tax burden to be an impediment to the
competitiveness of their companies operating in the United States.”8
Infrastructure: Some analysts regard America’s aging infrastructure
as a competitive disadvantage.9 The U.S. ranks only No. 27 in terms of
infrastructure, according to the World Economic Forum, a major factor in
America’s falling place in the WEF’s overall global competitiveness rankings.10
That compares to seventh place in 2000, observes the McKinsey Global
Institute.11 The American Society of Civil Engineers asserts that most of
America’s infrastructure is in poor shape due to delayed maintenance and lack
Software Alliance and IDC, 08 Piracy Study, May 2009,
(http://portal.bsa.org/globalpiracy2008/studies/globalpiracy2008.pdf).
4
It is important to note that the Committee did not conduct a study comparing the U.S. tax system to
that of other countries. The Committee did want to draw attention to the growing body of evidence
that, in some cases, U.S. tax policy creates a less competitive environment.
5
Congressional Budget Office, op. cit., citing data from Devereaux, Griffith, and Klemm.
6
Robert D. Atkinson, “Effective Corporate Tax Reform in the Global Innovation Economy,” The
Information Technology & Innovation Foundation, July 2009,
(http://www.itif.org/files/090723_CorpTax.pdf)
7
Ibid.
8
Roth, et al, “2010 Global Manufacturing Competitiveness Survey,” Deloitte Touche Tohmatsu and
U.S. Council on Competitiveness, June 2010.
9
For an analysis of the positive link between good infrastructure and innovation and development,
see Tony Ridley, Lee Yee-Cheong, Calestous Juma. “Infrastructure, Innovation, and Development,”
International Journal of Technology and Globalisation, Volume 2, Number 3-4/2006, Pages 268-
278. For an industry view, see the interview with Eric Spiegel, the president and CEO of Siemens
Corporation in Harvard Business Review, “Investing in Infrastructure Means Investing in
Innovation.” March 15, 2012.
10
World Economic Forum, Global Competitiveness Report, op. cit.
11
James Manyika, et al., Growth and Renewal in the United States: Retooling America’s Economic
Engine, McKinsey Global Institute, February 2011,
(http://www.mckinsey.com/mgi/publications/growth_and_renewal_in_the_us/pdfs/MGI_growth_an
d_renewal_in_the_us_full_report.pdf).
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SUSTAINING LEADERSHIP IN INNOVATION 63
of modernization.12 The Society reports that an estimated 25 percent of
America’s bridges need significant repairs, one-third of major roadways are in
substandard condition, and that “America’s sewer systems spill an estimated
1.26 trillion gallons of untreated sewage every year.”13 More recently the
Society called for investments in the nation’s transmission, generation, and
distribution systems in order to prevent significant costs to businesses and
households.14
Likewise, a bipartisan study of America’s aging transportation
infrastructure concluded that it is in “bad shape.” The poor condition
“compromises our productivity and ability to compete internationally,” it added.
The study estimated the U.S. needs to spend $134 billion to $262 billion per
year more than current plans call for until 2035 to get this infrastructure into
proper condition.15
Other nations are investing aggressively to build and upgrade their
transportation infrastructure. China spent $713 billion--twice as much as the
U.S.--just on transportation and water infrastructure over the past five years16
and is investing an estimated $500 to 700 billion to build the world’s biggest
high-speed rail network.17 In 2008, the European Investment Bank lent 58
billion Euros ($81 billion) to finance infrastructure projects, and had a target of
$112 billion in 2009.
12
ASCE has assigned a C grade to bridges, C- to rail, D+ for energy, D for aviation, dams, transit,
dams, and D- to drinking water. See American Society of Civil Engineers, 2009 Report Card for
America’s Infrastructure, March 25, 2009,
(http://www.infrastructurereportcard.org/sites/default/files/RC2009_full_report.pdf).
13
Data from U.S. federal agencies cited in Eric Kelderman, “Look Out Below! American’s
Infrastructure is Crumbling,” Stateline.org, Pew Research Center, January 22, 2008,
(http://pewresearch.org/pubs/699/look-out-below).
14
ASCE, Failure to Act: The Economic Impact of Current Investment Trends in Electricity
Infrastructure. April, 2012.
15
See Miller Center of Public Affairs, Well Within Reach: America’s New Transportation Agenda,
David R. Goode National Transportation Policy Conference. Posted on October 4, 2010 at
http://www.infrastructureusa.org/well-within-reach/.
16
Cathy Yan, “Road-Building Rage to Leave U.S. in Dust,” Wall Street Journal, January 18 2011.
17
See Sean Tierney, “High-speed rail, the knowledge economy, and the next growth wave,” Journal
of Transport Geography, Volume 22, May 2012, pages 285-287. Tierney notes that failure to invest
in economic development “concedes considerable ground to those countries with whom we are
trying to compete. Compare the $8 billion that President Obama set aside in the stimulus bill as a
down payment for HSR [High Speed Rail], with the estimated $500 - $700 billion that China plans
to invest for its 19,000 km HSR network.” For a review of the economic benefits of large scale
transportation projects, see T.R. Lakshmanan, “The broader economic consequences of transport
infrastructure investments.” Journal of Transport Geography. Volume 19(1), 2011. For a review of
recent China’s investments in rail, Will Freeman, “The Big Engine That Can: China’s High-Speed
Rail Project,” China Insight Economics, May 28, 2010. Problems have emerged with regard to the
rapid construction of China’s rail network, its cost, the revenues it is generating, and its relevance to
the needs of the general population. Recent train disasters in China have further spotlighted
challenges related to the rapid growth of that nation’s high-speed rail system. See Financial Times,
“China’s Rail Disaster.” July 27, 2011 and Keith B. Richburg, “Are China’s High-Speed Trains
Heading Off the Rails?” Washington Post, April 23, 2011.
