Is America Losing Its Innovative Edge? by Peter Wood

Article
June 13, 2009

Is America is falling behind other nations in the kind of innovations that drive economic prosperity? If so, is higher education part of the problem? An important new report offers some surprising answers.

The report, issued in February by the Washington-based Information Technology & Innovation Foundation (ITIF) and the European-American Business Council (EABC) presents a rigorous international study showing which nations are currently ahead and which ones are making rapid progress. Titled The Atlantic Century: Benchmarking EU & U.S. Innovation and Competitiveness, the report puts the United States currently in sixth place worldwide, behind Singapore, Sweden, Luxembourg, Denmark, and South Korea. And it puts the U.S. in last place among the forty countries studied for percent gain between 1999 and 2009.

Competitiveness and Innovation

The fear that the United States is losing its competitive edge is not limited to this report. The World Economic Forum announced in September 2006 that the U.S. had fallen from first to sixth place in competitiveness. Loss of competitiveness is measured by such things as a decline in initial public offerings, loss of market share for globally distributed goods, and higher production costs relative to other nations. Competitiveness and innovation are not the same thing, but they are closely connected. To compete, a nation must innovate: it must come with new products and better, more efficient ways to make old ones. Basic innovation drives economic growth. Thus, when the pace of innovation declines, national competitiveness is sure to follow.

The links between competitiveness and innovation are complex, but generally you’d expect a list of the most competitive nations to look a lot like a list of the most innovative ones. They do:

World Economic Forum 2006

Competitiveness Ratings, Top 10

	2006	2005
1. Switzerland	1	4
2. Finland	2	2
3. Sweden	3	7
4. Denmark	4	3
5. Singapore	5	5
6. United States	6	1
7. Japan	7	10
8. Germany	8	6
9. The Netherlands	9	11
10. United Kingdom	10	9

ITIF & EABC 2009

Innovation Ratings, Top 11

1. Singapore

2. Sweden

3. Luxembourg

4. Denmark

5. S. Korea

6. U.S.

7. Finland

8. UK

9. Japan

10. NAFTA

11. Netherlands

The ITIF & EABC study mysteriously excludes Switzerland—no slouch for industrial and scientific innovation. Germany comes in eighth on the World Economic Forum List, but fifteenth on the ITIF & EABC list, and the latter includes NAFTA—the North American Free Trade Agreement—as a reference point. So eight of the top ten nations rated by competitiveness in 2006 make the list of top ten nations rated by their innovation in 2009. Luxembourg and South Korea make the innovation list, without appearing among the World Economic Forum’s competitive nations. The rank order differs a bit, but not much. Denmark is fourth and the U.S. sixth on both lists. The similarities of result are all the more impressive in light of significantly different methods pursued by the World Economic Forum and the ITIF & EABC researchers. The World Economic Forum also produces its own measure of innovation, called the Networked Readiness Index, which I won’t go into, but it essentially shows the same thing.

The twin topics of decline in competitiveness and innovation are everywhere in the business press these days, and that discussion is echoed among leaders of higher education, who claim that big new “investment” in higher education is the answer to both problems. The Atlantic Century, however, seems to point to other causes. If ITIF and the European-American Business Council are right, the United States may be on the verge of a “solution” to the competitiveness challenge that will do little to solve the problem. How specifically does higher education fit in? Let’s work through the material.

Trampled by Singapore

The list of five countries that lead the U.S. in overall innovation is so peculiar as to invite skepticism about what ITIF and its partner were actually counting. Luxembourg? But the report has its merits. The authors, Robert D. Atkinson and Scott M. Andes, compiled hard data on sixteen variables and grouped them in six categories: (1) human capital; (2) innovation capacity; (3) entrepreneurship; (4) IT infrastructure; (5) economic policy; and (6) economic performance. The results are, in effect, normed to population size—“ITIF divides every indicator by a denominator (such as GDP, population, or workforce) in order to control for the size of a country.”—which contributes to some small but energetic countries outperforming much larger ones.

