Insights from the United States and Its Global Implications

The United States took from Europe many of these institutions and borrowed (and stole) much of its technology and industrial practices. But over time the U.S. began to master innovation through strong and enforceable patent laws, a brilliant financial system, an expansive, open educational system, and bankruptcy laws that gave people a second chance, which all coalesced to support inventors and entrepreneurs as never before.

In a nation built by immigrants determined to improve their station in life, Americans have risk-taking in their DNA and a tolerance for failure—qualities that helped forge the country’s unique innovation ecosystem. During World War II, the federal government began to forge unprecedented innovation networks linking government, universities, and the private sector, leading to extraordinary advances in such fields as pharmaceuticals and vaccines that transformed global health, developed the most powerful and lethal weapons ever known to mankind, and a space program that landed the first man on the moon.

And just after the war, under the leadership of top engineer Vannevar Bush (one of the organizers of the Manhattan Project), the U.S. government supported R&D through clear, long-term policies that provided strong and sustained investment in the sciences. Today more than ever, such networks are playing a critical role in pressing national innovation agendas forward around the world. Germany’s High-Tech Strategy 2020 and Made in China 2025 are just two examples of such long-term strategic innovation plans brokered through public-private partnerships.

The case of China also shows that different forms of government may well be compatible with innovation, as long as those governments are stable and supportive. Assumptions that innovation requires a form of liberalism found in the West are no longer acceptable given how far and how fast China has risen.

As in the past, though, innovative societies can stumble, lose their way by forgetting about the policies that made them great innovators. In the United States, there is troubling evidence that commitment to innovation may be fading. No longer is the nation, perhaps the strongest example of the innovation model at work, cultivating all the elements of a healthy innovation ecology that it once did. No longer does it have clear, government-supported, long-range plans to support innovation nationally.

As a percentage of GDP, U.S. federal spending on R&D has fallen sharply from about 1.2 percent in 1976 to about 0.8 percent in 2016. During the 1960s, some 70 percent of total R&D was federally funded, with the private sector providing the remaining 30 percent. Today that scenario is reversed: Nearly 70 percent of R&D funding derives from the private sector with 29 percent from the federal government.

While private support for research is important, it is almost totally applied research geared towards short-term horizons. And yet since the Cold War, basic R&D funded by the federal government has been at the core of America’s innovation ecosystem. Research institutions are underperforming because of government cuts to critical basic research funding. Once the world leader in government-funded R&D, the U.S. now ranks 12th (as a percentage of GDP).

By contrast, China’s enormous R&D machine and industry-focused efforts in AI and robotics are leading to significant gains in the military and commercial arenas. Strong educational systems are also critical to any nation’s innovation ecosystem, and the U.S. has eight out of ten of the top universities in the world. Such universities conduct basic STEM research, employ thousands of scientists, engineers, and mathematicians, and educate and train students in STEM disciplines.

They drive commercial invention and form the backbone for vibrant tech hubs where innovation flourishes in public-private networks. Yet since the 1980s, state governments in the U.S. have been reducing support for state universities and forcing students to pay for this public good. The current state of federal R&D policies and spending, combined with diminishing state support for higher education and an ongoing deficit in STEM graduates, paints a grim picture for the important educational pillar of the innovation ecosystem.