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The United States Is Quietly Losing Its Innovation Edge to China

by Yanzhong Huang
October 22, 2013

A newly-made fuel-efficient vehicle travels along a street inside the Hunan University during a test drive in Changsha, Hunan province October 8, 2013. A newly-made fuel-efficient vehicle travels along a street inside the Hunan University during a test drive in Changsha, Hunan province October 8, 2013 (Stringer/Courtesy Reuters)

I am not a supporter of the faddish idea that America is in decline. Despite all the hullabaloo about the rise of China, the United States still boasts the most formidable military force and the largest, most innovative economy. But as a student of international studies, I am keenly aware that the rise and fall of great nations are often associated with significant historical events. It is hard to deny that the 2008 financial crisis exposed the Achilles’ heel in our economy and accerlated the shift of international power balance. This month, the self-inflicted U.S. government shutdown highlighted the partisanship and immobilism in our political system and undermined our ability to engage with the outside world.  China for example lost no time in questioning U.S. global leadership, urging all the emerging countries to consider building of a “de-Americanized world.” At the same time, an OECD report forecasted that China will overtake the United States in 2016 to become the world’s largest economy.

One might argue that these developments do not represent a permanent setback to U.S. global leadership—after all, we continue to enjoy unrivaled advantage in the ability to innovate, a critical pillar of U.S. superpower status. Since the mid-19th century, the United States has been the engine of almost all the major technological advancements. Indeed, nine of the eleven 2013 Nobel Prize winners in science and economics are U.S.-based.  In a 2012 article, Gary Shapiro attributes the U.S. strength in innovation to “[a] can-do attitude, a free market system that rewards savvy risk takers[,] an education system that encourages questions rather than rote learning [, and a] First Amendment that promotes different views without government censorship.” In contrast, any major innovation efforts in China have to struggle with a social-political system that supports censorship and corruption, and suppresses curiosity and creativity. The miraculous economic growth in China, to paraphrase Paul Krugman, was largely the result of perspiration (manufacturing capacity) rather than inspiration (technology innovation).  Take Chinese pharmaceutical industry: despite the size of Chinese pharmaceutical exports—averaging $67 billion annually—virtually none of the revenue is derived from truly innovative products. Up until 2007, roughly 97 percent of chemicals produced in China were generic, and only two drugs—artemisinin and dimercaprol—were developed domestically.

The past decade, however, has witnessed the rapid erosion of the financial and institutional underpinnings of innovation in the United States. Our free market system rewards risk takers at the expense of the general public, many of our politicians (and the political system itself) seem to have lost their ability to be effective, and our kids lag globally in math and science. Simply, we have been increasingly unable to innovate, compete, and get things done. As Tom Friedman observed, “too many of our poll-driven, toxically partisan, cable-TV-addicted, money-corrupted political class are more interested in what keeps them in power than what would again make America powerful, more interested in defeating each other than saving the country.”

The sapped U.S. strength in innovation is epitomized by the NIH research funding trends. Between 2003 and 2013, the number of applications increased from nearly 35,000 to more than 51,000, while NIH appropriations shrunk from $21 billion to $16 billion (in 1995 dollars). As a consequence, it has become increasingly difficult for our scientists to garner an NIH grant. Overall application success rates fell from 32 percent in 2000 to 18 percent in 2012. This is particularly bad news for the new applicants, most of whom are young scientists who are at their most productive age and are most in need of grant support: not only have the number of research project grants dropped in absolute numbers, but the success rates for first-time award recipients has dropped from 22 percent to 13 percent.

The story is dramatically different on the China side. The government is determined to be the next technology innovation center in the world. In 2011, China had already become the world’s second highest investor in R&D. Government research funding has been growing at an annual rate of more than 20 percent. At the end of 2012, for example, 7.28 billion yuan was spent on promoting life and medical sciences, nearly 10 times the 2004 level. Even more troubling (for the United States), in 2011, 21 percent of the applications were supported, and for young scientists, the application success rate was 24 percent, both of which were higher than the U.S. level. It was predicted that if the U.S. federal government R&D spending continues to languish, China may overtake the U.S. to be the global leader in R&D spending by 2023.

