Tuesday, January 22, 2013

Has the US Lost Its Innovation Edge?

Some say the 2009 recession diminished the US’ ability to innovate. When the economy slows, many companies reduce budgets for R&D. Without R&D, major breakthroughs are put on the shelf. While this strategy may save money, it opens the door for other countries to catch up to the US in terms of innovation.

During a special program on the Nightly Business Report, they focused on some of factors that impede the US’ ability to retain its reputation as the leading global innovator. While there seems to be no imminent threat to lose our title, the recession provided
advantages to countries that have chosen to continue to invest in R&D regardless of the recession. One word of caution given by an IBM executive “was that the moment you believe there is no chance of you losing your edge that is the moment you are in trouble.” 

While many businesses reduced spending on R&D, there are other hurdles that seem to be a result of politicians in Washington, DC. An expert in global trade on the program stated that “the central problem that is holding us back is: 1. We need to open US immigration to highly skilled people.” We train many foreigners through our universities. When they complete their education, they have to return to their countries. Unfortunately they bring with them valuable intellectual capital which would support innovative ideas in the US. 2. He said “restructure corporate tax code. It will have a tremendous impact on how companies invest in the US. In Washington, they are not discussing the things that will impact the future trajectory of US innovation. There seems to be too much of a political gridlock occurring.” In the meantime, organizations are making decisions that are directly affected by tax codes.

While tax codes and immigration are important, there seems to be bigger problems. 1. The banks are kept too much money on the sidelines. The banking business is inherently risky. Yet, they seemed to be devoting more time to avoiding risk during the last recession. This move can choke innovation. Enterprises instead have to opt for reducing headcount or foregoing innovative initiatives because they lack capital. 2. Corporations’ love affair with short-term outlook. This is perhaps more damaging than lack of capital. Once short-term decisions become the culture of the nation, it sets up a false sense of security. Organizations appear to be successful because they have made cuts in expenses, including R&D. This sacrifice of innovation will come back to haunt us when we wake up to find other countries have spent the last decade feverishly investing in innovation.

Furthermore, the innovative environment of the industrial age was very different than what is occurring today. With today’s technology, we have many improvements through new applications to existing technology and we mistake those improvements for breakthroughs. During the industrial age, entirely new industries were created.

With knowledge workers, it is time to increase investment in R&D. That way the age of possibility can come alive. Like the industrial age, we can invent new industries. Along with those new industries will come jobs that require new thinking, skills and competencies. Because of that, this should be a priority for government and business to collaborate. To do this effectively, we will require a long-term view and a stronger commitment to allowing people to experiment. 

What do you think? I’m open to ideas. Or if you want to write me about a specific topic, let me know. 

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