Technology, Innovation, and American Primacy James A. Lewis Center for Strategic and International Studies February 20, 2007

CSIS 2 Technological Leadership Crucial for U.S. economic and military strength. Depends on U.S. capacity to innovate.  Comparative advantage? Globalization means that U.S. share of innovation will decline. U.S. policies reinforce this decline.  Investment, immigration, technology transfer

CSIS 3 Questions for Technological Leadership 1. Is there a problem? 2. How can we tell? 3. What should we do about it? 4. And is the U.S. capable of doing it?

CSIS 4 1. Is there a problem? Another of the waves of angst that periodically sweep over the republic. U.S. decline  Relative to past performance or some ideal. New International Environment  Relative to other countries.

CSIS 5 New International Environment Strategic Competition  Economic and technological competition. Economic Integration  Diffusion of technology and research. Transition to an information economy  Innovation / knowledge creation Asia’s economic ascent  Asian nations hope to repeat their manufacturing success in scientific research.

CSIS 6 2. How can we tell? Historical analogies Metrics  Education Ph.Ds, engineers  Manufacturing  Macroeconomic Indicators Trade deficit  Research related Patents R&D funding

CSIS 7 What Should We Do about it? Laissez faire, enabling or directing?  The Keynesian myth  US relies more on market forces (enabling); EU and others are more directive. Policy options:  Industrial policy, restrictive policies, hope, promotion of innovation Promotion of innovation as the optimal policy response  New goods, services or productive techniques

Elements of an Innovative economy 8 Elements of Innovation Human Capital:  Research universities  Skill/resource clusters  Entrepreneurial culture Knowledge Acquisition.  Research and Development/Information Technology  Technology transfers Commercialization of new knowledge.  Venture Capital Supporting Infrastructures.  ‘hard’ (transportation, electricity, communications)  ‘soft’ (legal system, financial system, regulatory framework) Openness to competition.

CSIS 9 U.S. Comparative Advantage They don’t call ‘em BRICS for nothing....  China  India  Russia The sick man of Europe is Europe. Return of the caudillo

CSIS Are we (still) capable? Administrative/regulatory burden  DHS as an impediment to growth Cultural change  A more risk-averse society Ideological barriers  Underfund public goods  Overfund legacy programs / vested interests U.S. economic transition  Services/intangible products provide greater value

CSIS 11 Transitional Dilemmas for the U.S. Old assumptions about security do not mesh with a global economy. Security implications  Global supply chain  Trusted systems Social Implications  Distribution problems Sustainability of a service economy  Post-industrial power

CSIS 12 Recommendations Make the promotion of innovation a goal for policy Maintain and exploit the U.S. comparative advantage. Identify where government action is appropriate and effective. Streamline and simplify the regulatory burden for innovation. Make greater use of incentives. Embrace international collaboration.

CSIS 13 Postscript 1957-the President’s Science Advisor predicts that Soviet performance in math and science education will give it global leadership in a decade the Departments of Treasury, Commerce and Agriculture warn the President that the European Union will displace the U.S , assorted pundits announce that Japan will dominate the global economy – China and India…..