Thus ITIF & EABC aren’t saying that the U.S. patent office is standing idle while Singapore races ahead. Rather, the report is saying that Singaporians (and Swedes, etc.) have a higher concentration of innovators and innovations. Why should this be so? The charts in the report bear some study, but here is a simplified comparison of Singapore and the U.S., showing the rank and score overall and in each of the variables:

	Singapore Rank	Singapore Score	U.S. Rank	U.S. Score
Overall	1	73.4	6	63.9
Higher Education	12	38	9	39.0
Researchers	5	9.7	6	9.69
Corporate R&D	9	1.4	6	1.7
Government R&D	3	0.9	6	0.8
Scientific Publications	22	0.3	5	2.1
Venture Capital	5	0.25	6	0.18
New Firms	2	19.0	6	13.1
E-Government	21	0.7	3	0.86
Broadband	14	2.6	11	3.0
IT Investments	6	6.96%	2	7.45%
Corporate Tax	10	13%	36	32%
Business Climate	1	38.8	2	29.2
Trade Balance	1	29.3%	32	-5.8%
Foreign Direct Investment	3	15.29%	32	1.13%
GDP per Adult	3	77,523	2	83,422
Productivity	9	47	5	50.6

The reader who would like to have the specific translation of each category should consult the report. The report is far too detailed to present the full range of comparisons between the U.S. and other nations, so in this article I will stick with the example of Singapore. The reader who goes back to the original report, however, will see that Singapore is a fair proxy for all the nations that the U.S. has fallen behind.

I bring this topic up for the bearing it has on a claim that has been uttered loudly and frequently since last fall: that American international competitiveness is at grave risk if we do not proceed immediately to a vast expansion of college enrollments aimed at increasing the percentage of the young population holding college degrees.

Higher Education’s Rush to Judgment

In December, the College Board issued a report, Coming to Our Senses: Education and the American Future (PDF), signed by a who’s who of higher education, calling for such an expansion. I analyzed its statistical claims in "Cold Brine: The College Board Loses Its Senses." The report set a goal of “fully 55 percent of young Americans” having a “community college degree or higher” by 2025. And the College Board invoked a looming catastrophe if the nation failed in this enterprise: “The United States is on the verge of losing the great global educational competitive edge it has long enjoyed.”

Not to be outdone, a week later the Carnegie Corporation ran a giant two-page ad in The New York Times and several other papers—likewise signed by a collection of higher education luminaries—ringing the same competitiveness alarm bell, and adding national security to boot:

Our nation is losing ground on a number of fronts critical to our future prosperity and national security. The United States has fallen from first place among nations to tenth in the percentage of our population with higher education degrees. Without a vision for education transformation, we will continue to slide.

The Carnegie signatories urged a massive increase in spending on higher education “to help revitalize our nation’s economy and educate and train the next generations of Americans to meet the challenges of global competition.” I replied to this folderol in "Asking a Lot."

President Obama was not far behind the College Board and the Carnegie Corporation. Although candidate Obama’s official education agenda said nothing about such increases, President Obama had moved by spring to a strong endorsement of the principle of massively expanding higher education. The current online version of the education agenda declares:

President Obama is committed to ensuring that America will regain its lost ground and have the highest proportion of students graduating from college in the world by 2020. The President believes that regardless of educational path after high school, all Americans should be prepared to enroll in at least one year of higher education or job training to better prepare our workforce for a 21st century economy.

The 2020 goal one-ups the College Board, which was ready to settle for a near doubling of college enrollments by 2025. The President coupled his audacious plan with a declaration that he would end “education programs that work.” I speculated on what those might be in "What Ed Program Will Obama Purge?"

