American Innovation: Nope, Not Dead Yet

A new report from the National Science Board says that when it comes to high tech industries, the U.S. is still by far the global leader.

Reuters

There's a common trope that the United States, having been gutted of its manufacturing jobs by the brute force of globalization, is now on the verge of giving up its crown as the world's leading innovator. Yesterday, The Washington Post published an article on our loss of high-tech manufacturing jobs to Asia that played right into the theme. Here was the apocalyptic lede:

The United States lost more than a quarter of its high-tech manufacturing jobs during the past decade as U.S.-based multinational companies placed a growing percentage of their research-and-development operations overseas, the National Science Board reported Tuesday.

Scary stuff. And a bit overwrought.

There's no question that the U.S. needs to be vigilant about its place as the world's research lab. But when it comes to R&D, we're still number one, and the report cited by the Washington Post, "Science and Engineering Indicators 2012," actually helps our case.

In 2009, the United States was responsible for 31% of of the world's R&D spending. That was down from 38% in 1999. As the Post dolefully notes, R&D expenditures in "China and nine other Asian countries have risen to match that of the United States." Is that so scary? It takes China, Japan and eight other high-growth Asian countries just to equal total research spending in the U.S. Are we supposed to mourn the death of a unipolar R&D age?

The picture brightens further once you look at US R&D growth independently. From 2004 to 2009, it grew from $302 billion up to more than $400 billion. Even after the recession, investment (at least, non-residential investment) in the United States has been anything but moribund.

Some American corporations have moved their highly technical design and engineering work to manufacturing centers in Asia, particularly China. But that shift hasn't been dramatic. In 1999, U.S.-based multinationals spent 87.4% of their R&D budgets, about $126 billion, domestically. In 2009, they spent 84.3% of their budgets here, or roughly $199 billion. We're taking a similar slice of a much bigger pie.

So a massive shift in R&D towards Asia is still largely hypothetical. But what about those hundreds of thousands of high tech manufacturing jobs we've lost? In some industries, the losses have been due to the migration of manufacturing to Asia, such as personal electronics. But that's just a piece of the story. We can also blame the recession and the large jumps in U.S. productivity fueled by technological advances.

In the end, the U.S. still has the world's most robust set of high-tech manufacturing industries, which according to the NSB include pharmaceuticals, communications equipment, computers, aircraft and spacecraft, scientific and measuring equipment, and semiconductors. We may not rule in cell phones these days, but we do well in aircraft and drugs. Measured by value added, the U.S. high tech sector was worth $390 billion in 2010. Compare that to the second place European Union, at $270 billion, and third place China, at $260 billion.

Should we be on guard? Yes. We need to keep investing in education and research to maintain our place in the world of discovery and technology. But, despite some dour headlines, we're still here.