Has America Lost its Innovation Edge?

by Jeffrey Phillips

Has America Lost its Innovation Edge?Recently, Norm Augustine wrote an article for Forbes entitled Danger: America is losing its edge in innovation.

In the article Augustine cites a number of factors, such as the often Tweeted fact that US consumers spend more on potato chips than the government does in Energy Research and Development. He also points to the fact that science and engineering are underrepresented in the US student body and that more and more patents are being awarded to entities outside the US. This is all true, and should be warning signs for our economy. While he’s right, we are losing the innovation edge, the factors he states are lagging indicators at best, or misleading at worst, from an innovation perspective. There are several reasons why.

First, let’s consider the throw-away line that consumers spend more on potato chips than the government does on Energy research and development. What should a relevant measure be? How much the average consumer spends on oranges or bananas? This is a non-sequitur of the first order. What people choose to spend their money on in a free economy has no relevance or meaning to what our government spends on research. Also, let’s consider the energy sector in this country. Other than perhaps the nuclear industry, none of the major energy sources were the result of government R&D. The government didn’t sponsor the early Texas oilmen, or the coal industry. Perhaps the government did assist with the development of hydroelectric in the form of the TVA, but many would argue that the regulations the government imposed slowed the growth of the industry. While our government did spend a tremendous amount of money in research during the cold war, there are two distinct problems with that approach today. First, the government is more involved in more areas of our economy than it was then, and has extended itself too far and can’t afford significant research and development. What’s more, the government is creating both a crowding-out problem and a regulatory burden contributing to less and less R&D. When the government suggests that it must enter the pharmaceutical R&D space since the major pharma companies don’t provide enough new medications at appropriate prices, that should send warning signals.

What the government should do is make the risk taking of entrepreneurs more rewarding and lower taxes and provide incentives for new firms to grow, and larger firms to innovate. We need the government to do its bit where R&D is concerned, but given the budgetary pressures and the growth of the government in a range of other areas, and the lethargy in converting R&D into new products within the government, it is risky at best to assume that more government R&D is the answer.

Second, Augustine assumes that more science and technology education and training in the US will mean more innovation. In the past, innovation was driven by technology, and to some extent that will be true in the future. However, innovation is a much more robust solution than merely new patents or technologies. Look no further than Apple to see that one doesn’t have to be a technology leader to be an innovator – innovation is created by new technologies, but also new processes, new services, new business models and new customer experiences. The sooner we expand our definition of innovation and move beyond the simplistic equation that science and technology = innovation, the better. That’s not to say that science and technology innovation is not valuable, just that we need a much bigger perspective.

Third, regardless of where the technology and engineering happens, we need to continue to keep our creativity energy flowing. We in the US have a very special petri dish for innovation, based on free markets, no rank or caste system, liquid venture capital and other funding, good education and a risk taking culture. There are few, if any countries in the world that have our collection of attributes or that can even hope to attain them in the short run. We need to reinforce these attributes and benefits, not detract from them. Where products are made becomes less important than how they are imagined and designed, and who owns the intellectual property.

Fourth, we’ve allowed ourselves to be made comfortable by the fact that Steve Jobs and other creative people are “out there” doing the interesting innovation work so we don’t have to. Most of us would far rather rely on a few insightful others to create interesting products rather than take on the role ourselves. We’ve become consumers of ideas rather than creators of ideas, outsourcing even the creative act itself. Most of us live in a gray area defined by Teddy Roosevelt as a place with cold and timid souls who never tasted victory or defeat. Rather, to continue, we should “spend ourselves in a worthy cause…best knowing in the end the triumph of high achievement and at worst, if we fail, at least we failed daring greatly.” That’s a paraphrase, of course, but rather than living lives of quiet desperation, we need more people to live dangerously, with big ideas and big dreams. We need to stop waiting for the government, a large enterprise, some nameless bureaucracy or some other agency to innovate, to create new things and do it ourselves. Few great innovations spring from established bureaucracies – they have too much to lose. Innovation is by its nature disruptive to established hierarchies, and thus is more likely to take root and succeed in smaller organizations and in individuals.

Finally, we’ve become accustomed to being told we are now behind. Every day the news tells us that China will soon be the largest economy in the world. India graduates more engineers each year than we graduate university students in total. And so on. We’ve already lost, so like the English of the early 20th century we should lie back and think of England. Well, sure, China will be the largest economy in the world in a few years, but over half its population lives in poverty. The Chinese have no choice but to create 20 million new jobs a year, each year, just to sustain unemployment levels. We’re falling behind only to the extent that the BRIC countries and others are “catching up”, which is a good thing for us (opens new markets for our products and ideas) and them (improves standards of living worldwide). Rather than resign ourselves to being the “second class” citizens, how about we define ourselves on what we do better than anyone?

