The US Is Quietly Losing Its Innovation Edge to China

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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 accelerated the shift in the 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 emerging countries to consider building of a “de-Americanized world.” At the same time, an OECD report forecast 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. By 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, mismanagement 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.

Yanzhong Huang is Senior Fellow for Global Health at the Council on Foreign Relations. He blogs at Asia Unbound, where this piece originally appeared. 

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