the race for global innovation advantage and u.s. economic prospects

March 10, 2011

The Race for Global Innovation Advantage and U.S. Economic Prospects

Dr. Robert D. Atkinson President Information Technology and Innovation Foundation

Presentation at: U.S. Competitiveness: A New Conversation with New Opportunities Washington, DC

Where Are We?

Is This a Conventional Financial Crisis?

To Understand, We Need to Go Back to the 1970s

The Engine of U.S. Economic Growth Then

The U.S. Had Robust Growth, Just not Everywhere

Now a Majority of Places Are Struggling

The Engine of U.S. Economic Growth Now

U.S. Manufacturing Competitiveness is Declining

-400%

-300%

-200%

-100%

0%

100%

200%

300%

400%

500%

Overall Manufacturing Grew Slower than GDP

Total manufacturing

Source: Bureau of Economic Analysis

Percentage Change in Real Value Added, 2000-2008

GDP

+5% +18%

-400%

-300%

-200%

-100%

0%

100%

200%

300%

400%

500%

And Most Manufacturing Sectors Shrank

15 of 19 manufacturing sectors shrank

Total manufacturing

Source: Bureau of Economic Analysis

Food, beverage and tobacco products Electrical equipment and appliances Chemical products Machinery Printing Wood products Motor vehicles Fabricated metal products Paper Products Primary Metals Nonmetallic mineral products Plastics and rubber products Apparel and leather Textiles Furniture

Percentage Change in Real Value Added, 2000-2008

-400%

-300%

-200%

-100%

0%

100%

200%

300%

400%

500%

Only Four Sectors Grew

Average share of manufacturing output:

72%

Average share of manufacturing output:

28%

Total manufacturing

Source: Bureau of Economic Analysis

Computer and electronic products:

+260.5%

Petroleum and coal products: +73.0%

Percentage Change in Real Value Added, 2000-2008

Manufacturing Is Down, in Part due to Increasing Goods Trade Deficit

Source: World Bank

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Net Trade in Goods (% of GDP)

United States China

As a Result, Capital Stock For Many Manufacturing Sectors Has Fallen

Source: Bureau of Economic Analysis

-27% -29%

-6%

-21%

-14%

-5%

-3% -2%

-7%

Primary metals

1981

Textiles

1997

Wood products

2000

Apparel and leather

2001

Paper products

2002

Electrical equipment

2002

Plastics and rubber

2002

Food, beverage and

tobacco

2002

Motor vehicles

2003

Year of Peak Capital Stock and Percentage Decline Since

Source: Bureau of Economic Analysis

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

1959-1969 1969-1979 1979-1989 1989-1999 1999-2009

Percentage Change in Fixed Asset Investment, by Decade

Manufacturing

Total private fixed assets

Performing arts and spectator sports

Funds, trusts, and other financial vehicles

As U.S. Moved from a Manufacturing to a Financial Engineering Economy

But Surely U.S. Innovation Must be Thriving

Yet U.S. R&D Growth is Stagnating Compared to Rivals

-100%

0%

100%

200%

300%

400%

500%

600%

-60% -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 160%

R&D Expenditure Growth, 1998-2008

(constant PPP dollars)

R&D Intensity Growth, 1998-2008 (% of GDP)

China

Estonia

Portugal Turkey

Slovakia

Korea

Germany

Japan

Russia

Poland

United States

Australia

Source: OECD

U.S. Corporate R&D Declined as a Share of GDP

-50% 0% 50% 100% 150% 200%

China Mexico Korea

Australia Singapore

Spain Japan EU 10

Canada Germany

EU 25 Ireland

Sweden EU 15 NAFTA France

US UK

Brazil India

Poland Russia

Corporate R&D as share of GDP, Percentage Change, 1999-2006

Source: ITIF, Atlantic Century 2009

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1990 1995 2000 2005 2010

R&

D I

nten

sity

Chinese R&D Intensity Growth Outpaces the United States’