I touched on the risks of over-expansion again in April in American Character, the Remix: How College is Shaping Us Now. Education by itself doesn’t create jobs. When too much education faces too few jobs, a kind of inflation sets in. The credentials needed for entry level positions get defined upwards. People calculate—or miscalculate—that a four-year degree will give them an edge over those with two-year degrees; and that a graduate degree will notch them one more step up the ladder. Misleading statistics mesmerize people into believing the illusion that each level of education virtually guarantees a large increment in life-time earnings. Worse still, the over-expansion of higher education leaves a lot people high and dry: over-credentialed with no real opportunities commensurate with what they do and what they think they can do. Embittered graduates with useless degrees form a class of their own in some nations. In some Third World countries, disaffected college grads are the prime recruits to terrorist movements. In the U.S., they are the prime recruits to bartending.

Where Does Innovation Come From?

It is not at all clear that the U.S. can foster more innovation—technological, economic, or in any other form—by sending a vastly higher percentage of kids to college. College education, of course, has some bearing on a nation’s capacity to innovate. A fair amount of innovation these days depends on gaining sophisticated understanding of scientific theory, computing technology, laboratory bench work, and advanced machinery. College is one place to learn that, though hardly the only place. A century ago, the Wright brothers were able to tinker their way to the first heavier than air, controlled flight airplane. Now we send people for years and years of advanced training to become aeronautical engineers. But we shouldn’t underestimate tinkering. Important innovation is still more likely to come from an Edison, a Ford, or a Gates than a Ph.D. from a top-level graduate school—that is to say, the maverick genius who has little use for formal education remains crucial. Of course, even the maverick genius accomplishes nothing in the absence of efficient capital markets, entrepreneurs willing to take risks, and the social freedom to experiment. America’s edge in innovation from Ben Franklin and Eli Whitney onwards has had much more to do with the combination of raw talent finding itself in a situation where it could flourish than with advanced scientific training.

Is that a mystery? It doesn’t seem like much of one. Profound scientific and technological innovation doesn’t seem to well up all that often from people who find the rigor of the scientific disciplines congenial. The rebellious minds seem to glimpse possibilities that the more disciplined thinkers overlook. Of course, there are seeds of rebellion in everyone and important innovations do flow from the rigorously trained. We just have to remember that we can’t summon such innovation merely by awarding more college degrees.

This is a view, of course, that runs athwart one of the great orthodoxies of the modern American university: the idea that the government should pour more and more resources into universities in the hope of stimulating innovation, creating the seeds of new industries, and training the specialized workers who will find careers in those industries. That train of events sometimes works out. M.I.T. has spawned more than its share of creative companies that build on the work of its faculty members and graduates. In recent years, universities across the country have worked hard to patent the most promising ideas of their researchers in hopes of financial windfalls.

Major innovation in the American economy does owe an important debt to the university’s basic research. But that doesn’t mean that innovation flows from increased enrollments. To the extent that the university plays a role in the innovation cycle of the national economy, the debt is to a mere fraction of faculty members and students in a mere fraction of fields.

Roger L. Greiger and Cresso Sá have recently published a roadmap to “the principal pathways between inventions in universities and innovation in industry.” In "Tapping the Riches of Science: Universities and the Promise of Economic Growth," they offer a more optimistic assessment of how such innovation might work. But Greiger, a professor of education at Penn State, and Sá, an assistant professor of higher education at the University of Toronto, are themselves circumspect about the “orthodoxy” that university research fuels national competitiveness. They observe:

Public opinion today is dominated by a concern for the national importance of innovation. University research is believed to play a crucial role in driving innovation in industry, which is essential to maintaining the competitiveness of the United States in the global economy. This narrative has become part of the zeitgeist of the twenty-first century; such language, for example, can be found in the 2008 party platforms of the Republican and Democratic Parties. But conventional wisdom always deserves critical scrutiny.

A little more of such critical scrutiny would be welcome.

How Can States Foster innovation?

The National Governors Association and the Pew Center on the States, for example, might benefit from a little taste of skepticism. They issued a report in 2007 titled Investing in Innovation that is pretty much a canonical statement of the orthodoxy. Co-chairs Governors Janet Napolitano and Tim Pawlenty write in the Foreword that the goal of the Governors was to strengthen “our nation’s competitive position in the global economy by improving our capacity to innovate.” Innovation in turn depends on efforts “to improve math and science education, better align post-secondary education systems with state economies, and develop regional innovation strategies.”

