When It Comes to Innovation, Is America Becoming a Third World Country?

Once upon a time, the United States was the world's dominant innovator. But now, when it comes to our approach to innovation, we desperately need some innovation. Here are three good places to start.
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Is America turning into a third world country? That was the provocative topic of a panel I took part in last week at a conference sponsored by The Economist entitled "Innovation: Fresh Thinking For The Ideas Economy."

Once upon a time, the United States was the world's dominant innovator -- partly because we didn't have much competition. As a result of the destruction wreaked by WWII, the massive migration of brainpower to the U.S. caused by the war, and huge amounts of government spending, America had the innovation playing field largely to itself. None of these factors exist as we enter the second decade of the 21st century.

America now has plenty of countries it's competing with -- many of which are much more serious about innovation than we are. Just look at the numbers:

A report by the Information Technology and Innovation Foundation looked at the progress made over the last decade in the area of innovation. Out of the 40 countries and regions it examined, the U.S. ranked dead last.

A study on innovation by the Boston Consulting Group concluded that America is "disadvantaged in several key areas, including work force quality and economic, immigration, and infrastructure policies."

In 2009, patents issued to American applicants dropped by 2.3 percent. Those granted to foreign-based applicants increased by over 6 percent.

Why are we falling behind like this? For one thing, we've lost our educational edge. America once led the world in high school graduation rates. We are now ranked 18th out of 24 industrialized countries.

And the percentage of 15-year-olds performing at the highest levels of math is among the lowest. South Korea, Belgium and the Czech Republic, among others, have at least five times the number the U.S. does.

Plus, we are no longer investing in innovation. Until 1979, around 50 percent of all research and development funds were provided by the federal government. That number has fallen to 27 percent. And, during the 1990s, the bottom fell out of U.S. funding for applied science, dropping by 40 percent.

The economic crisis is also taking a toll on innovation. Venture capital investment in the U.S. for the first three quarters of 2009 was $12 billion. Over the first three quarters of 2008, it was $22 billion.

These numbers may not place us in the third world ... yet. But the trend is not a good one.

Adding to the problem is the sense that America's best days may be behind us. Many economists and historians are warning that our current economic downturn has created a new normal. That the country will never be the same. Things are, of course, going to be different. But that doesn't have to mean that they are going to be worse. However, if we don't get serious about innovation, they will be. When it comes to our approach to innovation, we desperately need some innovation.

For starters, we need to kick our high-speed Internet plans into high gear. A robust, broadband-charged, countrywide information superhighway is going to be key to staying ahead of the innovation curve.

As FCC Chair Julius Genachowski explains, broadband isn't just important for faster email and video games -- it's the central nervous system for democracies and economies of the future:

Broadband is indispensable infrastructure for the 21st century. It is already becoming the foundation for our economy and democracy in the 21st century... [and] will be our central platform for innovation in the 21st century.

How indispensable is it? In a study of 120 countries, researchers found that every 10 percent increase in broadband adoption increased a country's GDP by 1.3 percent.

Unfortunately, when it comes to broadband, America is also falling behind.

In 2001, the United States ranked 4th among industrialized countries in broadband access. By last year, we had dropped to 15th. As for average broadband download speed, we rank 19th.

Nearly 93 million Americans still don't have broadband in their homes. And while 82 percent of those who attend college in the U.S. have access to broadband, only 46 percent of high school graduates do.

To help close the widening gap between us and the rest of the digitally connected world, the Obama administration has proposed a National Broadband Plan, with the goal of increasing broadband access from around 65 percent currently to 90 percent by 2020.

The proposed plan would make high speed broadband available to 100 million Americans by 2020, and ensure that every high school graduate is digitally literate.

This sounds great. But 2020? Given that we're already behind, how about initiating a broadband version of the Manhattan Project? If it's truly a priority, and, as seems obvious, important to national security and the relative position of the United States in the world, why put it off for a decade?