USA

China

Source: OECD

Bubble size = GDP

Growth in U.S. Federal R&D Investment Has Stagnated

-60% -40% -20% 0% 20% 40% 60%

Ireland Spain Korea

Russia China

Canada EU 15

Singapore EU 25

UK Australia

NAFTA Sweden France

US EU 10

India Japan

Germany Mexico Poland Brazil

Government R&D as Share of GDP, Percentage Change, 1999-2006

Source: ITIF, Atlantic Century 2009

As Has Growth in # of U.S. Scientists and Engineers

-20%

0%

20%

40%

60%

80%

100%

120%

Chi

na

Mex

ico

Kor

ea

Sin

gapo

re

Bra

zil

EU

10

Spa

in

Indi

a

Pol

and

Sw

eden

Fran

ce

Aus

tral

ia

Irel

and

Can

ada

EU

25

Japa

n

EU

15

NA

FTA

Ger

man

y

US

Rus

sia

UK

Researchers per 1,000 Employed, Percentage Change, 1999-2006

Source: ITIF, Atlantic Century 2009

While the Level of U.S. College Attainment Languishes

0%

20%

40%

60%

80%

100%

120%

140%

Persons aged 25-34 with Tertiary Degree, Percentage Change, 1999-2005

Source: ITIF, Atlantic Century 2009

As a Result, the U.S. is No Longer #1

0

10

20

30

40

50

60

70

80

Sin

gapo

re

Sw

eden

Lu

xem

bour

g D

enm

ark

Kor

ea

Uni

ted

Sta

tes

Uni

ted

Kin

gdom

Ja

pan

NA

FTA

Fr

ance

Ir

elan

d G

erm

any

Can

ada

EU

15

A

ustr

alia

E

U 2

5

Spa

in

EU

10

C

hina

P

olan

d R

ussi

a B

razi

l M

exic

o In

dia

Overall Score, 2009 Atlantic Century

The Study: comparing innovation-based competiveness of 40 nations and regions.

16 indicators: including corp. R&D, government R&D, scientists and engineers, new firms, corp. tax, productivity growth and others.

The Atlantic Century

1. China 2. Singapore 3. Estonia 4. Denmark 5. Luxembourg 6. Slovenia 7. Russia 8. Lithuania 9. Cyprus 10. Japan 11. Hungary 12. Slovakia 13. Czech Republic 14. India

15.Latvia 16.Austria 17.S. Korea 18.Ireland 19.EU-10 20.Spain 21.Sweden 22.France 23.Portugal 24.Malta 25.Belgium 26.EU-25 27.Poland

In Rate of Change from 1999, the U.S. is Behind….

28.UK 29.EU-15 30.Mexico 31.Netherlands 32.Australia 33.Finland 34.Canada 35.Germany 36.Italy 37.NAFTA 38.Greece 39.Brazil 40.United States

In Short, the U.S. is Falling Behind in the Race for Global Innovation Advantage

So What’s America’s Future?

Buffalo?

Or Boston?

To Be Boston, What Do We Do?

Recognize We Are in Competition Against Other Nations

Flickr: Holtsman

The Conventional View: U.S. Companies Compete Against Other Companies

vs.

The Reality: Boeing Competes Against AIRBUS & the European Union

vs. +

Ford Competes Against Toyota & the Japanese Government

vs. +

Cisco Competes Against Huawei & the Chinese Government

vs. +

Google Competes Against Baidu & the Chinese Government

vs. +

IBM Competes Against WIPRO & the Indian Government

vs. +

Where’s Uncle Sam?

What Should Washington Do?

Start Looking out for Number 6

Getting the 4 T’s Right

Flickr: marzzelo

Flickr: Alan Miles NYC Flickr: Nedral

Tech Talent

Trade Tax

Supported by a

National Innovation and Competitiveness

Strategy

Getting the 4 T’s Right

johnlund.com

Innovation and Competitiveness Are Not (Or Should Not Be) Partisan

This Means Policies from Both Column A and Column B

This Means Policies from Both Column A and Column B

Column A Expand public investment in

innovation Fully fund key innovation

agencies (e.g. PTO, FDA, statistical agencies) Fund STEM education

Support trade enforcement

Column B Make the U.S. tax code more

competitive Reduce drag on regulatory

competitiveness Expand high skill immigration

Expand trade agreements

America Can Win, but Only if We Choose from Both Columns

We Should Learn from George Kennan

Thank You

ratkinson@itif.org www.itif.org