Bruce Nussbaum recently posted this blog on Havard Business Review. His message was spot on. He heralded the issue with trumpets. Multinationals are not just transferring jobs overseas through direct foreign investments. To gain access to China’s markets, they must couple DFI with technology transfer. Here is my short editorial. Our great American hope for competition, American innovation is being sold to the highest foreign bidder. The way to compete with this innovation drain is to reseed innovation here in the fertile ground of small domestic American businesses. Now Bruce’s great article:
What’s Wrong With America’s Innovation Policies
10:12 AM Wednesday January 26, 2011
by Bruce Nussbaum
President Obama gave a stirring speech last night, saying “We need to out-innovate, out-educate, and out-build the rest of the world.” He used the word “innovate” more times in his State of the Union than any other U.S. president. To those of us who believe the future of the country depends on its innovative capabilities, this was hugely positive. But the obstacles to boosting innovation in the US are far higher than the President acknowledged. Indeed, as CEOs gather at the World Econimic Forum in Davos, they are much greater than most business leaders are willing to say.
Here are some harsh truths that President Obama did not face in his State of the Union speech: there is very little actual innovation taking place within Big Business; Washington innovation policy is placing big bets in the wrong places; China’s innovation policy is superior to America’s.
Let me explain. A devastating National Science Foundation Business R&D and Innovation Survey that generated almost no media discussion when it was released in the fall showed that only 9% of the 1.5 million for-profit public and private companies in the U.S. had any product, service or process innovation between 2006 and 2008. Of manufacturing firms, 22% innovated. In non-manufacturing, a mere 8% innovated. As economist Michael Mandel has observed, “you can’t be an innovation economy if only 9% of your companies are innovating.”
Under both Democratic and Republican administrations, for nearly 20 years, Washington has been placing the wrong bet on R&D. Hundreds of billions in government funding has gone into bio-sciences without any significant return. Genonomics was heralded as the Next Big Thing after silicon, the driver of future economic growth. It isn’t producing results in terms of new companies, jobs, or economic growth in general, yet billions more flow into NIH and universities every year.
China’s brilliant “Fast Follower” innovation policy is generating the biggest transfer of technology in history. A combination of state-driven policies is driving this policy — requiring Western companies to partner with Chinese firms to do business; demanding transfer of the latest technologies in exchange for access to markets; favoring “indigenous innovation” in government purchasing; fencing off green and other industries from foreign competition; offering low-interest state-bank loans to local champions. This industrial policy is at odds with WTO standards, but is a boon to Chinese economic growth and a long-term threat to U.S. global competitiveness.
A realistic American innovation policy will need to take these three harsh truths into account. We need a much more skilled business leadership than we have currently, capable of creating as well as managing. We need to refocus government investment into manufacturing, energy, and materials. And we need much more vigorous global economic policy that meets the challenge of China’s innovation policies.
When President Obama speaks of a “Sputnik moment,” he clearly understands the need for innovation. The next step is crafting policies that deal with the harsh truths of American innovation and move us forward.
Bruce Nussbaum is a member of the Council on Foreign Relations. A former assistant managing editor for Business Week, he is professor of Innovation and Design at Parsons The New School for Design.