Technology, Innovation, and American Primacy

James A. Lewis

Center for Strategic and International Studies

February 20, 2007

CSIS 2

Technological Leadership

Crucial for U.S. economic and military strength.

Depends on U.S. capacity to innovate. Comparative advantage?

Globalization means that U.S. share of innovation will decline.

U.S. policies reinforce this decline. Investment, immigration, technology transfer

CSIS 3

Questions for Technological Leadership1. Is there a problem?

2. How can we tell?

3. What should we do about it?

4. And is the U.S. capable of doing it?

CSIS 4

1. Is there a problem?

Another of the waves of angst that periodically sweep over the republic.

U.S. decline Relative to past performance or some ideal.

New International Environment Relative to other countries.

CSIS 5

New International Environment Strategic Competition

Economic and technological competition. Economic Integration

Diffusion of technology and research.

Transition to an information economy Innovation / knowledge creation

Asia’s economic ascent Asian nations hope to repeat their manufacturing

success in scientific research.

CSIS 6

2. How can we tell? Historical analogies Metrics

Education Ph.Ds, engineers

Manufacturing Macroeconomic Indicators

Trade deficit Research related

Patents R&D funding

CSIS 7

What Should We Do about it?

Laissez faire, enabling or directing? The Keynesian myth

US relies more on market forces (enabling); EU and others are more directive.

Policy options: Industrial policy, restrictive policies, hope, promotion of

innovation Promotion of innovation as the optimal policy

response New goods, services or productive techniques

Elements of an Innovative economy

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Elements of Innovation Human Capital:

Research universities Skill/resource clusters Entrepreneurial culture

Knowledge Acquisition. Research and Development/Information Technology Technology transfers

Commercialization of new knowledge. Venture Capital

Supporting Infrastructures. ‘hard’ (transportation, electricity, communications) ‘soft’ (legal system, financial system, regulatory framework)

Openness to competition.

CSIS 9

U.S. Comparative Advantage

They don’t call ‘em BRICS for nothing.... China India Russia

The sick man of Europe is Europe. Return of the caudillo

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4. Are we (still) capable?

Administrative/regulatory burden DHS as an impediment to growth

Cultural change A more risk-averse society

Ideological barriers Underfund public goods Overfund legacy programs / vested interests

U.S. economic transition Services/intangible products provide greater value

CSIS 11

Transitional Dilemmas for the U.S. Old assumptions about security do not mesh

with a global economy. Security implications

Global supply chain Trusted systems

Social Implications Distribution problems

Sustainability of a service economy Post-industrial power

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Recommendations Make the promotion of innovation a goal for policy Maintain and exploit the U.S. comparative

advantage. Identify where government action is appropriate

and effective. Streamline and simplify the regulatory burden for

innovation. Make greater use of incentives. Embrace international collaboration.

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Postscript 1957-the President’s Science Advisor predicts

that Soviet performance in math and science education will give it global leadership in a decade.

1969 - the Departments of Treasury, Commerce and Agriculture warn the President that the European Union will displace the U.S.

1976 - 1990, assorted pundits announce that Japan will dominate the global economy.

2006 – China and India…..