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.

At home, Washington should not strive to identify the next big thing. Rather, policymakers should ensure that the United States remains the most dynamic innovation system. Funding for science and education must be maintained. Although it might be tempting to shrink the budget deficit by reducing discretionary funding for the sciences, this would weaken one of the pillars of the country's future economic and technological health. Money for basic research, especially in the physical sciences and engineering, and support for the National Science Foundation should therefore be maintained at current levels or increased.

Of equal importance, policymakers must also reinforce the United States' entrepreneurial climate, its greatest asset. The building blocks of American innovation-flexible capital and labor markets, transparent government regulation, and a business environment that rewards risk-need to be strengthened. Making the R&D tax credit permanent and expanding it to include more types of collaborative research, for example, would help provide incentives for innovation in as many technological sectors as possible.

With innovative capacity rapidly spreading across the Pacific, the United States cannot simply assume that it will remain the epicenter of scientific research and technological innovation. Instead, it should meet the challenge from Asia head-on. The United States must actively engage with new centers of innovation and prepare itself to integrate rapidly and build on new ideas emerging in China, India, and South Korea. Above all, it must not assume that future innovation will occur automatically. Only through renewed attention to science funding, educational reform, the health of labor and capital markets, and the vitality of the business environment can the United States maintain its edge-and the most innovative economy in the world.