The Innovation GAP: U.S. vs. Europe, Japan, China, India, Russia,…

What is Innovation? – Innovation is one of those words that can mean different things to different people… may be defined as exploiting new ideas leading to the creation of a new product, process or service. It is not just the invention of a new idea that is important, but it is actually “bringing it to market”, putting into practice and exploiting it in a manner that leads to new products, services or systems that add value or improve quality.

Innovation is a new way of doing something that result in improved value or quality. It employs “out-of-the-box” thinking to generate positive changes in thinking, products, processes, organizations, and society. It makes creative thinking a useful reality. The future of many systems—educational, entrepreneurial, industrial and governmental—depends upon their ability to move beyond incremental improvements to innovation.

“Innovation emerges when different bodies of knowledge, perspectives, and disciplines are brought together.” Kao describes the process as a “blending of the intuitive and the practical, of the optimistic and the pragmatic.” His blueprint for a national innovation strategy calls for a major rejuvenation—from early educational systems to public policy—to drive social and economic development” ~ John Kao, Innovation Nation

In the article “Is America Losing Its Mojo?” by Fareed Zakaria writes:  By most measures, America remains the world leader in technological achievement. Consider the 2009 Nobel Prizes: of the 13 people honored, nine were American. Once you take out the economics, literature, and peace prizes, the United States, with 5 percent of the world’s population, still won close to 70 percent of the awards.

The World Economic Forum routinely cites America as having the most competitive economy on the planet… When decision makers are asked to rank countries on innovation, the United States always comes first by a large margin. That might be true today. But could it be that American achievements reflect the past more than predicting the future?

It’s important to remember that many of the metrics that place the United States so far ahead are actually lagging indicators. There are two studies on global innovation, both comprehensive, and both rely entirely on government statistics and other hard data: one produced by the Boston Consulting Group, the other by Information Technology & Innovation Foundation, and the United States does considerably worse, coming in eighth in BCG and sixth in ITIF…

America is not producing the kinds of workers needed in a knowledge-based economy….The wide gap between the United States and the rest of the world is closing…For the past three decades, funding for science research has slipped, the education system has continued to decline, and immigration policy has become less and less rational.

Tax and regulatory policies have been made with more thought to domestic special interests than America’s long-term competition. The seed capital from past decades was strong enough to carry us for decades. We got talent from abroad to mask the erosion at home. We used financial engineering to substitute for the real thing. We borrowed to the hilt and sold each other our homes in an ascending spiral that made us all feel rich.

And we kicked all the real problems we face down the road, hoping that someone else would solve them. This too has become part of American culture, a culture that desperately needs to change if we are to preserve American innovation and rekindle the real American Dream…

In the article “European Innovation Lags US and Japan, as China Surges Warns EU” writes: European Union members’ attempts to make their economies as innovative as the United States and Japan has stalled and they could be overtaken by China in 10 years, an EU study warned… The 27-member bloc is currently trying to find ways to make its economy both more competitive, high-technology and creative amidst fears that other world powers will soon leave it behind.

“Catching up in the innovation gap with the US and Japan has ceased, or even reversed … According to the study, based on data collected in 2007 and 2008, both the US and Japan remain much better at turning scientific research into money-making projects than the EU, spending more on research, employing more scientists and registering more patents.

The EU, which represents the world’s largest economic grouping, does still perform markedly better than major developing economies such as Brazil, China, India and Russia, the report said. But China is catching up fast, spending far more on information technology than the EU and making huge strides in boosting its number of patents and trademarks…

An extrapolation of China’s improvements “indicates that the gap is rapidly closing”, the report says, whilst warning that it only an indication. India is also improving its innovation performance, but much more slowly. “Given the current performance lead for the EU, it is not expected that India will close its gap within the foreseeable future,” the report says. The EU remains well ahead of Brazil and Russia.

