THREATS ON U.S. TECH LEAD... AGAIN
Now India and China Loom in the Horizon... Analysis of Korea

Continuing on this technology and innovation theme from last week's entries, I came across this article in BusinessWeek. It discusses how the U.S. faced challenges in the past from Russia and Japan, but those "predictions of imminent doom never came true." As I wrote before, one factor to consider in this discussion of innotivation and growth is how these challengers actually allocate and utilize their funding and resources. Also what base elements are they working with? What type of research talent do they have? I think it was in Denise G. Shekerjian's "Uncommon Genius: How Great Ideas Are Born" that I read about how Russia devoted more resources than the U.S. to science and technology development in the latter part of the 20th and how many countries', including Russia, children scored higher than children in the U.S. on science and math tests, but the U.S. still produced a far greater number of Nobel Prize winners in the sciences. Even the MacArthur Prize, which her book focused on, identifies and champions creativity within America. The U.S. culture and emphasis on being well-rounded individuals has an intangible or difficult to measure quality that encourages creativity, entrepreneurship, and innovation.

As an example, let's take a look at Korea, which is the easiest comparison for me to point to. I've lived here for over three years now, I have noticed the effect that the different education systems have on the workforce here. Korea's students are always ranked one of the highest in math and science while U.S. children are in the middle or above the medium in world rankings. The secondary school system is intense and rigorous where high school students typically attend afterschool private classes and study beyond midnight to pass their college entrance exams. Studying consumes their lives and memorization is the key method of learning. Additionally, Korea has the highest number of Ph.D. per capita (recently Palestinians have been making this claim, but i don't know if this is true or how they came up with this figure) and this is easily encountered after visiting any company and believable after living here and experiencing the strong emphasis on education.

The result of all this has been a well-educated workforce that lacks in creativity and innovation. This is one of the first qualities I noticed during my first year in Korea while building HeyAnita Korea up from the ground floor with my friends. The employees were excellent at the initial stage of analysis, following processes, and other duties, but problem solving and creativity was greatly lacking. This is a common discussion I hear from expatriate managers in Korea when comparing native Koreans to Korean Americans and Koreans that have lived or studied abroad. Even when I spoke with a native Korean manager at Accenture, I remember him telling me how he noticed the difference between Koreans and other national groups during their initial training sessions. At the beginning, Koreans did just as well or better than their U.S. and European counterparts since those sessions focused on memorization or process oriented work. As the sessions shifted to more problem solving and creativity exercises, the Koreans began to lag behind. He told me that's when he realized the deficiencies in Korea's education system. Of course, change is always very difficult at the institutional level, but I hope Korea can make this change to become a more innovative and creative society and nation.

As for the U.S., with President George W. Bush requesting the largest federal R&D budget in history ($112 billion for FY03 alone), and the unique web of culture, education, and financial systems continually spurring innovation I don't see a real reason to be concerned at this time with the up and coming dynamic growth engines of India and China.


BusinessWeek
DECEMBER 8, 2003

COVER STORY

Commentary: Meeting the Asian Challenge
How America can boost innovation

The U.S. has always worried about falling behind in science and technology. In October, 1957, when the Soviet Union launched Sputnik, the first satellite, into orbit, Americans were stunned. With the Soviets' supposedly better-trained and educated scientists and engineers, it seemed just a matter of time until that country surpassed the U.S. both militarily and economically.

In the 1980s, the designated bogeyman was Japan, which excelled in manufacturing while devoting 2.5% of its gross domestic product to nondefense research and development. The U.S., spending only 1.8% of GDP on civilian R&D, seemed sure to become a technological laggard.

Of course, the predictions of imminent doom never came true. The scientific and engineering strengths of the Soviet Union and Japan were offset by abysmal weakness in governance and finance. Meanwhile, the U.S. responded effectively to both challenges, beefing up the resources devoted to innovation and education and reinforcing its position as the leading technological and economic power.