It’s an anodyne set of recommendations. Who could object to improving math and science education? But there is something naggingly wrong with Investing in Education. Perhaps it is the utilitarian calculus that crops up every other page that innovation will flourish if we just spend enough on our universities. The idea runs through the report like a motif through a Wagnerian opera. From page 15:

Highly educated people, great universities and networks for interaction can’t be found in the earth, nor do they appear through spontaneous generation. They come into being as the result of well thought out and strategic public policy.

To page 69:

Universities and private-sector partners are collaborating effectively based on incentives provided by the state. Research done at the university level will have its best payoff—economically and socially—if industry is prepared to find ways to bring that research to market. That’s how great ideas are translated into high-paying jobs, new talent and innovations that benefit the citizenry in a variety of ways.

What’s wrong here is not that things can’t work this way but the bland assumption that they will work this way. The report from the National Governors Association and the Pew Center on the States identifies plenty of other things states can do to help innovators and entrepreneurs. I don’t mean to brush aside the whole report. But on the issue of jump-starting innovation by spending more on education, Investing in Education is a collection of platitudes that seem to have been subjected to no fact-checking at all.

Time to look back at that comparison of Singapore and the United States. By the measure of the Information Technology & Innovation Foundation, the U.S. has a significant problem in fostering innovation. I am not entirely sure that conclusion follows from the ITIF data, which seem more to show that the U.S. accomplishes a great deal of innovation—and may well be the most innovative country in the world. But on a per capita basis we sink below a handful of small countries. The more gripping claim made by ITIF is that the U.S. growth rate in innovation is rock bottom. How much of a problem this really is depends on how robust a lead over other nations we already have. If we are a country mile ahead of our next closest foreign competitor, a slow rate of growth in innovation need not vex us too much.

Another reason not to panic at the prospect of the spirit of innovation fading out in American life is the abundance of patent applications and actual awards of patents. The U.S. Patent and Trademark Office statistics don’t show any diminution of innovation drying up at this level. In 2008, there were 456,321 applications for patents on inventions—up from 243,062 in 1998. That near doubling didn’t produce a proportional gain in patents actually granted, which went from 147,517 in 1998 to 157,772 in 2008. But it is clear that American are still inventing things a plenty, and that one of the most innovative sectors of the population is foreign residents, who gained 93,930 of those 157,772 patents in 2008.

The ITIF folks also observe several off-setting factors for the generally anemic picture of American innovation. Just as that governors’ report indicates, “all 50 U.S. states have proactive economic development strategies.” The states see the need to foster innovation. Second, some parts of the U.S. are really good it:

Massachusetts, the highest ranking state, had more than eight times the amount of corporate R&D as a share of its economy than Mississippi, the lowest ranking state. In fact top ranking states like Massachusetts, Washington, and Maryland would likely rank significantly higher than Sweden and other high-ranking EU nations if they were to be included as “nations.”

This is not a counsel of complacency from the ITIF. They think something is amiss and they have recommendations for fixing it. Their recommendations fall under three headings:

1. Put in place incentives for firms to innovate within their borders.

2. Be open to high-skill immigration.

3. Foster a digital economy.

Notice the dog that is not barking?

Do More Degrees Mean More Innovation?

This detailed study of innovation in international competitiveness concludes, in effect, that higher education is not the problem. It doesn’t reach that conclusion by omission. The research looks squarely at Higher Education Attainment, and charts out the relative position of the U.S. as eight in the percentage of adults aged 25-34 with a tertiary degree in 2005. Russia, with 56 percent, tops the list followed by Canada (54%), Japan (53%), South Korea (51%), Ireland (41%), and Spain (40%). The U.S. ties with France at 39 percent. No one thinks that Russia and Canada, despite their abundantly educated populations, are especially innovative nations. Russia rates 35^thon the Atlantic Century list; Canada 16^th.

