Where Innovation Creates Value

s t r a t e g y

FEBRUARY 2009

Where innovation creates value

It doesn’t matter where scientific discoveries and breakthrough technologies originate—for national prosperity, the important thing is who commercializes them. The United States is not behind in that race.

Amar Bhidé

Now, perhaps, more than ever, the fear of globalization haunts the United States. Many manufacturing companies that once flourished there fell to overseas competition or relocated much of their work abroad. Then services embarked on the same journey. Just as the manufacturing exodus started with low-wage, unskilled labor, the offshoring of services at first involved data entry, routine software programming and testing, and the operation of phone banks. But today, overseas workers analyze financial statements, test trading strategies, and design computer chips and software architectures for US companies. It is the offshoring of research and development—of innovation and the future—that arouses the keenest anxiety. The economist Richard Freeman spoke for many Americans when he warned that the United States could become significantly less competitive “as large developing countries like China and India harness their growing scientific and engineering expertise to their enormous, low-wage labor forces.”1 What is the appropriate response? One, from the conservative pundit Pat Buchanan, the TV broadcaster Lou Dobbs, and their like, calls for protectionism. Another, seemingly more progressive, approach would be to spend more money to promote cutting-edge science and technology. Much of the establishment, Democratic and Republican alike, has embraced what the economists Sylvia Ostry and Richard Nelson call techno-nationalism and techno-fetishism, which both claim that US prosperity requires continued domination of these fields. We’ve heard such fears and prescriptions before. In the 1980s, many people attributed the problems of the US economy to the proliferation of lawyers and managers...