State of Innovation

Patents and Innovation Economics

Innovation – Wake-Up Call

There are number of indications that the U.S. is losing its technological edge.  In the second quarter of 2008, there were no public offerings of Silicon Valley venture capital-backed companies, a phenomenon not seen since 1978.  U.S. venture capital firms are investing more of their funds overseas.  Many U.S. trained, foreign national, scientists and engineers are leaving the U.S. and returning to their home countries.  In 2001 (the most recent year for which data are available), US industry spent more on tort litigation than on research.[1]

A strong start-up technology sector results in a large number of Initial Public Offerings.  The chart below shows the incredible number of IPOs that occurred in the 90s and the relative dearth of IPOs since 2000.  This is a strong indicator that the U.S. has not been as innovative in the 2000-2009 decade as in the 90s.

ipo1990_2

According to John Kao, an innovation expert from Harvard,

One of the most stunning migrations of the past decade . . . has been the U.S. venture capital’s move overseas.  The source of such a large share of the funding for innovation is finding its way to China and India in ever greater amounts.  In 2006 alone, U.S. venture funds invested $856 million in 71 deals in India and $1.1 billion in 105 deals in China.

This is a clear sign of no confidence in the U.S.  While it is true that technological innovation is spreading throughout the world, venture capital funds traditionally loath investing far from their home base.  The extra cost and time of travel to oversee their investments and the reduced insight into distant investments have usually driven venture capital firms to invest within a days car travel of their home base.

The U.S. is now ranked eighth in the Global Innovation Index, behind Singapore, South Korea, Switzerland, Iceland, Ireland, Hong Kong and Finland.  The Global Innovation Index is produced by The Boston Consulting Group and the National Association of Manufacturing.  It is a good thing that other countries are becoming more innovative.  It is a bad thing if the U.S. falling behind in the innovation rankings because it is becoming less innovative.  In this case, it is clear that the U.S. has been falling behind in innovation since 2000.

There is increasing evidence that the U.S. is experiencing a brain drain.  Thirty thousand Indian born technology professionals returned home in 2005 & 2006.[2] U.S. scientists and engineers are being lured away to other countries by better opportunities and equipment.  “Edison Liu, former head of the U.S. National Cancer Institute and now a division head at Singapore’s Biopolis, the country’s massive new research center aimed vaulting Singapore to biotech preeminence.”[3]

The National Academy of Sciences in 2007 was tasked with reviewing America’s competitive position on science and technology.  Some of interesting highlights are provided below

The United States is today a net importer of high-technology products.  Its trade balance in high-technology manufactured goods shifted from plus $54 billion in 1990 to negative $50 billion in 2001.[4]

In 2005, only four American companies ranked among the top 10 corporate recipients of patents granted by the United States Patent and Trademark Office.[5]

In South Korea, 38% of all undergraduates receive their degrees in

natural science or engineering.  In France, the figure is 47%, in China, 50%,

and in Singapore, 67%.  In the United States, the corresponding figure is

15%.

Some 34% of doctoral degrees in natural sciences (including

the physical, biological, earth, ocean, and atmospheric sciences) and

56% of engineering PhDs in the United States are awarded to foreign-born

students.

In the US science and technology workforce in 2000, 38% of PhDs

were foreign-born.

Estimates of the number of engineers, computer scientists, and

information-technology students who obtain 2-, 3-, or 4-year degrees vary.

One estimate is that in 2004, China graduated about 350,000 engineers,

computer scientists, and information technologists with 4-year degrees,

while the United States graduated about 140,000.  China also graduated

about 290,000 with 3-year degrees in these same fields, while the US graduated

about 85,000 with 2- or 3-year degrees. Over the past 3 years alone,

both China and India have doubled their production of 3- and 4-year

degrees in these fields, while the United States production of engineers is

stagnant and the rate of production of computer scientists and information

technologists doubled.

About one-third of US students intending to major in engineering

switch majors before graduating.

The proportion of bachelor’s degrees in physics to total degrees

awarded was twice as high the year before Sputnik, deemed a time of dangerous

educational neglect, as in 2004.

More S&P 500 CEOs obtained their undergraduate degrees in engineering

than in any other field.

This report clearly demonstrates that the U.S. is losing it technological competitiveness.  Venture capital is moving overseas.  U.S. and foreign born engineers and scientists in the U.S. are moving overseas for better opportunities.  Almost half of all the patents issued by the U.S. Patent and Trademark Office were to non-U.S. inventors.  The number of patents issued to U.S. based inventors declined in 2008, while the number of U.S. patents issued to foreign based inventors increased in 2008.


[1] National Academy of Sciences, Gathering Storm Report, p. 16., http://www.nap.edu/catalog.php?record_id=11463

[2] Kao, John, Innovation Nation: How America is Losing its Innovation Edge, Why it Matters, and What We Can Do to Get It Back, Free Press, New York, 2007, p.35.

[3] Ibid, p. 36

[4] National Academy of Sciences, Gathering Storm Report, p. 14., http://www.nap.edu/catalog.php?record_id=11463

[5] National Academy of Sciences, Gathering Storm Report, p. 16., http://www.nap.edu/catalog.php?record_id=11463

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August 19, 2009 - Posted by | Uncategorized | , , , , , , , , , ,

2 Comments »

  1. Interesting article! It is very useful to me as I discuss US innovation competitiveness issue in my IO class. An article on BusinessWeek May 7, 2008, titled “Is US innovation headed offshore?” maded an opposite conclusion based on a research by the National Academies. The date they used seemed up to 2002 though.

    http://www.businessweek.com/innovate/content/may2008/id2008057_518979.htm

    I do not think the graduates ratio with science degree alone can offer strong support to your point. Many students in China with those degree cannot find a job in their fields these days as I heard of.

    Comment by N. Zhang | August 24, 2009 | Reply

  2. Zhang, Thank you for your comment

    I am less concerned about where R&D is taking place than with policies that encourage innovation. Both the U.S. and China are suffering from policies that favor technology adopters (thieves) over technology creators. (Admittedly I know less about China’s policies) I am afraid that your students are suffering from these policies also.

    Comment by dbhalling | August 24, 2009 | Reply


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