To the extent that higher education matters for “innovation,” however, having 39 percent of adults aged 25-34 in possession of tertiary degrees appears to be more than enough. Singapore beats the United States on the ITIF algorithm for innovation in the economy, but not because a higher percentage of Singaporians earn college degrees. Actually slightly fewer (38 %) do. Nor does Singapore outshine the U.S. in categories that are presumably closely related to university research. The U.S. is fifth in the world in scientific publications; Singapore 22^nd.

In most categories the U.S. and Singapore are about even. Where Singapore excels the U.S. is in categories such as the government’s efficient use of digital technology (called “E-Government” on the chart). The U.S. also falls dramatically behind in corporate tax rates, trade balance, and foreign direct investment. All these are important matters to be sure, but they have little to do with failures in higher education, unless we are speaking of the failure to graduate students who are economically literate.

The ITIF & EABC report deserves attention. The U.S. now seems to be embarked on an enormously expensive, foolish, and probably destructive campaign to force American colleges and universities to double their size in a little more than a decade. The colleges and universities will undoubtedly fail to meet this extremely unrealistic goal, but not before a wild binge of over-building, crashing academic standards, and brutal dismantling of higher education’s higher purposes. We are launching this inflationary binge because, we are told, our national competitiveness depends on it. Without such an effort, innovation will dry up. Good jobs will disappear.

But these claims rest on nothing but supposition. Our capacity to innovate is indeed very important, but it is not suffering—so far as we can tell—by our having too few college graduates.

Education, at all levels, certainly does bear on whether a nation will innovate. But the connection is not a matter of sheer numbers. It has to do with recognizing and fostering talent. And in that light there is one troubling statistic. Why are 59 percent of patents awarded in the U.S. granted to foreign residents? The immigration status of the patentees takes nothing away from their contribution to U.S. competitiveness but it does suggest that people educated in their youth somewhere other than the United States are far more likely to create useful patents. That fact by itself would seem to invite deep skepticism about how we educate, not a pell-mell rush to do more of the same.

The greater danger is not that we will have too few college graduates, but too many.

And as the college degree is diluted to make it possible for vast numbers of untalented students to proceed from high school to the next step, we will inevitably weaken still further the quality of primary and secondary schooling. This is a many-sided problem, involving unmotivated students, unmotivated teachers, unmotivated schools, unmotivated colleges, and vainglorious politicians who pride themselves on simply herding students forward from one step to the next. Colleges are already burdened with a surplus of students who were awarded high school diplomas, having minimal knowledge of grammar, math, composition, history, geography, or any basic science. That category will only expand. It will expand because high school teachers and administrators will understand that, no matter how little they do, their students will ascend to the next step.

Such an expansion will fail to enhance the nation’s competitiveness; further erode the basic skills which true innovators need to acquire at an early age; and diminish the quality of higher education for those who could indeed contribute to innovation and competitiveness.

We have seldom faced such an all-around ill-conceived policy objective as this. We have before us a mild problem in spurring innovation to preserve American competitiveness. We are embarking on a course to turn it into a deep slide.

The eagerness of colleges and universities to pursue this expansion in the name of enhancing competitiveness deserves its own spotlight. I’ve broached the subject a few weeks ago in "Where Do We Start?" and this isn’t the place to fill in the rest of the argument except to point out one thing. American higher education is not, on the whole, friendly ground for those who favor economic growth. Our universities are dominated by those who thrill to the dream of transforming American society—transforming it away from free markets to a greener, more redistributive, more rights-based regime. Nearly a thousand college presidents have already signed on to a “sustainability” pledge that says their campuses will hire no one who isn’t committed to the (leftist) program of social justice sustainability.

When these same people come forward to say, “Please, America, spend untold billions to double the enrollments of colleges and universities so that we can aid in the effort to expand innovation and competitiveness,’ do you think you should believe them?

Is America Losing Its Innovative Edge?

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