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

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There is a growing sense of urgency for bipartisan commitment to restoring America's competitive edge through innovation. How can we find the right mix of private sector dynamism and government support, as well as the political consensus required, to stay ahead of global competition and boost long-term prosperity?

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

  1. 1. March 10, 2011The Race for Global Innovation Advantageand U.S. Economic ProspectsPresentation at:U.S. Competitiveness: A New Conversation with New OpportunitiesWashington, DCDr. Robert D. AtkinsonPresidentInformation Technology and Innovation Foundation
  2. 2. Where Are We?
  3. 3. Is This a Conventional Financial Crisis?
  4. 4. To Understand, We Need to Go Back to the 1970s
  5. 5. The Engine of U.S. Economic Growth Then 
  6. 6. The U.S. Had Robust Growth, Just not Everywhere
  7. 7. Now a Majority of Places Are Struggling
  8. 8. The Engine of U.S. Economic Growth Now 
  9. 9. U.S. Manufacturing Competitiveness is Declining
  10. 10. Overall Manufacturing Grew Slower than GDP500% Percentage Change in Real Value Added, 2000-2008400%300%200%100% +18% +5% 0% Total manufacturing GDP-100%-200%-300%-400% Source: Bureau of Economic Analysis
  11. 11. And Most Manufacturing Sectors Shrank500% Percentage Change in Real Value Added, 2000-2008 Food, beverage and tobacco products400% Electrical equipment and appliances Chemical products Machinery Printing300% 15 of 19 Wood products Motor vehicles manufacturing Fabricated metal products sectors shrank Paper Products200% Primary Metals Nonmetallic mineral products Plastics and rubber products Apparel and leather100% Textiles Furniture 0% Total manufacturing-100%-200%-300%-400% Source: Bureau of Economic Analysis
  12. 12. Only Four Sectors Grew500% Percentage Change in Real Value Added, 2000-2008400%300% Computer and electronic products:200% +260.5% Average share of Petroleum and coal manufacturing output:100% products: +73.0% 72% 0% Total manufacturing-100% Average share of manufacturing output: 28%-200%-300%-400% Source: Bureau of Economic Analysis
  13. 13. Manufacturing Is Down, in Part due to Increasing Goods Trade Deficit Net Trade in Goods (% of GDP)10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-2.0%-4.0%-6.0%-8.0% United States China Source: World Bank
  14. 14. As a Result, Capital Stock For Many Manufacturing Sectors Has Fallen Year of Peak Capital Stock and Percentage Decline Since Food, Primary Wood Apparel and Paper Electrical Plastics and beverage and metals Textiles products leather products equipment rubber tobacco Motor vehicles 1981 1997 2000 2001 2002 2002 2002 2002 2003 -2% -3% -6% -5% -7% -14% -21% -27% -29% Source: Bureau of Economic Analysis
  15. 15. As U.S. Moved from a Manufacturing to a Financial Engineering Economy Percentage Change in Fixed Asset Investment, by Decade400%350%300% Manufacturing250% Total private fixed assets200%150% Performing arts and spectator sports100%50% Funds, trusts, and other financial vehicles 0%-50% 1959-1969 1969-1979 1979-1989 1989-1999 1999-2009 Source: Bureau of Economic Analysis
  16. 16. But Surely U.S. Innovation Must be Thriving
  17. 17. Yet U.S. R&D Growth is Stagnating Compared to Rivals R&D Expenditure 600% Growth, 1998-2008 (constant PPP dollars) 500% China 400% 300% Estonia United States 200% Korea Turkey Portugal Russia 100% Australia Poland Slovakia Germany 0% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 160% Japan R&D Intensity Growth, 1998-2008 -100% (% of GDP)Source: OECD
