America is Losing Its Innovation Edge

Fareed Zakaria wrote an excellent book, The Post American World: The Rise of the Rest, in which he said the relative decline of the U.S. was due to political, not economic problems. As someone who’s covered the global economy for decades, and as an old Political Science major, the argument never satisfied. Fareed was right about the delta—the direction of decline, but wrong about the cause. It was economic, as well as political.

Now Fareed is saying what we concede to be increasingly true—the U.S. is losing its edge in innovation. And with that loss, comes the loss of geopolitical clout. President Obama’s trip to China is about soothing our banker, not pressuring for civil rights.

Americans are finding it hard to accept their decline in the world. They can’t admit that smart Asians and Europeans and others are not coming to the U.S. nearly as much as they used to for study. Or that there are increasingly more innovative startups outside the U.S. than inside the country. They don’t see all the people who got advanced degrees at U.S. universities going home to greater opportunities.

Our policy-makers find it hard to understand the consequences of U.S. corporations outsourcing their R&D to China and India or the firing of top-rate engineers, scientists and designers in the U.S. so they can be replaced by cheaper brains overseas.

Mike Mandel has a great cover story out that says “Over the past year, U.S. employment of scientists and engineers—the people who create the next generation of products and make the U.S. more competitive over the long term—has fallen by 6.3%, according to a BusinessWeek tabulation of unpublished data. Yet overall employment has fallen only 4.1%.” Corporations are firing designers, engineers, scientists while cutting back on employee education—outsourcing just about everything overseas. To what consequence?

In Washington, they don’t see the consequences of an immigration policy that favors the uneducated over the educated. Or an economy based on illegal cheap labor rather than one based on high-value skills.

Perhaps the wake-up call is the growing realization that we have just had what we said we would never have—A Lost Decade. Just like Japan, we’re waking up to see the S&P 500 recover to 10,000—where it stood in 1999. We’re discovering that our past decade of prosperity was bought with debt and speculation, not innovation and productivity.

I’m not totally despairing. Gen Y is a Learn-Share-Make generation that appears very comfortable with a Design Thinking-type of collaborative, iterative, generative paradigm necessary for innovation. Their use of social media platforms and a general comfort level with digital technology makes Gen Y a born-again innovation generation. I see it almost every day at the Parsons School of Design and so do my buddies at Stanford, the IIT Institute of Design, CCA, the Rotman School of Management, CMU, the U of Cincinnatti and dozen other places of higher learning in the US. They are a tool-using generation that likes to remix and makes new stuff.

I don’t see much of this at the policy-making level. President Obama is making some good moves in the direction but not nearly enough. City mayors are way behind their conterparts in Asia and Europe. And as for our business elite, I mostly do despair. There is a big nostalgia binge for Peter Drucker because he saw management as a practice, a calling, like a doctor, with all the social responsibility to employees and community and nation that the notion implies. What we now have is a business elite divorced from nation, community and employees, working only for “shareholders” who belong to a narrow speculative financial culture. It’s hard to make innovation work in that environment.

Maybe the Boomers who are messing up badly should all just move over and let Gen Y take power now.