In the article “Responding to China’s Innovation and Competitiveness Policies” writes: China is now investing in many of the building blocks of innovation-driven economic growth that the United States has all but abandoned over the past several decades. Pick your sector and you’ll find China spends more on a per capita basis, and sometimes in total amounts, on public investments in basic science and education, research and development, or R&D, infrastructure development, and workforce training.

What’s more, China’s leaders have crafted coherent policies and programs in support of domestic manufacturing and services for export abroad and to ensure Chinese companies have the prime positions in China’s rapidly growing domestic economy. China, in short, is actively and methodically building up the basic foundations for future economic growth while also ensuring a market for its current and future products and services at home and abroad.

The country’s leaders understand completely the message driven home by The World Economic Forum, in its monumental Global Competitiveness Report 2010-2011, which underscores the importance of innovation as the basis for long-term economic growth:

Although substantial gains can be obtained by improving institutions, building infrastructure, reducing macroeconomic instability, or improving human capital, all these factors eventually seem to run into diminishing returns. The same is true for the efficiency of the labor, financial, and goods markets. In the long run, standards of living can be enhanced only by technological innovation. Innovation is particularly important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous, [or imported,] technologies tends to disappear.

The widespread recognition of these principles has sparked a global race to the top in innovation, science, and technology policy. But judging from the state of our innovation policy, the United States seems to have missed the memo. Other nations see innovation and competitiveness as two sides of the same economic coin. And not surprisingly, as John Podesta, Sarah Wartell, and Jitinder Kohli point out in CAP’s recent report, “A Focus on Competitiveness,”…other countries organize their economic policy apparatus more explicitly around the question of how to effectively compete.”

China in particular does this very well. China’s so called “import/ assimilate/re-innovate” model of technology development, for example, actively drives foreign companies to share their technologies with Chinese joint venture partners in exchange for access to the cheap Chinese workforce and burgeoning domestic marketplace. This strategy poses a direct challenge to U.S. competitiveness because it enables Chinese (often state-owned) companies to gain access to cutting-edge technologies but also build upon them incrementally to create a Chinese innovation ecosystem…

In the article “Chinese Innovation – China can Rekindle its Great Innovative Past, Though Some Reforms May be Needed First” by Eveline Danubrata, Reuters, writes: The great 20th century sinologist, Joseph Needham, once drew up a list of 24 technical innovations brought from China to the West. They ranged from gunpowder and the wheelbarrow to printing, cast iron, the magnetic compass and the chain suspension bridge.

By 1600 the torch of innovation had passed to the West. Could it now be returning? China is one of the world’s largest investors in research and development. Spending on R&D has climbed by 19% per year since 1995 putting China sixth in world ranking, and if adjusted for purchasing power parity between different countries, then China would rank third!

However, according to a new report examining Chinese innovation, some of this progress flatters to deceive: R&D spending is still low as a share of GDP per capita and far lower than the OECD average. Consider also the number of researchers in China, which while second in the world only to the US, is still very low for China compared to OECD countries, given the size of the country’s labor force. More fundamentally, there is a difference between being a leader in R&D and leading a truly innovative, modern society.

It is a gap China must now bridge. The reasons are simple. China’s remarkable economic resurgence has made it one of largest economies in world, but its momentum cannot be sustained without destabilizing the “harmonious society” promulgated by the nation’s leaders. Already there are signs of strain on natural resources and massive migration to cities, with deep inequalities between the provinces and between urban and rural populations.

It is largely because of such pressures that the Chinese authorities are turning towards innovation, both to address the problems that rapid economic progress generates and to raise the economy higher up the value chain towards a more sustainable growth model. China needs innovation more than ever…

In the article “In India, a Developing Case of Innovation Envy” writes:  While innovation is hard to measure, academics who study it say India has the potential to create great products but is not yet doing so. Indians are granted about half as many American patents for inventions as people and firms in Israel and China. The country’s corporate and government spending on research and development significantly lags behind that of other nations. And venture capitalists finance far fewer companies here than they do elsewhere.  “The same idea, if it’s born in Silicon Valley it goes the distance,” said Nadathur S. Raghavan, an investor in startups. “If it’s born in India it does not go the distance.” 