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64 RISING TO THE CHALLENGE
To address this competitive disadvantage in infrastructure, some
analysts have called for a U.S. infrastructure bank that, like the EIB, could
leverage private capital.18 The purpose of such a National Infrastructure Bank
(NIB) would be to invest in merit-based projects of national significance that
span both traditional and technological infrastructure by leveraging private
capital. Phillips, Tyson and Wolf argue that “the NIB could attract private funds
to co-invest in projects that pass rigorous cost-benefit tests, and that generate
revenues through user fees or revenue guarantees from state and local
governments. Investors could choose which projects meet their investment
criteria, and, in return, share in project risks that today fall solely on
taxpayers.”19
Energy Efficiency: Reliable, clean, and relatively inexpensive energy
has long been an important competitive advantage for the United States. As a
recent UNIDO report notes, “Energy efficiency contributes toward reducing
overall company expenses, increases productivity, has effects on
competitiveness and the trade balance on an economy-wide level, and, by
creating a home market for energy efficient technologies, supports the
development of successful technology supply industry in that field.”20 Energy
efficiency also represents a major opportunity to increase energy security while
also limiting carbon dioxide emissions.
An accelerated deployment of existing and emerging energy-supply
and end-use technologies has the potential to yield substantial improvements to
energy conservation and efficiency.21 America’s buildings, which alone use
more energy than any other entire economy of the world except China, are a key
area for conservation efforts.22 U.S. buildings are generally grossly inefficient; it
has been widely documented that energy use in new and existing buildings can
be cut by 50% or more cost-effectively. 23 Lowering the cost base for location of
18
Felix Rohatyn, The Case for an Infrastructure Bank, Wall Street Journal, September 15, 2010. In
the U.S. Senate, legislation, known as the “BUILD Act, was introduced on May 15, 2011 to fund an
infrastructure bank.
19
See Charles Phillips, Laura Tyson, and Robert Wolf, “The U.S. Needs an Infrastructure Bank,”
Wall Street Journal, January 15, 2010.
20
Wolfgang Eichhammer and Rainer Walz, “Industrial Energy Efficiency and Competitiveness,”
Vienna: United Nations Industrial Development Organization, 2011.
21
See National Academy of Sciences, et al., America’s Energy Future, Technology and
Transformation, Washington, DC: The National Academies Press, 2009. The report notes that “The
deployment of existing energy efficiency technologies is the nearest-term and lowest-cost option for
moderating our nation’s demand for energy, especially over the next decade. The committee judges
that the potential energy savings available from the accelerated deployment of existing energy-
efficiency technologies in the buildings, transportation, and industrial sectors could more than offset
the Energy Information Administration’s projected increases in U.S. energy consumption through
2030.”
22
U.S. Green Building Council, “Buildings and Climate Change,” Accessed on November 3, 2011 at
http://www.documents.dgs.ca.gov/dgs/pio/facts/LA%20workshop/climate.pdf.
23
Greg Kats, Greening Our Built World, Costs, Benefits, and Strategies, Washington, DC: Island
Press, 2010.
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SUSTAINING LEADERSHIP IN INNOVATION 65
production in the United States can be fostered by improving conservation, and
the techniques learned are themselves marketable globally as innovative
services.
Broadband: The U.S. is regarded as lagging in broadband
infrastructure. In the U.S., 27 of every 100 households subscribe to high-speed
Internet service. In Germany, broadband penetration is at 30 percent. The rate is
31 percent in France, 34 percent in South Korea, 38 percent in Denmark, and 41
percent in Sweden.24 While recognizing that a number of these countries do not
have the same geographical spread as the United States, the McKinsey Global
Institute nonetheless estimates that the U.S. loses $450 billion in purchasing
power annually due to subpar Internet connections.25
Intellectual Property: The U.S. still has one of the best legal systems
in the world to protect intellectual property rights. This has made America a
leader in IP-intensive industries such as pharmaceuticals, software, and
entertainment.26 NDP Consulting estimates that workers in IP-intensive
industries generate more than twice the output and sales per employee than do
workers in non-IP-based industries. IP-intensive industries also account for
around 60 percent of U.S. exports.27
Counterfeiting and patent infringement abroad undermine the economic
contribution of these industries, however. An estimated 80 percent of software
used in China is pirated, IDC estimates. The piracy rate stands at 61 percent in
the entire Asia-Pacific region, 65 percent in Latin America, and 66 percent in
Central and Eastern Europe, compared to 21 percent in North America.28 This
level of piracy has a substantial effect on U.S. companies’ revenues, and
therefore their long-term capacity to innovate and compete.
SUBSTANTIALLY INCREASING R&D FUNDING
As mentioned above, the United States still enjoys a clear lead over
other nations in total R&D spending. [See Figure 2.1] But as also noted earlier,
24
International Telecommunication Union and Federal Communications Commission data cited in
Manyika, op. cit.
25
Ibid.
26
In many fields intellectual property protection plays only a small role in enabling firms to reap
returns from their innovations. And in some fields it would appear that for the industry as a whole
aggressive patenting is a negative sum game. For a survey of the economic literature, both
theoretical and empirical, on the choice of intellectual property protection by firms, see Bronwyn H.
Hall, Christian Helmers, Mark Rogers, and Vania Sena, “The Choice between Formal and Informal
Intellectual Property: A Literature Review,” NBER Working Paper No. 17983, April 2012.
27
See Nam d. Pham, “The Impact of Innovation and the Role of Intellectual Property Rights on U.S.
Productivity, Competitiveness, Jobs, Wages, and Exports,” NDP Consulting, April 2010
(http://www.theglobalipcenter.com/sites/default/files/reports/documents/IP_Jobs_Study_Exec_Sum
mary.pdf).
28
Business Software Alliance and IDC, 08 Piracy Study, May 2009,
(http://portal.bsa.org/globalpiracy2008/studies/globalpiracy2008.pdf).
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66 RISING TO THE CHALLENGE
Others
($147 billion)
U.S.
($415 billion)
Other Europe
($141 billion)
India ($33 billion)
U.K. ($39 billion)
France ($47 billion)
Korea ($49 billion)
Germany
($83 billion) China
($149 billion)
Japan ($148 billion)
FIGURE 2.1 Total global R&D spending reached $1,252 billion in 2010.
SOURCE: Battelle and R&D Magazine, 2012 Global R&D Funding Forecast,
December 2011.
this lead is eroding as other nations dramatically increase their investments in
research—both in real terms and as a percentage of GDP.
The most dramatic gains are being made by China. R&D spending as a
percentage of GDP rose from only 0.6 percent in 1996 to 1.7 percent in 2009—a
period during which China’s economy grew by an astounding 12 percent a
year.29 Between 2002 and 2007, the percentage of the world’s researchers living
in China rose from 13.9 percent to 19.7 percent.30 Since then, China has
continued to increase R&D investment by around 10 percent a year, even during
the global recession. China’s long-term plans call for boosting R&D to 2.5
percent of GDP by 2020.31 The government also has set an ambitious target of
29
National Science Foundation Science and Engineering Indicators: 2010 and Ministry of Science
and Technology of the People’s Republic of China, China S&T Statistics Data Book 2010, Figure 1-
1.
