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FYI Number 94: July 13, 2004

Speakers Warn of Challenges to U.S. Competitiveness

Speakers at a June 24 congressional briefing sounded a wake-up call that increasing competition from the rest of the world threatens America's preeminence in innovation. The speakers reported that the U.S. science and innovation system is seen as a model; many countries are investing significant amounts to imitate it, and are making strides in scientific advances, developing scientific talent, and attracting outside business and investment.

The briefing was kicked off by Senators Lamar Alexander (R-TN) and Jeff Bingaman (D-NM), who have both demonstrated recognition of the role that science and technology play in the nation's competitiveness. Bingaman commented that the U.S. has not been "as focused" on S&T investment in recent years as have many other countries, and Alexander pointed out that federal funding in many areas of the physical sciences and engineering has been flat or declining for years.

Council on Competitiveness President Deborah Wince-Smith defined innovation as the ability to keep productivity growing by creating new knowledge and quickly turning it into products. With more nations at the cutting edge of innovation, capital increasingly free to flow around the world, S&T talent and knowledge creation centers available globally, and greater separation of design and production, she stated, the nature of innovation is changing and the U.S. is at an "inflection point." She added that certain aspects of this change are not yet well understood, including the shift from technology-driven markets to a greater "pull" from consumers.

Wince-Smith and international trade expert Thomas Howell emphasized that other governments are determined to replicate the U.S.'s formula for success. The U.S. system, Howell said, comprises outstanding research universities; a good industry-government-university working relationship; "Silicon Valley" clusters of venture capital, companies, and universities; successful consortia; the welcoming of foreign talent; and dynamic programs at the state level.

Alan Rapoport of NSF cited statistics indicating that other countries, especially many Asian countries, are succeeding in efforts to increase their S&T and innovation capacity. While the U.S. is still the world leader in high-tech industries and has the greatest number of international technology alliances, he said, some Asian nations have nearly doubled their share in global high-tech markets over the past several decades and have almost tripled their share of high-tech exports. The U.S. share of total articles in science and engineering publications has been declining since 1988, while that of many countries is growing, and indicators of bachelors-degree production in the natural sciences and engineering show the U.S. far behind many other nations. In addition, Rapoport said that R&D expenditures of OECD countries (countries in the Organisation for Economic Co-operation and Development) has been rising consistently for years, while, as may speakers noted, the U.S.'s investment in physical sciences and engineering has been flat or in decline. This country is "living off of past efforts," Howell declared.

What is needed for the U.S. to stay on top, Wince-Smith suggested, is to restore emphasis on the sciences that drive innovation, develop better metrics for the results of innovation, and transition away from disciplinary "stovepipes" in education and research to a multi-disciplinary, cross-sector model. Policymakers must also recognize the importance of tax and fiscal policies, she said, and deal with the deficit and entitlement spending, high corporate tax rates, and intellectual property and piracy issues. When asked whether business regulations affect the U.S.'s creativity and ability to innovate, Wince-Smith agreed that many regulations and policies could act as "a drag" on innovation, including employee healthcare, environmental regulations, and agricultural subsidies. These are "choices we make as a nation," she stated. She cited the healthcare industry as one area in which efficiency and productivity could be vastly improved.

In reply to a question about a correlation between science and engineering PhD production and innovation, Howell responded, "In my view, you cannot ever have too many PhDs." Wince-Smith advocated professional master's degrees that incorporate business knowledge and a multi-disciplinary perspective. Asked to explain high unemployment in certain fields of engineering, the speakers did not have an answer.

From the President's Council of Advisors on Science and Technology (see FYI #48) and the American Association for the Advancement of Science's annual Science and Technology Policy Forum (see FYI #57) to the recently-issued Electronic Industries Alliance report (see FYI #67) and this congressional briefing, the issue of maintaining U.S. leadership in innovation is beginning to attract high-level attention. Many efforts to understand the issues and make policy recommendations are currently underway. The Council on Competitiveness (http://www.compete.org) plans to release a policy agenda during the National Innovation Summit in December.

In related news, data collected by NSF indicate that, between 2001 and 2002, the U.S. investment in industrial R&D declined $7.7 billion, or 3.9 percent. According to NSF, this represents "the largest single-year absolute and percentage reduction in the current-dollar cost of industrial R&D performance since the survey's inception in 1953." When the data are adjusted for inflation, NSF states, the decline still represents the largest single-year reduction of the years surveyed and the second largest percentage reduction; the largest constant-dollar percentage reduction occurred between 1969 and 1970. It adds that contributions to industrial R&D from company funds, federal funds, and other non-federal sources all declined between 2001 and 2002.

The information is provided in an NSF "InfoBrief" released in May; see InfoBrief NSF04-320 at www.nsf.gov/sbe/srs/infbrief/ib.htm. The document warns that its estimates are subject to some error, but states that "the sample has been designed to provide reliable estimates of the overall total of R&D performed."

Audrey T. Leath
Media and Government Relations Division
American Institute of Physics
fyi@aip.org
301-209-3094

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