Another focus of innovation is the green economy. One proposal that would jumpstart green innovation is the creation of a Green Bank, which, according to John Podesta and Karen Kornbluh, would "open credit markets and motivate businesses to invest again," and "enable clean-energy technologies -- in such areas as wind, solar, geothermal, advanced biomass, and energy efficiency -- to be deployed on a large scale and become commercially viable at current electricity costs."

Such a bank would also help loosen the available credit for small businesses, and establish the reliable source of funding entrepreneurs need to know will be there if they devote themselves to green technologies and start ups.

Fortunately, such a proposal is already making its way through Congress. Reed Hundt, the former FCC chair under President Clinton, is now the head of a group called the Coalition for Green Capital, whose goal is "to establish a government-owned, wholesale, non-profit bank that would fill the void that exists in clean-energy legislation in America today." Hundt is currently joining Congressman Ed Markey in trying to make the Green Bank proposal part of the next jobs bill. Which makes sense, since, according to Hundt's group, a Green Bank would create about four million jobs by 2012.

Another area ripe for innovation is our immigration policy -- particularly when it comes to granting visas to foreign-born entrepreneurs.

Great ideas come from all over the world, and if we don't welcome the people with those great ideas and make it easy for them to come here, they will go elsewhere. Indeed, they already are going elsewhere. Right now the U.S. has an immigration limit for skilled workers of 65,000, and an additional 20,000 slots for those with advanced degrees from U.S. universities. This kind of rigid cap doesn't make sense in today's world. The "visa process has been plagued with backlogs resulting from this quota," says Jonathan Ortmans, a senior fellow at the Kauffman Foundation. "As a result, high-skilled immigrants are looking for opportunities elsewhere in an increasingly competitive global labor market, taking their innovative ideas with them."

Enter the people behind startupvisa.com, a group with an innovative proposal for increasing America's share in the global idea marketplace. They want to make it easier for foreign entrepreneurs to come to America and start job-creating business.

Our current law allows foreign investors to get a visa if they start a business in the United States with $1 million in capital that creates at least 10 jobs here. The venture capitalists behind Start Up Visa want to shift the emphasis from foreign investors to foreign entrepreneurs who can get funding from American investors. The idea is to reward good ideas. And by requiring those with good ideas to first get foreign funding, you make it more likely they will just decide to create their companies someplace else too.

This proposal is also in the legislative pipeline. The Start Up Visa Act is co-sponsored by Sens. John Kerry and Richard Lugar. According to the Washington Post, their bill "would create a two-year visa for immigrant entrepreneurs who are able to raise a minimum of $250,000, with $100,000 coming from a qualified U.S. angel or venture investor. After two years, if the immigrant entrepreneur is able to create five or more jobs (not including their children or spouse), attract an additional $1 million in investment, or produce $1 million in revenues, he or she will become a legal resident."

Kerry and Lugar made their case in a recent op-ed:

At a time when many are wondering whether Democrats and Republicans can come together on anything, there is at least one area where we're in strong agreement: We believe that America is the best country in the world to do business. And now is the time to reach out to immigrant entrepreneurs -- men and women who have come from overseas to study in our universities, and countless others coming up with great ideas abroad -- to help drive innovation and job creation here at home.

The senators, who hope to pass the measure this month, are positioning it as a jobs initiative, not an immigration reform initiative, and hope to include it as part of a larger bill aimed at helping small businesses add jobs. "This bill is a small down payment on a cure to global competitiveness," Kerry told BusinessWeek.

These, of course, are just three ways of promoting innovation. But they are prime examples of what we need if we are to shake off our complacency and avoid the slow slide to third world status.

America is rich with resources -- both natural and human -- but we can no longer afford to utilize them so inefficiently. We can't afford to be the only nation in the industrialized world in which half the country doesn't have access to broadband. We can't afford to allow other nations to take the lead in creating a green economy. And we can't afford to keep making it so hard for people with job-creating ideas to start their businesses here.

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