30
UNESCO Science Report 2010, Paris: United Nations Educational, Scientific and Cultural
Organization. Access at http://unesdoc.unesco.org/images/0018/001899/189958e.pdf .
31
China State Council, “National Medium- and Long-Term Program for Science and Technology,”
op. cit.
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SUSTAINING LEADERSHIP IN INNOVATION 67
Box 2.1
The European Union’s Growing Investments in Research and Innovation
Complementing the rising R&D expenditures of its member states, the
European Union is dramatically increasing its investments in research and
innovation. The new Horizon 2020 program, which succeeds the Seventh
Framework Program, will invest 80 billion Euros over seven years, beginning in
2013, an increase of some 45 percent. This includes a dedicated budget of € 25
billion to strengthen the EU’s position in science; € 18 billion to strengthen
Europe’s industrial leadership in innovation including greater access to capital
and support for SMEs; and € 32 billion to help address global challenges such as
climate change, renewable energy, and health care.32
According to the European Commissioner for Research, Innovation,
and Science Máire Geoghegan-Quinn, the goal of the Horizon 2020 program is
designed to transform Europe’s “world-class science base into a world-beating
one.”33
producing 2 million patents of inventions, utility models, and designs annually
by 2015.34
Investment in R&D has risen sharply in other nations as well. Japanese
spending on research and development surged from 2.9 percent of GDP in 1995
to 3.6 percent in 2009.35 India doubled national R&D spending between 2002
and 2008, to Rupees 378 billion ($8.7 billion) annually36, and plans another 220
percent increase by 2012.37 South Korea has boosted R&D spending by an
average of 10 percent annually from 1996 to 2007,38 and reportedly plans to
increase the R&D-to-GDP ratio from an already-high 3.2 percent to 5 percent by
2012.39 Brazil nearly tripled R&D expenditure between 2000 and 2008, to $24.4
billion.40 Finland has boosted R&D spending from 2 percent of GDP in 1991 to
32
Access at http://ec.europa.eu/research/horizon2020/index_en.cfm?pg=h2020.
33
Neil McDonald, “Euro Commissioner visits US,” Federal Technology Watch, 10(4) January 23,
2012.
34
China State Intellectual Property Office, “National Patent Development Strategy (2011-2020).”
35
Japanese Ministry of Internal Affairs and Communications, Statistics Bureau, accessed at
http://www.stat.go.jp/english/data/kagaku/index.htm. Data refer to fiscal years.
36
UNESCO, UNESCO Science Report 2010, p. 371.
37
Government of India Planning Commission, “Report of the Steering Committee on Science and
Technology for Eleventh Five-Year Plan (2007-2012),” December 2006.
38
Battelle, op. cit.
39
Kim Tong-hyung, “5% of GDP Set Aside for Science Research,” Korea Times, December 12,
2009.
40
Brazil Innovation Secretary Francelino Grando, “Brazil’s New Innovation System,” National
Academies symposium, Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010.
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68 RISING TO THE CHALLENGE
3.9 percent in 2010, one of the highest levels in the world.41 In 2006, the
Singapore government tripled its five-year R&D budget and set a target of
pushing national spending to 3.5 percent of GDP by 2015.42
In the United States the growth in pubic R&D funding has been more
uneven. Public research spending received an $18.7 billion temporary boost
under the 2009 American Recovery and Re-investment Act of 2009. Congress
approved significant long-term increases to non-defense R&D investment when
it passed the America COMPETES Act, which pledges to double the research
budget of the NSF, the DOE’s Office of Science, and NIST over seven years.
However, the COMPETES Act has not yet been funded by Congress and its
prospects are uncertain in the current budgetary environment.
Federal commitments to higher research spending have been flat or
falling. Overall federal funding for R&D in the United States has not increased
significantly since 2004, 43 and the full-year continuing resolution passed by
Congress for fiscal year 2011 cut R&D spending by 3.5 percent to $144.4
billion. Under the resolution, the NIH budget was reduced by 1.1 percent, the
DOE’s energy programs by 14.6 percent, the Office of Science by 1.6 percent,
the NSF by 1.3 percent, and NIST by 2.5 percent.44 The Obama Administration
proposed a substantial 7.3 percent increase in non-defense R&D spending for
fiscal year 2011-2012. Federal support for basic and applied research, in fact,
would reach its highest level in history under the proposed budget. Under the
President’s plan, the NSF, NIST, and DOE would see especially large
percentage increases. 45 However, fiscal challenges, precipitated by concerns
about the rapid growth in the federal debt, leave the prospect of rising budgets
for research and development uncertain.
These developments come at a time when federal spending on R&D as
a share of GDP has been in long-term decline.46 This decline has been masked
by rising private-sector R&D spending, which has maintained total U.S. R&D
spending as a percentage of GDP at a roughly constant level over the past few
decades. [See Figure 2.2] The increased business R&D intensity has enabled
41
Statistics Finland, Science and Technology Statistics accessed at
http://www.research.fi/en/resources/R_D_expenditure/R_D_expenditure_table and Statistics
Finland, “R&D Expenditure in the Higher Education Sector Up by 11 Per Cent,” October 27, 2011.
42
See Ministry of Trade and Industry, Sustaining Innovation-Driven Growth, Science and
Technology, Government of Singapore, February 2006.
43
Patrick J. Clemens, “Historical Trends in Federal R&D,” in AAAS Report XXXVI: Research and
Development FY 2012, Intersociety Working Group, American Association for the Advancement of
Science, May 2011.
44
See analysis by American Association for the Advancement of Sciences, “R&D in the FY 2011
year-Long Continuing Resolution,” May 2, 2011.
45
AAAS Report XXXVI, op. cit.
46
Ben Bernanke, “Promoting Research and Development: The Government’s Role.” Issues in S&T,
Volume XXVII (4) Summer 2011.
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SUSTAINING LEADERSHIP IN INNOVATION 69
3.5
3.0
2.5
R&D/GDP (Percent) 2.0
1.5
1.0
0.5
0.0
1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
Total Federal Nonfederal
FIGURE 2.2 Federal funding for R&D as a share of GDP has been in long-term
decline.