Since de Tocqueville recognized America in the 1800s as exceptional, this country has been a leader in new ideas and innovation. We can continue that far into the future, by focusing on our strengths, keeping our markets free, encouraging ideas and tolerating risks, encouraging free capital movement and strong intellectual property protection. We need to encourage smaller entrepreneurs, and can expect to see many new businesses as the economy improves. We need leaders of larger businesses to take more risks and focus on long term opportunities rather than short term market objectives. What’s interesting is that while larger enterprises become more risk averse and less innovative, the economic recovery will drive more innovation, if for no other reason than millions of unemployed people who seek new jobs will create their own, freed from the constraints of large corporations they’ll unleash a lot of innovation completely outside any government program. History demonstrates that in the aftermath of every significant downturn a flowering of innovation is created. So in some regards Schumpeter’s creative destruction is at work, destroying jobs and industries and laying the foundation for new ones.

Editor’s Note: You may also enjoy Braden Kelley’s An Open Letter on Innovation to President Obama


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Jeffrey PhillipsJeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of “Make us more Innovative”, and innovateonpurpose.blogspot.com.

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  1. Jeffrey, loved the article and couldn’t agree more with your assessment..especially the reference to those “cold and timid souls who know neither victory nor defeat”. It’s time for each of us to accept greater personal and organizational responsibility for the courage needed to be great. Thanks for the patriotic kick in the pants for all of us in the good ole USA.

  2. As you rightly pointed out countries like America, Britain, France and Germany have been at the forefront of most innovation in the past two centuries. Attributes such as a risk-taking appetite did play a huge role in transforming obscure ideas into a functioning reality. One reason for the growth of innovative ideas in Western countries is due to an environment/culture which rewards creativity, and tolerates radical ideas even though they sound improbable.

    Where would we all be if the Wright brothers had not applied their ideas on aviation based on birds’ flight? How would the world look like in the dark had not Edison dreamed of transforming an invisible object called “electricity” into light bulbs? What would we all hope to do without the Internet?

    Asian countries like China and India, despite being trumpeted as the next economic superpowers, score poorly on the innovation front. Everytime I hear India being an IT superpower, I’m unable to suppress my laughter at the absurdity of this statement. Despite being an Indian, I can’t put up with such blantant lies and exaggerations. Most Indian IT companies still thrive on back-office work for Western corporations who want to save some money. Yes, they’re talented engineers but their potential is being wasted because the environment in India is just the opposite of the United States – here, innovation is not rewarded and few people see the point in dedicating their lives to create something new and original like Western inventors.

  3. Your article is spot on. Our political leadership should read this in order to not only better understand where innovation comes but how important it is to their communities’ tax base.

  4. Innovations can and do spring from large corporations: nearly all the automotive innovations of the past 50 years that make cars cleaner, safer, quieter, more efficient and easier to use, came from the Japanese, German and French automotive companies (big corporations) and their tier 1 suppliers.

  5. May the debate, the understanding of creativity and how we innovate continue so somewhere at policy level they hear this and stop feeding us fear! Great article Jeffrey

  6. Hi – this is a terrifc article – made me wish I was American!
    But obviously it has wider application and I just loved it as a call to arms for us all, as we need to have the courage to take advantage of current difficulties. It might be worth just mentioning, a propos your second point, that , in Europe, the EU spend 47bn euros on technology driven innovation – and just 3bn euros on non-technology driven innovation. Many of us, especially in the creative industries sector, have been fighting this – rather wonderfully, in 2010, they finally heard us – sort of! They have formally recognised that the services sector does not respond to the standard interventions for innovation that the manufacturing sector does, especially in terms of working with Universities – so they are about to announc a major investment programme into strengthening the creative industries, specifically so that they are able to work with services to help them innovate, Hallelujah!

  7. I agree, this is a great article and well written. I agree with the vast majority of it. Especially long term vs short term goals. This is the key area where we may fail. Our CEO’s and government leaders are pathetic when it comes to long term goals (at least 5 years). Also, I don’t share enthusaism that Vulture Capitalists (yes, my rewording) are really helping us all that much. They usually just want a quick cash out, whether leading to useful innovation or not. Other than this one criticism, I loved this article!

  8. I agree that the US government’s role may be better suited to providing appropriate incentives than to engaging in extensive R&D. Also, the number of patents issued annually is not necessarily an accurate measure of innovation within a country. For instance, China’s rate of patent issuance has recently far surpassed ours, but the type and quality of Chinese-issued patents are not often of a caliber comparable to those issued in the US.

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