Does the US Face an Innovation Crisis?

via GlobeSpotting with Steve Hamm – BusinessWeek by Steve Hamm on 8/31/09

Ever since the late 1950s the United States has suffered bouts of insecurity about its innovation lead. The Russians in space. The Japanese in industry after Industry. And now the Indians and Chinese. The latest flurry of worries was clearly brought on by a combination of the dot-com bust and the acceleration of outsourcing. It has blossomed into a full-blown anxiety attack with the global recession and the clear signal that a lot of the most obvious US innovation in the first eight years of this decade was so-called financial innovation–which brought disastrous results. Now the calls for action are louder, including this package we at BusinessWeek put together in the last issue.

How serious is the threat to America’s innovation lead? There’s quite a debate about that. The RAND Corporation, in its report, U.S. Competitiveness in Science and Technology, argues that fears are overblown. But The Information Technology and Innovation Foundation, in RAND’s Rose-Colored Glasses and in The Atlantic Century, criticizes RAND’s researchers for underestimating the problem and missing the point. I highly recommend you read these reports.

Interestingly, the two sides aren’t really that far apart where it matters.

Robert Atkinson, president of the ITIF, a tech industry think tank and lobbying outfit, says it’s not where the US ranks today that matters; it’s whether the country is investing for the future. He’s clearly frustrated. “Innovation gets short shrift in DC because the Republicans think business should do it on its own, and the Democrats think the same thing. Neither side is backing strong innovation policies.”

Titus Galama and James Hosek, the authors of the RAND report, told me that by most measures, the US is still in the innovation lead, but they cautioned against complacency. “The US continues strongly, but the rest of the world is coming from behind and catching up,” said Galama.

One prime example of where the US could do better is in the R&D tax credit. America pioneered this enlightened incentive for businesses, but other countries have since come up with richer and more stimulative incentives. The Obama administration has pledged to make the R&D tax credit permanent, which would take out the uncertainty and make it easier for corporations to do long-term investment planning. That’s a good start, but it would be far better to improve the tax break. America won’t continue to be the global innovation leader unless it reclaims leadership in innovation policy.