SOURCE: National Center for Science and Engineering Statistics, U.S. R&D
Spending Suffered a Rare Decline in 2009 but Outpaced the Overall Economy,
NSF 12-310 (March 2012), Figure 4.
total U.S. R&D spending to grow by 3.1 percent in constant dollars over the past
20 years.47
The private sector, however, spends nearly three-fourths of its R&D
budget on applied R&D activities. [See Figure 2.3] The federal share, with its
greater focus on basic R&D, has fallen steadily since the mid 1980s and now is
about 0.7 percent of GDP —its lowest level since World War II.48
47
National Science Foundation, Science and Engineering Indicators: 2010, Chapter 4.
48
National Science Foundation Science and Engineering Indicators, 2010.
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70 RISING TO THE CHALLENGE
300
250
200
Billions of Dollars
Development
150
Applied Research
Basic Research
100
50
0
Federal Government Private Industry Other
FIGURE 2.3 U.S. R&D spending by source of funding and character of
expenditure, 2009.
SOURCE: National Science Foundation, National Center for Science and
Engineering Statistics, Science and Engineering Indicators 2012, NSB 12-01
(January 2012), Appendix Tables 4-8, 4-9 and 4-10.
While the overall growth in total absolute R&D spending is good news,
the downward trend in federal spending as a percent of GDP is less propitious
for it is investments in basic research that generate the discoveries that lie
behind future innovation. The burden of funding basic research is increasingly
falling upon the federal government as U.S. corporations focus more of their
R&D dollars on later-stage development.
The share of federal R&D that is targeted to basic research has also
declined. The Department of Defense—which accounted for more than 52
percent of the federal research budget in 2011—invests around 90 percent of its
R&D funds on weapons systems development, rather than on basic or applied
research. [See Figure 1.4]
This does not mean the federal government can cut back on applied
research. It does mean that the United States is spending a great deal less on
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SUSTAINING LEADERSHIP IN INNOVATION 71
early stage research than the official figures might suggest. It also means that
much of the U.S. R&D effort is for later-stage military purposes with limited
civil applications. The R&D spending of U.S. competitors tends to be the
reverse, with heavier emphasis on later-stage R&D for commercial applications.
As explained below, a greater emphasis on civilian applied research will be
needed in order to compete with other nations that invest more to turn new
technology into products and industry, keeping in mind that many of these
products eventually have military applications.
These trends in R&D spending are not, of course, entirely uniform.
Not all nations are meeting their research investment targets. In 2000, for
example, the European Union set a target of 3 percent of GDP by 2010 for its
members. But collectively the EU remains at 1.9 percent.49 (There are notable
exceptions: Germany and France are both significantly increasing their R&D
budgets.50) In addition to the recent recession and financial crises, Battelle
attributes the shortfall in part to high labor costs, which equal 70 percent of total
R&D spending in Europe compared to 45 percent in the U.S. and 30 percent in
non-Japan Asia.51 Despite strong growth since 2002, R&D spending in Brazil
remains below 1 percent of GDP, although this is counterbalanced by a
substantial investment in FINEP, the Brazilian Technology Agency. FINEP has
a $2.5 billion budget and focuses on applied research.52
While governments have increased research funding, some are having a
difficult time getting the private sector to do the same. Chinese industry
accounts for just 21 percent of the nation’s R&D spending, and the vast majority
of enterprises do not conduct continuous R&D.53 In Canada, business spending
on R&D has remained at only around 1 percent of GDP—compared to 1.6
percent for average OECD countries54--and fell in 2010 for the third year.55
Singapore also has struggled to increase spending on innovation by private
49
Börje Johansson, Charlie Karlsson, Mikaela Backman and Pia Juusola, “The Lisbon Agenda from
2000 to 2010,” CESIS Working Paper No., 106, December 2007.
50
Chancellor Merkel’s government in Germany has proposed increasing R&D expenditures to 3
percent of GDP, up from 2.5 percent. See also remarks regarding European R&D targets by the
European Commissioner for Research, Innovation, and Science Máire Geoghegan-Quinn,
“Innovation for stronger regions: opportunities in FP7 Committee of the Regions” Brussels, July 14,
2011.
51
Battelle and R&D Magazine, 2011 Global R&D Funding Forecast, December 2010.
52
Xinhua, “Financing agency boosts Brazil's innovation, productivity,” March 6, 2011.
53
See Chunlin Zhang, Douglas Zhihua Zeng, William Peter Mako, and James Seward, Promoting
Enterprise-Led Innovation in China, Washington, DC: The International Bank for Reconstruction
and Development/The World Bank, 2009.
54
Science, Technology, and Innovation Council, State of the Nation 2008. Ottawa: CSTI Secretariat,
2008.
55
The Daily, “Spending on Research and Development,” Statistics Canada, December 24, 2010.
Access at: http://www.statcan.gc.ca/daily-quotidien/101224/dq101224a-eng.htm.
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116 RISING TO THE CHALLENGE
$27 billion.244 Government support for these clusters includes new
incubators and funding for early-state capital programs.245
U.S. Regional Cluster Initiatives
As previously mentioned, many promising regional innovation cluster
initiatives are underway across the U.S. Many of cluster-building strategies at
the state level reflect a holistic understanding of what it takes to build a 21st
century innovation ecosystem and compete globally in specific industries. 246
Promising state and regional initiatives often involve public-private partnerships
in which corporations, universities, and governments pool resources to establish
R&D centers, train workforces, develop supply and support industries, and
provide risk capital to starts-ups where angel and venture funding is lacking. 247
State governments are deploying a wider range of policy tools, from tax
credits and R&D grants to low-cost loans to free workforce training, in the
attempt to close the gap with financial incentives offered by offshore locations
in the intense competition for investment.248 Few of these initiatives, however,
can match the financial resources and policy support of those in other nations.249
The U.S. Federal Role
In remarks at a STEP Board symposium, then Commerce Secretary
Gary Locke declared that “regional innovation clusters have a proven track
record of getting good ideas more quickly into the marketplace. The burning
question becomes, ‘How do we create more of them?’”250
244
Singapore Ministry of Trade and Industry, Sustaining Innovation-Driven Growth, Science, and
Technology, Government of Singapore, February 2006,
(http://app.mti.gov.sg/data/pages/885/doc/S&T%20Plan%202010%20Report%20(Final%20as%20of
%2010%20Mar%2006).pdf).
