Is America Losing Its Edge?

Adam Segal

From Foreign Affairs, November/December 2004

Summary:  For 50 years, the United States has maintained its economic edge by being better and faster than any other country at inventing and exploiting new technologies. Today, however, its dominance is starting to slip, as Asian countries pour resources into R&D and challenge America's traditional role in the global economy.

Adam Segal is Maurice R. Greenberg Senior Fellow in China Studies at the Council on Foreign Relations and the author of Digital Dragon: High Technology Enterprises in China.

The United States' global primacy depends in large part on its ability to develop new technologies and industries faster than anyone else. For the last five decades, U.S. scientific innovation and technological entrepreneurship have ensured the country's economic prosperity and military power. It was Americans who invented and commercialized the semiconductor, the personal computer, and the Internet; other countries merely followed the U.S. lead.

Today, however, this technological edge-so long taken for granted-may be slipping, and the most serious challenge is coming from Asia. Through competitive tax policies, increased investment in research and development (R&D), and preferential policies for science and technology (S&T) personnel, Asian governments are improving the quality of their science and ensuring the exploitation of future innovations. The percentage of patents issued to and science journal articles published by scientists in China, Singapore, South Korea, and Taiwan is rising. Indian companies are quickly becoming the second-largest producers of application services in the world, developing, supplying, and managing database and other types of software for clients around the world. South Korea has rapidly eaten away at the U.S. advantage in the manufacture of computer chips and telecommunications software. And even China has made impressive gains in advanced technologies such as lasers, biotechnology, and advanced materials used in semiconductors, aerospace, and many other types of manufacturing.

Although the United States' technical dominance remains solid, the globalization of research and development is exerting considerable pressures on the American system. Indeed, as the United States is learning, globalization cuts both ways: it is both a potent catalyst of U.S. technological innovation and a significant threat to it. The United States will never be able to prevent rivals from developing new technologies; it can remain dominant only by continuing to innovate faster than everyone else. But this won't be easy; to keep its privileged position in the world, the United States must get better at fostering technological entrepreneurship at home.

PENNYWISE

At the moment, it would be premature to declare a crisis in the United States' scientific or technological competitiveness. The United States is still the envy of the world for reasons ranging from its ability to fund basic scientific research to the speed with which its companies commercialize new breakthroughs.

This year, total U.S. expenditures on R&D are expected to top $290 billion-more than twice the total for Japan, the next biggest spender. In 2002, the U.S. R&D total exceeded that of Canada, France, Germany, Italy, Japan, and the United Kingdom combined (although the United States trailed Finland, Iceland, Japan, South Korea, and Sweden in the ratio of R&D to GDP). And although scholars from other parts of the world may write relatively more science and engineering papers than Americans do, U.S. research continues to be cited the most.

The United States also leads the major global technology markets, holding commanding market shares in aerospace, scientific instruments, computers and office machinery, and communications instruments. U.S. information and communications technology producers lead almost every sector. And for the last two decades, U.S. firms have been the top providers of high-technology services, accounting for about one-third of the world's total.

These strengths, however, should not obscure the existence of new threats to the long-term health of science and innovation in the United States. A record $422 billion budget deficit, for example, may undermine future government support for R&D. Recent shifts in federal spending will leave basic research-that driven by scientific curiosity rather than specific commercial applications-underfunded, depriving the economy of the building blocks of future innovation. Although federal expenditures on R&D are expected to reach $132 billion in fiscal year 2005 and $137.5 billion in 2009, new spending will be concentrated in the fields of defense, homeland security, and the space program. Funding for all other R&D programs, meanwhile, will remain flat this year and decline in real terms over the next five years.

In July, Congress approved a record-breaking $70.3 billion for R&D for the Defense Department in 2005, a 7.1 percent increase from last year and more than the Pentagon had asked for (in fact, the department's top brass had asked to cut R&D spending). Such largesse makes it likely that the Pentagon will be able to continue innovation in the near term. Its longer-term prospects, however, are more worrying. According to five-year projections by the American Association for the Advancement of Science, the Defense Department will focus more and more on weapons development while neglecting basic and applied research.