NOW IT'S TIME for another round of paranoia, with India and China playing the villains. China is running massive manufacturing trade surpluses with the U.S. Meanwhile, India seems to be absorbing big chunks of the U.S. info-tech job market, as politicians and corporate leaders warn darkly of endless supplies of inexpensive Indian engineers taking help-desk and programming jobs once held by U.S. workers. What's more, as U.S. companies open research centers in India, there are fears of a "giant sucking sound" -- to use a phrase H. Ross Perot once applied to Mexico -- as even high-end IT jobs leave the U.S.

Before abandoning ourselves to Perot's nightmare, let's do a reality check. First, any upgrade of the Indian and Chinese economies is an unalloyed good for the over 2 billion people living in those countries. These are poor nations finally climbing the ladder of economic development.

Second, there's no evidence of a major flight of educated jobs from the U.S. The Bureau of Labor Statistics reports that employment of college-educated workers has increased by 3.6% in the past year, despite a stagnant overall job market. And info-tech hiring has finally turned up, with employment in computer and mathematical occupations growing by 152,000 since June.

Still, the U.S. can't be complacent. As India and China ascend the economic ladder, the U.S. must do all it can to bolster its strength in innovation. That's how the country can create well-paying new jobs. Even if some research is done in India, Russia, or Japan, U.S. scientific and financial leadership will ensure the strength of the domestic economy.

Thus, the U.S. needs to focus on improving the four key components of innovation: R&D spending, education, finance for invention, and the national willingness to take risks. Here's what should be done in each of these areas.

-- Boost government spending on R&D. Adding $10 billion or more to government civilian R&D spending -- a roughly 20% hike -- should seem like a no-brainer. After all, R&D is the starting point for all technological innovation. In particular, basic research and early-stage applied research is quite properly the province of government.

But federal spending on R&D has not kept pace with the economy's growth. Figures from the National Science Foundation show that government R&D outlays fell from 0.96% of GDP in 1992 to 0.67% in 2000 before bouncing back up again over the past few years. But even the latest rebound in federal R&D spending has been concentrated almost entirely in the areas of defense and health. In fact, federal spending on civilian nonhealth areas such as energy has risen much slower then GDP over the past 10 years.

-- Add funding for graduate science and engineering students. It's impossible to do cutting-edge research without PhDs in science and engineering -- and that's a problem. Since 1997, the number of science and engineering doctorates going to U.S. citizens or permanent residents has dropped by 16%. That includes a 25% decline in math and computer-science PhDs.

That makes it essential to increase direct scholarship support for graduate science and engineering students. In addition, enlarging R&D funding would open up additional science and engineering jobs and make the degree more attractive.

-- Encourage vibrant financial markets. Other countries have fine technology and smart workers, but the biggest competitive advantage for the U.S. in the 1990s was its financial markets. Venture capital, high-yield bonds, and initial public offerings provided market financing for innovative tech companies on an unsurpassed scale, which helped create enormous numbers of new jobs in the U.S.

Still, continuing reports of corruption threaten to undermine the U.S. financial edge. That means it's necessary to aggressively prosecute corrupt individuals and companies while adopting a philosophy of transparency that gives investors the information they need to make good decisions.

The U.S. shouldn't cripple the flexibility of its financial system with too much regulation, though. The U.S. IT industry prospered in the '90s by using stock options to attract top talent from all over the world; they came because of the chance to win big if their company went public. Thus, it's counterproductive to make it harder for innovative companies and startups to use stock options to compensate their employees.

-- Strengthen anew our willingness to take risks. The financial bust, the 2001 terrorist attacks, and the struggles in Iraq combined to wound U.S. optimism. Rather than embracing innovation, Americans seem to be concerned with adopting protectionist measures and trying to hold on to existing jobs.

Rather than worrying about IT positions going offshore, the U.S. should focus on generating new jobs -- in new industries -- at home. In the end, an open economy, a commitment to invest in innovation and education, and a willingness to take risks will lead to success for Americans and for the U.S. economy. Together, those factors turned the "jobless economy" of the early 1990s into a boom with a 4% unemployment rate. They will work today as well.

By Michael J. Mandel