245
Singapore National Research Foundation, “National Framework for Innovation and Enterprise,”
Prime Minister’s Office, Republic of Singapore, 2008,
(http://www.nrf.gov.sg/nrf/otherProgrammes.aspx?id=1206.
246
For review of cluster growth in the U.S. states, see Mary Jo Waits, “The Added Value of the
Industry Cluster Approach to Economic Analysis, Strategy Development, and Service Delivery.”
Economic Development Quarterly, 14(1):35-50, February 2000.
247
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.
248
See National Research Council, Growing Innovation Clusters for American Prosperity, Charles
W. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2011.
249
For a review of scope, as well as advantages and disadvantages of state capitalism, See The
Economist, The Rise of State Capitalism, January 21, 2012.
250
Keynote address by then Commerce Secretary Gary Locke at the National Academies
Symposium on Clustering for 21st Century Prosperity, Washington, DC, February 25, 2010.
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SUSTAINING LEADERSHIP IN INNOVATION 117
A number of analysts, policy institutes, and non-government
organizations have published studies in recent years urging the federal
government to make regional initiatives a core element in economic
development.251 Rather than calling for massive new funding, several of these
same studies call on federal agencies to make more effective and efficient use of
scattered resources they already deploy. Michael Porter, for instance, has
criticized existing federal programs as “often fragmented, duplicative, and
inefficient.”252
One new federal approach is for several agencies to pool efforts with
state and local governments and universities to support specific regional clusters
aimed at meeting national needs. Under White House leadership, the SBA,
NIST, EDA, NSF, and EDC, for example, are joining an effort by the DOE to
establish “energy-innovation hubs,” regional innovation clusters in solar power,
energy-efficient buildings, nuclear energy, and advanced batteries. The first
$129.7 million project seeks to create an innovation hub devoted to developing
technologies, designs, and systems for energy-efficient buildings that will be
based at the Philadelphia Navy Yard Clean Energy.253 President Barack
Obama’s 2009 budget also allocated $50 million in funds administered by the
Commerce Department’s Economic Development Agency to assist regional
cluster initiatives,254 while the SBA is working with state agencies and the DOD
to help launch robotics clusters in Michigan, Virginia, and Hawai’i.255
251
For example, see Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, “Clusters and
Competitiveness: A New Federal Role for Stimulating Regional Economies,” Metropolitan Policy
Program at Brookings, April 2008. Also see Michael E. Porter, “Clusters and Economic Policy:
Aligning Public Policy with the New Economics of Competition,” Institute for Strategy and
Competitiveness White Paper, revised May 18, 2009. Mark Muro and Bruce Katz, “The New
Cluster Moment: How Regional Innovation Clusters Can Foster the Next Economy,” Washington,
DC: Brookings Institution, September 2010,
http://www.brookings.edu/papers/2010/0921_clusters_muro_katz.aspx.
252
Porter, op. cit.
253
Department of Energy press release, “Penn State to Lead Philadelphia-Based Team that will
Pioneer New Energy-Efficient Building designs,” August 24, 2010,
(http://www.energy.gov/news/9380.htm). Details on the energy innovation research cluster can be
found in the funding opportunity announcement for FY 2010 on the DOE Web site. See
http://www.energy.gov/hubs/documents/eric_foa.pdf.
254
President Obama’s fiscal 2009 budget provided $50 million in regional planning and matching
grants within the Economic Development Administration to “support the creation of regional
innovation clusters that leverage regions’ existing competitive strengths to boost job creation and
economic growth.” See Executive Office of the President, “A Strategy for American Innovation:
Driving Towards Sustainable Growth and Quality Jobs,” National Economic Council Office of
Science and Technology Policy, September 2009.
255
Presentation by Karen Mills, “Building Regional Innovation Clusters” at the National Academies
Symposium on Clustering for 21st Century Prosperity, February 25, 2010.
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118 RISING TO THE CHALLENGE
HUNTING FOR GLOBAL TALENT
One of the keys to America’s post-war dominance of high-technology
industries has been its ability to attract the world’s best and brightest scientific,
technological, and entrepreneurial talent. European immigrants such as
Alexander Graham Bell helped fuel America’s industrial takeoff, and the U.S.
assumed world leadership in physical sciences with the help of an influx of
physicists who fled European fascism, including such Albert Einstein and
Enrico Fermi.256 Since the 1970s, immigrant engineers and scientists from India,
Taiwan, South Korea, and then China have been instrumental to the success of
the U.S. semiconductor, computer, software industries, and biotechnology
industries and have founded an inordinate share of U.S. technology
companies.257
America is as dependent as ever on imported brainpower as a pipeline
for future innovation: Foreign students earned 40 percent of U.S. science and
engineering doctorate degrees in 2005, compared to 16 percent in 1980. In
engineering, the share was 61 percent.258 One telling sign of this foreign
dominance is to look at where recipients of U.S. engineering Ph.D. have earned
their bachelor’s degrees. Of the 10 schools with the highest representation of
alumni in 2008, six are from China. 259The Massachusetts Institute of
256
These scientists and engineers were highly esteemed by society though public perceptions may
have changed. Recent research suggests that public perceptions of science are highly contextual,
with people making judgments about the relative trust to be placed in traditional scientific expertise
(which often is generated by government institutions) and in local knowledge based in the local
context. See, Lewenstein, Bruce V. 1992. “The Meaning of 'Public Understanding of Science' in the
United States After World War II.” Public Understanding of Science 1 (1):45-68. Recent research
also reveals that that social support contributes directly to men’s and women’s ability to envision
themselves in a future science career, which, in turn, predicted their interest in and motivation for a
science career. See Sarah K. Buday, Jayne E. Stake and Zoë D. Peterson, “Gender and the Choice of
a Science Career: The Impact of Social Support and Possible Selves.” Sex Roles-Journal of
Research, 66(3-4):197-209, 2012.
257
AnnaLee Saxenian of the University of California at Berkeley estimated that Chinese and Indian
engineers were represented on the founding teams of 24 percent of Silicon Valley technology
businesses founded between 1980 and 1998. See AnnaLee Saxenian, Silicon Valley’s New
Immigrant Entrepreneurs, San Francisco: Public Policy Institute of California, 1999. A follow-up
study found that in one-quarter of all U.S. technology companies founded between 1995 and 2005,
one-quarter had chief executive officers or chief technology officers who were foreign-born. See
Vivek Wadhwa, Ben Rissing, AnnaLee Saxenian, Gary Gereffi, “Education, Entrepreneurship and
Immigration: America’s New Immigrant Entrepreneurs, Part II,” Duke University Pratt School of
Engineering, U.S. Berkeley School of Information, Ewing Marion Kauffman Foundation, June 11,
2007.
