Is America Losing Its Innovative Edge?

By most measures, America remains the world leader in technological achievement. Consider the 2009 Nobel Prizes: of the 13 people honored, nine were American. Once you take out the economics, literature, and peace prizes, the United States, with 5 percent of the world's population, still won close to 70 percent of the awards. Even amid a terrible recession, the country still dominates the fields of information technology, life sciences, and nanotechnology, all key industries of the future. The World Economic Forum routinely cites America as having the most competitive economy on the planet (though this year it was narrowly overtaken by Switzerland). When decision makers are asked to rank countries on innovation, the United States always comes first by a large margin.

Americans like to think there is something about their culture that's especially conducive to innovation"”the open geography and frontier spirit; a flexible economy with limited interference by government; the Protestant work ethic; an immigrant workforce, constantly renewed by the next generation of talent from around the world. Other countries can perhaps emulate some of these traits, but none can replicate the creative cocktail that is America.

That might be true today. But could it be that American achievements reflect the past more than predicting the future? It's important to remember that many of the metrics that place the United States so far ahead are actually lagging indicators. Nobel Prizes tend to be given to scientists in their 70s, toward the end of their productive lives. What's happening among scientists in their 30s? Who's making the discoveries today that will receive Nobel Prizes four decades from now?

I'd always viewed the rankings that routinely show America on top as authoritative. But they may be misleading. Most traditional competitiveness studies use polls"”of CEOs, scientists, investors"”as a key part of their measurements. The World Economic Forum report, for example, relies upon surveys for almost two thirds of its data. But two studies of global innovation have been released this year, both comprehensive, and both relying entirely on government statistics and other hard data: one produced by the Boston Consulting Group, the other by the Information Technology & Innovation Foundation. In both, the United States does considerably worse, coming in eighth in the BCG study and sixth in the ITIF one.

Like a star that still looks bright in the farthest reaches of the universe but has burned out at the core, America's reputation is stronger than the hard data warrant. For example, the World Economic Forum surveys say America is the globe's top recipient of venture capital and third-biggest spender on corporate research, but the actual data put it fifth in both categories. Most striking, the ITIF rankings show that, in recent years, the United States has made the least progress of the 39 countries analyzed in improving its innovation capacity and internal competitiveness. The measures are standard, ranging from government research spending, where the United States does well, to the corporate tax rate, where it does extremely poorly.

Part of the slippage is due to the fact that other countries"”from Singapore and South Korea to Canada and Sweden"”are actively changing their laws and systems to make themselves more competitive. The United States didn't raise its corporate tax rate; others lowered theirs. But the United States is falling far behind in one key resource: human capital. Whether measured by the percentage of kids with high-school diplomas or performance on standardized tests, America is not producing the kinds of workers needed in a knowledge-based economy. Let's be clear. Even properly measured, the United States does well. But the halo is fading. The wide gap between the United States and the rest of the world is closing.