Take a Deep Breath

Take a Deep Breath

Is the sky falling? In the past year, at least three breathless calls to action have been issued by powerful lobbying groups, all urging the Bush administration, private industry and universities to address the dire situation. Joining the report by the Council on Competitiveness, "Innovate America," is a manifesto from the Task Force on the Future of American Innovation titled "The Knowledge Economy: Is the United States Losing Its Competitive Edge?" as well as TechNet's "Innovation Policy Agenda." All share the same concerns over the future of innovation in the U.S., and recommend similar solutions: Strengthen math and science education; increase federal funding of basic research; provide broader tax incentives for R&D, etc.

There is an avalanche of data to support the claim that the U.S. is on the precipice of innovation breakdown. But amid the panic, there is also ample evidence that the U.S. is completely in control. Despite the oft-cited recent declines in federal and private spending on R&D, the U.S. still ponies up a combined $284 billion a year, more than two and a half times the closest competitor, Japan, and more than all other G-7 countries combined.

And experts argue that at least part of the decline in R&D spending is due to more efficient use of R&D dollars. "There is some fine-tuning of R&D spending going on, and companies are developing products faster and more efficiently," says Al Delattre, managing partner in Accenture's electronic and high-tech practice. Delattre explains that U.S. firms are outsourcing parts of the development process to save on labor, but that's not necessarily a bad thing. "In a global economy, it really doesn't matter where the innovation occurs. What matters is how much value is taken from it."

There is also the matter of having an enormous head start. "America is so far ahead," says TCS's Gupta. "For a country of India's size, with the talent base we have, we still haven't been able to come up with the kind of products that Cisco Systems or Microsoft have. We don't have the capital base. You can call Bangalore the Silicon Valley of India, and I can show you fifty different start-ups there. But how many of them are funded? How many of them are successful?"

As Gupta talks, you can hear the envy in his voice. The deep base of American investment capital far outstrips anything the rest of the world has to offer. In 2004 alone, despite lingering wariness following the tech bubble, U.S. venture firms raised more than $17 billion, and buyout and mezzanine funds topped out at more than $45 billion according to the National Venture Capital Association. That's compared to $17 billion of total private equity funding for Asia during the same period. "You need a culture that supports innovation, that encourages risk and allows for failure," says Accenture's Delattre. "The U.S. does that better than anyone, and that is not a culture that is available or can be replicated."

Much of the anxiety over American innovation seems to stem from a lack of visibility into what the "next big thing" will be. "If you're waiting for the next transistor or integrated circuit or optical networking technology, you've got a long, long wait coming," says Nicholas Donofrio, senior vice president of technology at IBM. "There is no next big thing."

Of course, it's often hard to tell what the next big thing is until it is already upon us. And even if the U.S. doesn't produce the next world-changing technology or product, it's quite possible, even likely, that Americans will be the biggest beneficiaries of it. "Technical invention is not necessary to innovate," says Hervé Gallaire, CTO of Xerox Corp. and president of Xerox Innovation Group. "Many inventions come from other parts of the world. What made America different was bringing those inventions together to create the innovation."

Look no further than Austin, Texas, for proof of that. Michael Dell, a college dropout, didn't invent the PC, the modern manufacturing plant, or the Internet. Yet he brought the three of them together to redefine how PCs are built and sold. Nor did Bill Gates, another college dropout, invent the graphical user interface. And yet it would be hard to argue that Dell and Gates haven't made critical contributions to the nation's economic engine.

Even Saffo, after he calms down, apologizes for sounding alarmist. He's not alarmed—yet. Instead, he thinks it would take "a major screwup" for the U.S. to slide into the kind of complacency that could unseat it from its place atop the global economic food chain.

In the meantime, Tom Melcher and his family are committed to staying in China for at least the next three years, and quite possibly until both girls are out of high school. He's going to continue funding Chinese start-ups. Yet despite his affinity for all things Chinese, he still doesn't believe that the U.S. is losing its ability to innovate. China is simply on a faster innovation curve, and he thinks the world economy "will no longer be centered on America. It will become much more of a duopoly." That doesn't sound so bad, does it?

Michael Fitzgerald is a business and technology freelance writer based in Massachusetts.

This article was originally published on 06-05-2005
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