258
Robert V. Hamilton presentation at Brookings Institution conference on “Immigration Policy:
Highly Skilled Workers and U.S. Competitiveness and Innovation,“ Washington, February 7, 2011.
259
Semiconductor Industry Association, Maintaining America’s Competitive Edge: Government
Policies Affecting Semiconductor R&D and Manufacturing Activity, prepared by Dewey &
LeBoeuf, March 2009, (http://www.sia-online.org/galleries/default-
file/Competitiveness_White_Paper.pdf).
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SUSTAINING LEADERSHIP IN INNOVATION 119
Technology ranks No. 10. Chinese students alone accounted for 30 percent of all
U.S. doctorate degrees granted in natural sciences.260
Now the competition for non-native talent is becoming global as more
countries take an activist approach to recruiting talent.261 To address skill
shortages exacerbated by an aging population, the European Union has
promulgated a “blue card” that allows highly skilled migrants from non-EU
nations to live and work on a temporary base, and also allows them to move
freely among most member countries.262 The EU also is simplifying procedures
for obtaining legal resident status for foreign workers to by setting up a “one-
stop-shop” system for applicants.263 Canada has made recruiting foreign talent a
top priority in its national innovation strategy. 264 Forty percent of the 8,053 new
faculty members and 44 percent of the 1,806 new researches recruited by
Canadian universities and the Foundation for Innovation as of the fall of 2009
came from other nations, for example.265 Thirty percent of the nearly 2,000
department chairs hired the Canada Research Chairs program also were
recruited outside of Canada.266 Singapore’s innovation strategy puts a heavy
emphasis on “drawing creative and talent people from all corners of the world to
live and work in Singapore.”267 Among its prize recruits are eminent scientists
from the National Cancer Institute, MIT, and the University of California at San
Diego.268
While other nations step up recruiting, it has been getting more difficult
for highly skilled foreigners to live and work in the U.S. The backlog for
permanent resident visas grew so long amid tightened scrutiny after the Sept. 11,
260
Robert V. Hamilton, “Foreign Natural Sciences Doctoral Attainment at U.S. Universities, 1980 to
2005, George Mason University, prepared for Brookings Institution conference on “Immigration
Policy: Highly Skilled Workers and U.S. Competitiveness and Innovation, “ Washington, February
7, 2011.
261
See Devesh Kapur and John McHale, Give us Your Best and Brightest, Washington, DC: Center
for Global Development, 2005.
262
The Blue European Labour Card is an approved EU-wide work permit (Council Directive
2009/50/EC) allowing high-skilled non-EU citizens to work and live in any country within the
European Union, with the exception of UK, Denmark, and Ireland.
263
Europa, “Making Europe More Attractive to Highly Skilled Immigrants and Increasing the
Protection of Lawfully Residing and Working Migrants,” Brussels, October 23, 2007,
(http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/1575.
264
Industry Canada, Achieving Excellence: Investing in People, Knowledge and Opportunity—
Canada’s Innovation Strategy, 2001. (http://dsp-psd.pwgsc.gc.ca/Collection/C2-596-2001E.pdf).
265
Canada Foundation for Innovation, 2009 Report on Result, op. cit.
266
Canada Research Chairs data http://www.chairs-chaires.gc.ca/home-accueil-eng.aspx.
267
Ministry of Trade and Industry, Sustaining Innovation-Driven Growth, Science, and Technology,
Government of Singapore, February 2006,
(http://app.mti.gov.sg/data/pages/885/doc/S&T%20Plan%202010%20Report%20(Final%20as%20of
%2010%20Mar%2006).pdf).
268
Lim Chuan Poh, “Singapore Betting on Biomedical Science,” Issues in Science and Technology,
Spring 2010.
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120 RISING TO THE CHALLENGE
2001, terrorist attacks that an estimated 1 million people were waiting for
120,120 visas issued a year as of 2006—a backlog of nine years.269
The tougher immigration climate comes despite forecasts of looming
skill shortages due to demographic changes and declining interest by U.S.
students in science and engineering. The McKinsey Global Institute, for
instance, projects a possible shortfall of nearly 2 million technical and analytical
workers in the U.S. over the next 10 years. 270 The National Association of
Manufacturers and Deloitte & Touche reported that higher immigration will be
necessary to meet a projected need for new skilled workers in manufacturing by
2020. The alternative could be “a significant decrease in manufacturing’s
competitiveness.”271 The Brookings Institution concludes that the “the U.S.
immigration priorities and outmoded visa system discourage skilled immigrants
and hobble the technology-intensive employers who would hire them.” As a
result, these policies “work against urgent national priorities.”272
Not all analysts agree that dramatic increases in immigration are
required to meet future skill needs. Research by Lindsey Lowell and Harold
Salzman, for example, concluded that the U.S. actually graduates more STEM
students than are hired each year, and that many graduates find work in other
fields for economic reasons.273 Nor is there yet firm evidence that Chinese,
Indian, and other foreign nations are returning home in significant numbers after
receiving advanced U.S. science and technology degrees. 274 Other studies,
however, suggest a significant risk of a “brain drain” as highly skilled Chinese
and Indians leave to take advantage of greater career opportunities in their home
countries.275 Continued inaction and complacency threatens over time to
undermine an essential pillar of U.S. competitiveness.
Several proposals seek to reform U.S. immigration rules that tilt
heavily toward granting citizenship to relatives of current citizens, regardless of
269
See Vivek Wadwha, Guillermina Jasso, et. al, “Intellectual Property, the Immigration Backlog,
and a Reverse Brain-Drain,” Ewing Marion Kauffman Foundation, August 2007,
(http://www.kauffman.org/uploadedFiles/reverse_brain_drain_101807.pdf).
270
James Manyika, et. al, Growth Renewal in the United States: Retooling America’s Economic
Engine, McKinsey Global Institute, February 2001.
271
The National Association of Manufacturers, the Manufacturing Institute, and Deloitte & Touche,
“Keeping America Competitive: How a Talent Shortage Threatens U.S. Manufacturing,” April 21,
2003.
