How The U.S. Can Keep Its Innovation Edge

In modern times, the United States stands apart in its record of sustained innovation over decades, across industries, and through economic cycles, in large part because America has always encouraged and rewarded risk-takers. Despite this remarkable run of leadership, I believe the U.S. may now be at a critical moment in its history.

Although it is great news that the American economy grew in the third quarter at its fastest rate in nearly two decades, I believe that cyclical, short-term ups and downs can distract us from a more fundamental shift in something that is a key determinant of growth -- innovation. Where, how, and why innovation happens is changing. If we're not careful, the U.S. will fall out of step with these new realities, and innovators and risk-takers will go elsewhere -- because they can.

First, let's be clear on the meaning of innovation. It's a lot more than invention. Innovation is the intersection of invention and insight. It is the fusion of new developments and new approaches. Its potential is especially large today, thanks to the emerging knowledge-based economy. Innovation is focused less on things and more on ideas, collaboration, and expertise.

Innovation is occurring within a global -- not just a national -- ecosystem. It has multiple points of intersection among business, government, and academia, and in industries ranging from biotechnology to transportation, energy, telecommunications, and information technology, and in the public sector. That's why there will not be a single Next Big Thing. There will be many. Based on a study that IBM (IBM ) commissioned, the 42 industries represented by the Council on Competitiveness will create 13 million jobs worldwide over the next two years and more than 95 million jobs over the next decade. The question is where those jobs will be. Job creation, like innovation, can occur almost anywhere. China, India, South Korea, and other nations are replicating the structural advantages that have made the U.S. the center of innovation. These nations are becoming very competitive, and it would be naive to believe that phenomenon is based solely on wages. They are investing in education and job skills; teaching their citizens the languages of modern commerce (English, software, genomics, and finance); and building modern network infrastructures.

How will the U.S. and other developed nations respond? By lowering the standard of living for their citizens? By erecting barriers and impediments? Neither choice would be wise. Nor should the U.S. begrudge other nations their increasing competitiveness. If the U.S. wants its fair share of new jobs and economic growth, it must take the steps necessary to continue offering the most fertile, attractive environment for innovation in the world.

That's why the Council on Competitiveness is creating a National Innovation Initiative, led by Georgia Institute of Technology President G. Wayne Clough and me. The initiative will create a strategic U.S. policy agenda and a framework for innovation leadership. The result, 12 to 15 months from now, will be recommendations aimed at generating innovation throughout the economy.

There are many important questions to answer. How do we define and measure innovation in ways that capture the realities of a new century? U.S. universities are the envy of the world, but are they creating the necessary disciplines that will likely emerge from novel combinations of established fields? Are we building the national infrastructure to participate in the global innovation ecosystem? And how do we finance innovation?

Corporations will have to ask what the changing nature of innovation means for employee skills. On that point, IBM is committing more than $200 million this year and again in 2004 to upgrade the skills of 100,000 employees in such areas as integration services, project management, Web services, and Linux and open standards-based hardware and software.

Lastly, government will have to ask if it is investing sufficiently in innovation, not just basic research. We need government to focus in areas that play to the strengths of U.S. industry and deliver the greatest economic leverage.

We treat innovation as if it were magical, not subject to guidance or nurturing, much less planning. If we study history, however, we know that's simply untrue. There are times, places, and conditions under which innovation flourishes. We can create those conditions in America. Indeed, we must.

By Samuel J. Palmisano

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