US CONSUMERS SPENT $2BN MORE ON CRISPS THAN THE FEDERAL GOV’T’S TOTAL INVESTMENT ON ENERGY R&D IN 2009

When we published Big Potatoes: the London Manifesto for Innovation last year we never anticipated potatoes would ever  feature literally in headlines about the crisis of innovation facing the West. But the innovation debate works in mysterious ways as witnessed in the startling statistic to emerge from the report issued by the National Academies Press Rising Above the Gathering Storm, Revisited; namely, that American consumers spend more on crisps than the Federal Government invests in energy R&D!

As journalist Janet Raloff correctly points out : ‘There’s something wrong, here, when Americans are more willing to empty their wallets for the junk food that will swell their waistlines than for investments in the engine driving the creation of jobs, economic growth and national security’. What she and this illustrates is that America is facing a crisis in innovation. Rising Above the Gathering Storm, Revisited, paints a damning picture of the decline of US innovation and graphically demonstrates the depth of the crisis it is now facing.

Before listing some examples of this crisis from the report, it is important to point out that this report was written by the same blue -ribbon panel of US research leaders who published a call to arms in 2005 called Rising Above the Gathering Storm. This Committee is chaired by Norman R Augustine, the retired chairman and CEO of Lockheed Martin Corporation and a former Undersecretary of the Army and contains luminaries which include Craig Barrett, retired chairman and CEO of Intel, Richard Levin, president of Yale University and the Frederick William Beinecke Professor of Economics, Lee R Raymond, the retired chairman of the Board and CEO of Exxon Mobil Corporation and other CEOs and leading academics.

Thus, this is no lightweight report, and nor are its conclusions hysterical. Its conclusions however, could be drawn from the Big Potatoes Manifesto.

Knowledge, technology and unexpected outcomes

The original Gathering Storm competitiveness report published in 2005 focused on the ability of America to compete for jobs in the evolving global economy. The new report attempts to assess what has changed in the years since the first report on American competitiveness was written. It paints a daunting outlook for America if it continues on the ‘perilous path it has been following in recent decades with regard to sustained competitiveness’.

The fundamental point the Gathering Storm report made in 2005 was the connection between knowledge, particularly technology knowledge, productivity, competitiveness and employment.

The report drew upon Nobel Laureate Robert Solow’s economic work that showed, in part, that well over half of the growth in United States output per hour during the first half of the twentieth century could be attributed to advancements in knowledge, particularly technology. This period was, of course, before the technology explosion that has been witnessed in recent decades. The National Academies Gathering Storm committee concluded in 2005 that a primary driver of the future economy and concomitant creation of jobs would be innovation, largely derived from advances in science and engineering. As the report points out,

‘While only four percent of the nation’s work force is composed of scientists and engineers, this group disproportionately creates jobs for the other 96 percent.’

In the new report, the authors draw out the intimate connection between the discovery of new knowledge through science and how this impacts upon the creation of new industries, jobs and thus economic growth.

This connection is at the core of the Big Potatoes Manifesto.

The report is so elegant in its prose that its worth quoting this section at some length:

‘When scientists discovered how to decipher the human genome it opened entire new opportunities in many fields including medicine. Similarly, when scientists and engineers discovered how to increase the capacity of integrated circuits by a factor of one million as they have in the past forty years, it enabled entrepreneurs to replace tape recorders with iPods, maps with GPS, pay phones with cell phones, two-dimensional X-rays with three-dimensional CT scans, paperbacks with electronic books, slide rules with computers, and much, much more. Further, the pace of creation of new knowledge appears by almost all measures to be accelerating. Further, the pace of creation of new knowledge appears by almost all measures to be accelerating.

‘Importantly, leverage is at work here. It is not simply the scientist, engineer and entrepreneur who benefit from progress in the laboratory or design center; it is also the factory worker who builds items such as those cited above, the advertiser who promotes them, the truck driver who delivers them, the salesperson who sells them, and the maintenance person who repairs them—not to mention the benefits realized by the user. Further, each job directly created in the chain of manufacturing activity generates, on average, another 2.5 jobs in such unrelated endeavors as operating restaurants, grocery stores, barber shops, filling stations and banks. Progress enabling products such as those mentioned above in the information fields is built upon the work of a few individuals who decades ago were investigating something called solid state physics—none of whom probably ever thought about CT scans, GPS or iPods—the latter of which can enable one to hold 160,000 books in one’s pocket—any more than one today can predict the breakthroughs a half century hence.’

Five years a go the Gathering Storm report noted four very disturbing trends underpinning America’s position with respect to each of the principal ingredients of innovation and competitiveness—Knowledge Capital, Human Capital and the existence of a creative “Ecosystem”:

  • With regard to Knowledge Capital it was noted that federal government funding of R&D as a fraction of GDP has declined by 60 percent in 40 years;
  • With regard to Human Capital, it was observed that over two-thirds of the engineers who receive PhD’s from United States universities are not United States citizens;
  • With regard to the Creative Ecosystem it was found that United States firms spend over twice as much on litigation as on research;
  • With regard to United States K-12 education,the US on average was a laggard among industrial economies—while costing more per student than any other OECD country.

So what’s changed since The Gathering Storm?