In the United States, Israel and elsewhere, the initial, or seed, capital for many startups comes from rich individuals known as angel investors. But most rich Indians prefer to invest with family members or close friends because it is considered safer and provides assurance that the lender will be able to borrow from relatives in the future. Still, India has its advantages. ..engineers and biologists are plentiful… There may yet be hope for Indian innovation. In the last eight years, the size of the Indian economy has roughly doubled along with the importance of global trade. There could still be something to envy and fear…

In the article “Getting the Numbers Right: International Engineering Education in the United States, China, and India” by Gary Gereffi, Vivek Wadhwa, Ben Rissing, Ryan Ong write: The United States, China, and India each believe that educating the engineering and scientific workforce is an essential ingredient for economic development and technological competitiveness.

Regardless of the exact numbers, India and China are increasing their engineering graduates at a more accelerated pace than the United States. The debate among U.S. engineering educators is increasingly focused on how to improve the quality of its engineering graduates, since innovation is based on leadership, communication skills, and business acumen, as well as technical prowess. In this respect, a new generation of dynamic engineers is needed, but there is still no consensus on how best to attain this goal…

A topic of particular importance to the United States is whether the prominent role played by foreign-born engineers, especially in U.S. master’s and doctoral degree programs, will diminish, and whether the incentives provided to undergraduate engineering students are sufficient to attract enough talented individuals…

In the article “Russia’s Innovation Gap” by Itzhak Goldberg writes:  Russian manufacturing productivity is about 40 percent of Brazil’s and only one-third of South Africa’s. Productivity in Poland is twice as high as in Russia. Although labor productivity in Russia is slightly higher than that of India and China, Chinese wages in manufacturing are 30 percent lower than in Russia.

And low labor costs in these two countries give Russia a competitive disadvantage: for each dollar of wages, a Russian worker produces about half the output of an Indian or Chinese worker. The Russian economy lags behind other large OECD and middle-income economies in terms of R&D-based outputs. Based on the number of researchers, Russia’s productivity should be among the highest—on par with Germany and South Korea…

According to international standards, the Russian workforce is highly educated. The average Russian citizen (25 and older), dedicates 10.5 years of his/her life to schooling. This is among the highest indicators in the world, ahead of Brazil, India, China, South Africa, other transition countries, as well as Germany, Japan, and the United Kingdom. Russia also had one of the highest shares of population with tertiary education (over 50 percent). In spite of this, the Russian workforce lacks the requisite skills for firms to compete on the global market.

With regard to innovation, the intellectual property rights (IPRs) regime remains one of the primary weaknesses. First, the assignment of IPRs remains unclear, specifically if they should belong to the inventor, the inventor’s employer, or to the state that may have paid R&D costs.

These uncertainties complicate collaboration between private firms and public institutes, inhibit technology transfer, and impair the development of spin-off companies into independent and growing businesses. Second, registered IPRs are weakly protected due to inability of public authorities to police producers or importers of pirated goods…

 “The world leaders in innovation and creativity will also be world leaders in everything else” ~ Harold R. McAlindon

While methods of measuring innovation and competitiveness may vary, there is little debate over their importance to a healthy economy. And hard economic times can provide just the right environment for innovation, especially the sort that can turn an industry on its head, according to Wharton experts and author of the article titled, “Why an Economic Crisis Could Be the Right Time for Companies to Engage in ‘Disruptive Innovation.”

In this article Paul J.H. Schoemaker, research director for Wharton’s Mack Center for Technological Innovation, suggested that for some companies, the economic crisis can actually provide an innovation platform. There is a growing worry about America’s commitment to innovation, a report from the National Academies titled, “Rising Above the Gathering Storm” found that leading scientists, research and development experts, and other leaders had “expressed concern that a weakening of science and technology in the United States would inevitably degrade its social and economic conditions and in particular erode the ability of its citizens to compete for high-quality jobs.”                                                                                        

         “Innovation is the central issue in economic prosperity”~ Michael Porter