  18. 18. U.S. Corporate R&D Declined as a Share of GDP Corporate R&D as share of GDP, Percentage Change, 1999-2006 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 -50% 0% 50% 100% 150% 200%Source: ITIF, Atlantic Century 2009
  19. 19. Chinese R&D Intensity Growth Outpaces the United States’ 3.0% USA 2.5% 2.0%R&D Intensity China 1.5% 1.0% 0.5% Bubble size = GDP 0.0% 1990 1995 2000 2005 2010 Source: OECD
  20. 20. Growth in U.S. Federal R&D Investment Has Stagnated Government R&D as Share of GDP, Percentage Change, 1999-2006 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 -60% -40% -20% 0% 20% 40% 60%Source: ITIF, Atlantic Century 2009
  21. 21. As Has Growth in # of U.S. Scientists and Engineers Researchers per 1,000 Employed, Percentage Change, 1999-2006120%100% 80% 60% 40% 20% 0% Mexico Ireland Brazil Sweden Russia Korea Poland Canada Japan Singapore Spain Germany Australia US India UK France China NAFTA EU 25 EU 10 EU 15-20%Source: ITIF, Atlantic Century 2009
  22. 22. While the Level of U.S. College Attainment Languishes Persons aged 25-34 with Tertiary Degree, Percentage Change, 1999-2005140%120%100% 80% 60% 40% 20% 0%Source: ITIF, Atlantic Century 2009
  23. 23. 0 10 20 30 40 50 60 70 80 Singapore Sweden Luxembourg Denmark Korea United StatesUnited Kingdom Japan NAFTA France Ireland Germany Canada EU 15 Australia Overall Score, 2009 Atlantic Century EU 25 Spain EU 10 China Poland As a Result, the U.S. is No Longer #1 Russia Brazil Mexico India
  24. 24. The 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.
  25. 25. In Rate of Change from 1999, the U.S. is Behind….1. China 15. Latvia 28. UK2. Singapore 16. Austria 29. EU-153. Estonia 17. S. Korea 30. Mexico4. Denmark 18. Ireland 31. Netherlands5. Luxembourg 19. EU-10 32. Australia6. Slovenia 20. Spain 33. Finland7. Russia 21. Sweden 34. Canada8. Lithuania 22. France 35. Germany9. Cyprus 23. Portugal 36. Italy10. Japan 24. Malta 37. NAFTA11. Hungary 25. Belgium 38. Greece12. Slovakia 26. EU-25 39. Brazil13. Czech Republic 27. Poland 40. United States14. India
  26. 26. In Short, the U.S. is Falling Behind in the Race for Global Innovation Advantage
  27. 27. So What’s America’s Future? 
  28. 28. Buffalo? 
  29. 29. Or Boston? 
  30. 30. To Be Boston, What Do We Do? 
  31. 31. Recognize We Are in Competition Against Other Nations Flickr: Holtsman 
  32. 32. The Conventional View: U.S. Companies Compete Against Other Companies vs.
  33. 33. The Reality: Boeing Competes Against AIRBUS & the European Union vs. +
  34. 34. Ford Competes Against Toyota & the Japanese Government vs. +
  35. 35. Cisco Competes Against Huawei & the Chinese Government vs. +
  36. 36. Google Competes Against Baidu & the Chinese Government vs. +
  37. 37. IBM Competes Against WIPRO & the Indian Government vs. +
  38. 38. Where’s Uncle Sam?
  39. 39. What Should Washington Do? 
  40. 40. Start Looking out for Number 6 
  41. 41. Getting the 4 T’s Right Tech Talent Flickr: marzzelo Trade Tax Flickr: Nedral Flickr: Alan Miles NYC
  42. 42. Getting the 4 T’s Right Supported by a National Innovation and Competitiveness Strategy
  43. 43. Innovation and Competitiveness Are Not (Or Should Not Be) Partisan johnlund.com
  44. 44. This Means Policies from Both Column A and Column B
  45. 45. This Means Policies from Both Column A and Column B Column A Column B Expand public investment in  Make the U.S. tax code more innovation competitive Fully fund key innovation  Reduce drag on regulatory agencies (e.g. PTO, FDA, competitiveness statistical agencies) Fund STEM education  Expand high skill immigration Support trade enforcement  Expand trade agreements
  46. 46. America Can Win, but Only if We Choose from Both Columns
  47. 47. We Should Learn from George Kennan
  48. 48. Thank You ratkinson@itif.org www.itif.org

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