272
Darrell M. West, “Creating a ‘Brain Gain’ for U.S. Employers: The Role of Immigration,”
Brookings Policy Brief Series #178, Brookings Institution, January 2011.
273
B. Lindsay Lowell, Hal Salzman, Hamutal Bernstein, and Everett Henderson, “Steady as She
Goes? Three Generations of Students Through the Science and Engineering Pipeline,” paper
presented at annual meets of the Association for Public Policy Analysis and management,
Washington, DC, October 2009.
274
See Patrick Gaule, “Return Migration: Evidence From Academic Statistics,” National Bureau of
Economic Research fellow, draft paper, November 17, 2010.
275
Vivek Wadhwa, AnnaLee Saxenian, Richard Freeman, and Alex Salkever, “Losing the World’s
Best and Brightest: America’s New Immigrant Entrepreneurs,” Ewing Marion Kauffman
Foundation, March 2009.
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SUSTAINING LEADERSHIP IN INNOVATION 121
skills. Only 6.5 percent of U.S. immigrant visas are for skilled workers,
compared to 36 percent in Canada. And of those holding H-1B visas, only 7
percent are able to change to permanent resident status, notes Darrell West of
Brookings.276 Common reform proposals include easing limits on temporary
work visas, streamlining visa procedures, and giving priority for green cards to
foreigners with advanced science and technology degrees and needed skills.277
The McKinsey Global Institute observes that nations such as Australia, the
United Kingdom, and Canada have moved to a point-based system for allocating
residency based heavily on skill levels. It suggests the U.S. do the same.278
Proposed changes in U.S. immigration policy, however, have aroused
intense political passions that make it difficult for Congress to consider reform
of rules that would attract and retain highly skilled immigrants to the Unites
States.279 In this context, the recent initiatives by the Department of Homeland
Security and the Bureau of Citizenship and Immigration Services are welcome.
Announced in August 2011, these initiatives now make it possible for foreign
entrepreneurs to obtain an EB-2 immigrant visa if they can demonstrate that
their business endeavors will be in the national interest of the United States.
Also, H-1B beneficiaries who are sole owners of the petitioning company may
petition for H-1B non-immigrant visas to employ foreign workers in specialty
occupations that require theoretical or technical knowledge.280
THE WAY FORWARD
The world of innovation is changing rapidly. Old assumptions about
how investments in research result in commercial products and domestic
industries are becoming less valuable as frameworks for U.S. science and
technology policy.
A New Approach: A new policy approach is required, one based on a
richer understanding of the complexity and global dimensions of innovation.
While greater investments in research and development are needed to keep the
United States at the technology forefront, that alone will not guarantee globally
competitive U.S. industries and a prosperous U.S. economy. Intermediating
276
Darrell M. West, “Creating a ‘Brain Gain’ for U.S. Employers: The Role of Immigration,”
Brookings Policy Brief Series #178, Brookings Institution, January 2011.
277
Ibid. Some analysts have emphasized the need to strengthen the U.S. pipeline of scientists and
engineers and to create a more competitive immigration policy that admit the “best and brightest”
from around the world. See the statement of B. Lindsay Lowell before the House Judiciary
Committee “Immigration and the Science & Engineering Workforce: Failing Pipelines, Restrictive
Visas, and the ‘Best and Brightest’”October 5, 2011.
278
James Manyika, et. al., Growth and Renewal in the United States: Retooling America’s
Economic Engine, McKinsey Global Institute, February 2011
279
For a review of potential reforms concerning the H-1B visa, which enables U.S. employers to hire
temporary, foreign workers in specialty occupations, see GAO, “Reforms Are Needed to Minimize
the Risks and Costs of Current Program.” GAO-11-26.
280
Wall Street Journal, “U.S. to Assist Immigrant Job Creators.” August 3, 2011.
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122 RISING TO THE CHALLENGE
institutions and new initiatives, both at the state and federal levels, as well as by
private foundations, are needed for the United States to capture the benefits of
its public investments in research and development.
Indeed, the way forward for the United States is to build on its
strengths: open competition, deep private capital markets, leadership in
academic research, a flexible labor force, intellectual property protections, and
an environment that allows entrepreneurs to quickly respond to new market and
investment opportunities. Importantly, these strengths need to be renewed and
reinforced, as they have in the past, with federal programs to nurture and grow
new technologies and new industries of the future.
The Role of Partnerships: Public-private partnerships have long been
a key element of successful U.S. innovation policy.281 Public-private
partnerships can provide incentives for closer collaboration among government
industry, higher education, the military, private investment groups, and other
institutions to foster an environment in which the United States can thrive in an
era of open and global innovation.282 Well designed public-private partnerships
not only can help insure that the U.S. remains a world leader in creating
knowledge, but they also can enable America to capture more of the economic
value of innovation by making U.S. regions more competitive places to translate
inventions into products, companies, industries, and jobs.
This report documents several examples of successful U.S.
collaboration between government, industry, and academia. They include
federal programs such as the SBIR and the NIST Advanced Technology
Program, research consortia such as Sematech, and newer institutions such as
the Flexible Display Center at Arizona State University.283 This report also
highlights a number of promising and innovative state and regional public-
private initiatives to bolster competitiveness.284 Such initiatives include regional
innovation clusters, new kinds of science parks, workforce-training programs,
and efforts to help entrepreneurs obtain access to the facilities, technical
assistance, and early-stage capital they need to convert U.S. innovation into a
new wave of U.S. industries. Federal agencies can play a valuable support role
in aiding these regional initiatives.
What are others doing? American policymakers also need to learn
from the experiences of other nations and discern which best practices can be
281
National Research Council, Government-Industry Partnerships for the Development of New
Technologies, Summary Report, C. Wessner, ed., Washington, DC: National Academy Press, 2001.
282
National Research Council, Government-Industry Partnerships for the Development of New
Technologies: Summary Report, C. Wessner, ed., Washington, DC: National Academy Press, 2001.
283
See Chapter 6 for an illustrative review of national policies and programs to support emerging
industries abroad.
284
See Chapter 7 for an illustrative review of national and regional policies to develop innovation
clusters around the world.
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SUSTAINING LEADERSHIP IN INNOVATION 123
adapted to the American context.285 Well-designed public-private partnerships
can address many of the challenges facing the myriad actors of the U.S.
innovation ecosystem and can help ensure that more of the fruits of America’s
tremendous investments in research flow into the American economy.