Of course, being the leader in R&D spending does not automatically make China the next innovation center.  China’s research culture suffers problems of cronyism, mismagement, and ineffectiveness.  But continuing to cut U.S. research funding while China’s research spending soars could lead to a brain drain and even further, the abdication of the United States as an innovation leader. If you still think this sounds alarmist, just read what a professor from George Mason University said: “I have just laid off my technician and will lose my postdoc in six months. My Ph.D. students need funds to finish their degrees, and now they are working in the lab without pay. The lab may have to be closed. I will move my lab to China.”

That said, the trend can be reversed, provided that we stop bickering over divisive social-political issues and move forward to strengthen our economy, restructure our education, and renew our democracy. The time is now.

Post a Comment 8 Comments

  • Posted by Harland

    Well, seeing as the President of the US ordered the IRS to target a minority political party for harassment and the Fourth Estate refuses to investigate because they agree with him, it’s hard to see things getting better anytime soon.

    I mean, a simple statement like “America should be a proud, strong nation” is anathema for pretty much anyone educated in the Ivy League. Who wants America to be great? Especially when people self-identify as “citizens of the world” and consider fellow Americans as some sort of weird space alien.

  • Posted by Ben

    Dude, Hong Kong ranked 7th in Global Innovation index, China ranked 35th. If you want to be credible you should really do a better job of checking your facts.

  • Posted by jchittooran

    You’re right. I’ve removed that from the blog. Thanks for pointing that out.

  • Posted by Shakiem Smith

    To Ben:

    I do not think the author of the article ever said that China is the number one innovator world wide, but I think the point he is trying to make is that China is doing all the necessary things to make a run for a top spot.

  • Posted by Caleb Olakigbe

    Chinese innovation is not durable, it means they are not quality but in years to come it will be better. I respect China; at least they have started compare to those countries that have not even invested on innovation.

  • Posted by Nduka Nwaonicha

    Republicans and Democrats are fighting to win election instead of saving the country: That is the problem.

  • Posted by Stefan Siewert

    GDP of combined EU is already higher than of the US GDP due to higher population. The difference, however, is that EU, Japan and the US share common values, history and are content with the current status quo, which is challenged by a fast-growing China.
    The transformation in global leadership from England to the US took almost 50 years after US GDP per head exceeded England’s GDP per head (around 1900), in finance it took even even longer. Due to the complexity and ambiguity of international relations, one might assume a change from a supply-driven model (US-has the power to dominate and veto any significant global decision) to a demand-driven model, with the central role of the US as a neutral power. The move from a G8 – G7 – G20 to a G 0 world will be very incremental, if at all.
    The litmus test to the Chinese business model’s long-term efficiency is still out. The investment-led, labor- and capital-intensive growth depends on access and the size of the US market. Low inflation contributes 1 – 2 % to US GDP. 80 % of Chinese exports are managed by US-companies. It is Chimerica. Will the transformation to consume-led growth generate a similar impulse? Nobody knows, but one can assume that the US will have a say in it, future benefits depend on current distribution of power.
    For the US it is cost-efficient to be a superpower. The military and other burden of a global presence is nicely rewarded through the global role of the USD, the dominance in global institutions and hard-to measure, but significant influence in global decision-making. It is an asymmetric equilibrium between the US and the rest of the world. Thus, the US is the spearhead of the world economy and the quality of global growth has to change before the American exceptionalism becomes obsolete. Again, this is at least a decade-long process.

    Are there concerns about the ability of the US to lead a fast-changing world economy? Yes.

    Are there signs of demise or is it more about adapting in a trial-and error process to new challenges and requirements? We cannot distinguish at the moment.

    Will a future world economy become less hierarchical and less dependent on the leadership of a single superpower? We do not know. It depends on technical-economic characteristics of future growth opportunities, with limited influence from politics.

  • Posted by Bill Gilwood

    Innovation costs money. Spending this money does not guarantee that all of it will return anything, but not spending it guarantees you’ll get nothing.

    “Between 2003 and 2013…. NIH appropriations shrunk from $21 billion to $16 billion (in 1995 dollars).” $5 billion (1995) is about $8 billion (2013), is about what the US has spent in one month on our wars, and what have we got from them?

    Unfortunately, our politicians don’t know or care much about technology, and focus instead on chasing ‘donations’ aka bribes, and getting reelected. Our business ‘leaders’, also don’t know or care about technology and focus instead on raking in as much money as possible into their pockets ASAP, so they can retire rich ASAP.

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