Wednesday, February 25, 2009

Innovate or Stagnate

The New York Times today carried a story about how the U.S. is losing its competitive edge. A report from the Information Technology & Innovation Foundation (ITIF) found that the U.S. ranked sixth among 40 countries and regions based on 16 indicators of innovation and competitiveness, including venture capital investment, scientific researchers, spending on research and educational achievement. In terms of progress over the last 10 years the U.S. came in last.

By almost any measure the U.S. has a greater number of academic researchers, Nobel Prize winners and corporate R&D labs than anyone else. However, the foundation report adjusted for the size of each economy and its population. In most categories the U.S. wasn’t even close:

Adjusting for populations enables apples-to-apples comparisons, but it requires caution in interpreting the results. Luxembergians (Luxembergers?) may be highly productive rich people, but I don’t expect to see all our R&D suddenly fly offshore to this tiny banking center. Of course I could be wrong: Skype is headquartered there, eBay is eyeing it and the country is courting Internet startups. OTOH China’s huge IT investment should have huge payoffs, as will Russia’s investment in higher education and Singpore’s major incentive program to cultivate and attract innovative technology companies.

In the Times’ words,
“Some countries, including Singapore, Taiwan, Finland and China, are pursuing policies that are explicitly designed to spur innovation. These policies typically try to nurture a broader “ecology of innovation,” which often includes education, training, intellectual property protection and immigration. This is in contrast to the industrial policy of the 1980s in which governments helped pick winners among domestic industries.”

It’s also in contrast to anything the U.S. is doing, which includes under-funding education; enacting punitive (or at best counter-productive) immigration policies; and providing practically no funding or even tax incentives for worker retraining.

I lived in Singapore for a few years (1988-90)—working for the old National Computer Board—and got to observe first-hand a country run by technocrats: the “Switzerland of the Pacific” (or the more acerbic “Disneyland with the Death Penalty”). While I’m not enamored of Singaporean politics, their ruling bureaucracy runs like the proverbial Swiss watch. Highly skilled foreign workers are openly courted and offered a path to citizenship—in contrast to the U.S., where when your H1-B or student visa runs out you have 30 days to get a job or leave the country. Over 20 years ago Singapore set out to be a ‘wired island’, computerizing all businesses and agencies and giving everyone high-speed Internet access. Singapore ranks ahead of the U.S. in almost all of the ITIF’s innovation scores.

More recently Singapore has set out to be a Center of Innovation, teaching Lateral Thinking and Innovation from the grade school level on up. This initially met with some humor, since Singaporeans aren’t known for being a very creative, over the top lot. But Creative Technologies showed that a Singaporean tech company could be a contender on the world stage, and the government has set out since then to provide a wide range of incentives to encourage innovation.

The Obama administration has targeted most of the shortcomings in the ITIF’s innovation list for both attention and funding. But our newly minted technocrats would do well to take a close look at a more holistic approach like Singpore’s. Forget the overtones of Japan's industrial policy in the '80s. "It's the economy, stupid!"