The unanimous view of the committee members participating in the preparation of the latest report is that the US’s outlook has worsened. While progress has been made in certain areas—for example, launching the Advanced Research Projects Agency-Energy—the rise of national debt (from $8 trillion to $13 trillion) means there is now less latitude to fix the problems. Moreover, in spite of sometimes heroic efforts and occasional very bright spots, the overall public school system—or more accurately 14,000 systems—has shown little sign of improvement, particularly in mathematics and science. Finally, and perhaps most worrying for the Report’s authors, ‘many other nations have been markedly progressing, thereby affecting America’s relative ability to compete effectively for new factories, research laboratories, administrative centers—and jobs’.

Their conclusion?

Innovate, and in order to foster innovation, strengthen the public school system and invest in basic scientific research.

And the need for this is now compelling. Since 2005 the US’s position has deteriorated as the following examples quoted from the report illustrate:

  • Thirty years ago, ten percent of California’s general fund went to higher education and three percent to prisons. Today, nearly eleven percent goes to prisons and eight percent to higher education;
  • China is now second in the world in its publication of biomedical research articles, having recently surpassed Japan, the United Kingdom, Germany, Italy, France, Canada and Spain;
  • The United States now ranks 22nd among the world’s nations in the density of broadband Internet penetration and 72nd in the density of mobile telephony subscriptions;
  • In 2009, 51 percent of United States patents were awarded to non-United States companies;
  • The World Economic Forum ranks the United States 48th in quality of mathematics and science education;
  • Of Wal-Mart’s 6,000 suppliers, 5,000 are in China;
  • There are sixteen energy companies in the world with larger reserves than the largest United States company;
  • IBM’s once promising PC business is now owned by a Chinese company;
  • The legendary Bell Laboratories is now owned by a French company;

Hon Hai Precision Industry Co. (computer manufacturing) employs more people than the worldwide employment of Apple, Dell, Microsoft, Intel and Sony combined;

  • No new nuclear plants and no new petroleum refineries have been built in the United States in a third of a century, a period characterized by intermittent energy-related crises;
  • Only four of the top ten companies receiving United States patents last year were United States companies;
  • The world’s largest airport is now in China;
  • In 2000 the number of foreign students studying the physical sciences and engineering in United States graduate schools for the first time surpassed the number of United States students;
  • Federal funding of research in the physical sciences as a fraction of GDP fell by 54 percent in the 25 years after 1970. The decline in engineering funding was 51 percent;
  • GE has now located the majority of its R&D personnel outside the United States;
  • Manufacturing employment in the U.S. computer industry is now lower than when the first personal computer was built in 1975;
  • In the 2009 rankings of the Information Technology and Innovation Foundation the U.S. was in sixth place in global innovation-based competitiveness, but ranked 40th in the rate of change over the past decade;
  • China has now replaced the United States as the world’s number one high-technology exporter;
  • Eight of the ten global companies with the largest R&D budgets have established R&D facilities in China, India or both;
  • During a recent period during which two high-rise buildings were constructed in Los Angeles, over 5,000 were built in Shanghai;
  • In a survey of global firms planning to build new R&D facilities, 77 per cent say they will build in China or India;
  • Sixty-nine percent of United States public school students in fifth through eighth grade are taught mathematics by a teacher without a degree or certificate in mathematics;
  • Ninety-three percent of United States public school students in fifth through eighth grade are taught the physical sciences by a teacher without a degree or certificate in the physical sciences;
  • The United States ranks 27th among developed nations in the proportion of college students receiving undergraduate degrees in science or engineering;
  • The United States graduates more visual arts and performing arts majors than engineers;
  • The total annual federal investment in research in mathematics, the physical sciences and engineering is now equal to the increase in United States healthcare costs every nine weeks;
  • In less than 15 years, China has moved from 14th place to second place in published research articles (behind the United States);
  • For the next 5-7 years the United States, due to budget limitations, will only be able to send astronauts to the Space Station by purchasing rides on Russian rockets;
  • China’s Tsinghua and Peking Universities are the two largest suppliers of students who receive PhD’s—in the United States;
  • Since 1995 the United States share of world shipments of photovoltaics has fallen from over 40 percent to well under 10 percent—while the overall market has grown by nearly a factor of one hundred;
  • By 2008, public spending in the United States on energy R&D had declined to less than half what it was three decades ago in real purchasing power. By 2005, private investment had declined to less than one-third of the total;
  • A single Japanese automobile model constitutes about half of the U.S. hybrid market;
  • Japan has 1524 miles of high-speed rail; France has 1163; and China just passed 742 miles. The United States has 225. China has 5612 miles now under construction and one plant produces 200 trains each year capable of operating at 217 mph. The United States has none under construction;
  • Roughly half of America’s outstanding public debt is now foreign owned—with China the largest holder;
  • There are 60 new nuclear power plants currently being built in the world. One of these is in the United States;
  • Between 1996 and 1999, 157 new drugs were approved in the United States. In a corresponding period ten years later the number dropped to 74.57;
  • Youths between the ages of 8 and 18 average seven-and-a-half hours a day in front of video games, television and computers—often multi-tasking;
  • In 2007 China became second only to the United States in the estimated number of people engaged in scientific and engineering research and development;
  • In January 2010, China’s BGI made the biggest purchase of genome sequencing equipment ever;
  • In May 2010, a supercomputer produced in China was ranked the world’s second-fastest;
  • According to the ACT College Readiness report, 78 percent of high school graduates did not meet the readiness benchmark levels for one or more entry-level college courses in mathematics, science, reading and English.

It doesn’t bear thinking about what a similar audit of the UK and many other European countries would reveal. For anyone skeptical about the claims made in the Big Potatoes Manifesto, this report should be a wake-up call. It reveals the consequences of a business culture that has become risk-averse and which is driven by short-term pragmatism and instrumentalism.

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