The bold and innovative strategies being deployed abroad offer
valuable lessons for policymakers in the U.S. This report details a great variety
of actions governments are taking around the world to both increase their
nations’ innovation capacity and global competitiveness in emerging
technology-intensive industries. In some cases, governments are adapting the
most successful features of the U.S. innovation ecosystem—such as university-
industry collaboration, public provision and support for early-stage risk capital,
strong protection of intellectual property rights, and well-funded, scalable
research parks. In other cases, nations in Asia and Europe are pioneering new
models of public-private partnerships that far exceed the scale and scope of
comparable U.S. programs. This is especially true when it comes to applied
technology and support for large-scale manufacturing.
This unprecedented focus around the world on innovation means that
American science and technology policies can no longer be based on the
outdated assumption that the United States is naturally destined to remain the
global center of innovation activity. Nor can it be based on the assumption that
bolstering American industrial competitiveness is merely a matter of increasing
R&D spending. As innovation becomes more globalized, absorbing and
capitalizing on product and process innovations from abroad will become
increasingly important for U.S. competitiveness.
Importance of Collaboration: policies also need to take into account
the increasingly global and open nature of the innovation process, much of
which takes place within collaborative international networks of researchers in
universities, companies, and other institutions. As nations around the world
increase their innovation capacity and R&D workforces, leveraging technology
and brainpower abroad will become increasingly important for the U.S. to
achieve its own science and technology goals.
Collaboration in research and development can greatly accelerate
discoveries of cures for chronic disease, the development of renewable energies,
and technologies to curb the negative impacts of climate change. Open cross-
border innovation networks, meanwhile, can help corporations turn new
technologies into innovative products faster, at greater variety and at lower cost.
It is important, therefore, to insure that the United States can compete,
cooperate, and prosper in this new world of innovation. That will require a fresh
approach to innovation policy.
285
See Chapter 5 for case study reviews of programs and policies of leading nations and regions,
including China, India, and Germany.
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124 RISING TO THE CHALLENGE
Box 2.4
A History of Public Private Partnerships
Public-public-private collaborations have been woven into the fabric of
the U.S. economic system from the beginning of the Republic. What became
known as the American System of Manufacturing, in which goods from muskets
to clocks were made of interchangeable parts, was pioneered in the early 1800s
through War Department contracts.286 Congress funded Samuel Morse’s
demonstration of the first telegraph with a substantial grant in 1842. America’s
aircraft industry was nurtured by the 1925 U.S. Air Mail Act.287 RCA was
founded in 1919 at the initiative of the Navy Department, which also held equity
and a board seat, so that the U.S. could have a radio communication industry to
compete with Britain’s Marconi Co.288 The U.S. Signal Corps funded most of
the initial research for transistors and semiconductors, and the military funded
the first production lines of Western Electric, General Electric, Raytheon, and
Sylvania. It also bought most of the output for weapons and communications
systems.289 Admiral Hyman Rickover and his naval reactor group oversaw the
design and construction of America’s first civilian light-water nuclear power
plant at Shippingport, Penn., in the 1950s. 290 Military research and weapons
contracts also have been instrumental in establishing America’s aerospace and
computer industries and the forerunner of the Internet.291 Federal programs have
been instrumental as well to the U.S. pharmaceutical industry. A recent study
found that public-sector research institutions made important contributions to
286
See David A. Hounshell, From the American System to Mass Production, 1800-1932: The
Development of Manufacturing Technology in the United States, Baltimore, Maryland, USA: Johns
Hopkins University Press, 1984.
287
A stated purpose of the U.S. Air Mail Act of 1925 (also known as the Kelly Act), which
authorized the U.S. Postal Service to contract with private aviation companies, was “to encourage
commercial aviation.” The federal role in their early airline industry is explained in Roger E.
Bilstein, Flight in America: From the Wrights to the Astronauts, Baltimore: Johns Hopkins
University Press, 1984, and in Tim Brady, editor, The American Aviation Experience: A History,
Southern Illinois University Press, 2001.
288
An early account of the U.S. Navy’s role in establishing RCA and the U.S. radio communication
system is found in The World’s Work, “The March of Events,” Volume XLIV, May 1922.
289
A concise history of U.S. government involvement in establishment of America’s electronics
industry is found in Kenneth Flamm, Mismanaged Trade?: Strategic Policy and the Semiconductor
Industry, Washington, DC, Brookings Institution, 1996. pp. 27-38.
290
Richard Hewlett and Francis Duncan, The Nuclear Navy, Chicago: University of Chicago, 1974.
291
See National Research Council, Funding a Revolution, Government Support for Computing
Research, Washington, DC: National Academy Press, 1999. The extensive NRC review documents
the seminal role o federal funding for the information and communications industries of today. See
also the presentation by Kenneth Flamm of the University of Texas at Austin in National Research
Council, Innovation Policies for the 21st Century, op. cit.
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SUSTAINING LEADERSHIP IN INNOVATION 125
the discovery of up to 21.2 percent al all new FDA-approved drugs from 1990
through 2007.292
Capturing the value of U.S. investments in R&D: The assumption
that the output of the U.S. innovation process will be captured by U.S.-based
industry has been rendered obsolete by globalization and the rise of corporate
open innovation practices. In today’s world, knowledge created through
federally funded research at universities and national laboratories can be
commercialized and industrialized virtually anywhere. The key is to take
measures to provide the funding, support services, and to anchor new and
existing companies in clusters of competency here in the United States.
This report highlights the features of a more comprehensive innovation
policy. It calls for a better understanding by government of the real factors
behind corporate decisions on where to develop new technologies,
commercialize products, and locate production and help close competitive gaps
with other nations to the degree possible. Some of these gaps can be closed with
more enlightened tax policy, in others through incentives such as research
grants, loans, and credits for U.S.-based manufacturing.
The committee’s formal findings and recommendations on how to
sustain a strong American innovation system for the 21st century are found in
the next two chapters.
292
Ashley J. Stevens, Jonathan J. Jensen, Katrine Wyller, Patrick C. Kilgore, Sabarni Chatterjee, and
Mark L. Rohrbaugh, “The Role of Public-Sector Research in the Discovery of Drugs and Vaccines,”
The New England Journal of Medicine, February 9, 2011,
(http://healthpolicyandreform.nejm.org/?p=13730&query=home).
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