Innovation Is a "Symbiotic Cycle"

Government funds research and training, and businesses commercialize the results, says Microsoft's Craig Mundie. But the former is weakening

As chief technologist of the world's largest software company, Microsoft's (MSFT ) Craig Mundie is involved in the development of some of the most widely used technologies on the planet. Like other big tech concerns, the Redmond giant maintains a network of research and development facilities that work not just on software but on telecommunications, data networks, consumer devices, and even the electronic home of the future.

Mundie and Microsoft Chairman Bill Gates both speak often about the need for the U.S. to invest more in technology development and basic research. BusinessWeek Online Technology Editor Alex Salkever spoke with Mundie on those subjects on Mar. 10. Here are edited excerpts of their conversation:

Q: Does the U.S. still hold the lead in technology vs. other countries?


I think the environment in the U.S. for technology development and technology-driven business is still better than any place in the world. But I think our competitors recognize what has led to our success and are attempting to reproduce that. So it becomes imperative that the country continue to invest. And I think there are some elements on the policy side that are no longer as aligned with that outcome as they were in decades gone by.

Q: What do you mean by that?


To some extent the country has diminished its investment in fundamental, long-term research. As a percentage of gross domestic product, that investment is significantly less than it was during the Cold War. The country was inventing a lot of things as derivatives of research projects for the space program, for instance. Thanks to what many people call the "peace dividend," that investment has moved into other areas. I think that's producing long-term weakness in the U.S. technology effort.

Q: How so?


We have a persistent problem in terms of a shortage of people going into science and engineering. Even though we still have the world's best universities, there's now greater competition in other countries. People have studied here and have gone home to recreate that educational infrastructure.

That's shining a bright light on cultural elements and issues in education that are making it harder for us to produce people proficient in engineering and science.

Q: What can U.S. technology companies do about this problem?


It's the success of these corporations that has made policy people feel they had the luxury of not doing anything about the problem. So I don't think technology companies can resolve these questions.

The companies do a lot: They create the ultimate opportunity. You have to think of this as a symbiotic cycle in which the government funds research and trains people, and businesses create the opportunity for these people to turn their ideas into products. Our great concern is that if you don't pay careful attention to each element of the cycle, you end up with a broken machine.

Q: Why should it matter to Microsoft whether the U.S. maintains its technology edge? Can't you pick the best talent anywhere?


For many years, Microsoft could. The problem is, talent is uniformly distributed around the planet according to the gene pool. And you can't get the best people to all relocate to where your businesses are.

We still have two-thirds of our employees inside the U.S. If we can't meet our needs from a predominantly local population, you have to ask not only what does that imply for Microsoft -- but what does that imply for the U.S.?

Q: How is this decline affecting Microsoft's business plans?


We can adapt to what's happening in the marketplace. As the supply of people or technology shifts, the company will adjust.

Q: Are you finding that people outside the U.S. are qualitatively different today than they were 20 years ago?


No. What's different is that for many years those people found that the best place to open a business was in the U.S. Capital formation, laws, the trained workforce, manufacturing capabilities, educational opportunity -- the U.S had the best of those.

Today, many things on that list are being developed in other countries. Their governments realize that technology-based businesses are the key to economic success -- and their policies are geared toward that.

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