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America is Losing Its Innovation Edge

Posted by: Bruce Nussbaum on November 15, 2009

Fareed Zakaria wrote an excellent book, The Post American World: The Rise of the Rest, in which he said the relative decline of the U.S. was due to political, not economic problems. As someone who’s covered the global economy for decades, and as an old Political Science major, the argument never satisfied. Fareed was right about the delta—the direction of decline, but wrong about the cause. It was economic, as well as political.

Now Fareed is saying what we concede to be increasingly true—the U.S. is losing its edge in innovation. And with that loss, comes the loss of geopolitical clout. President Obama’s trip to China is about soothing our banker, not pressuring for civil rights.

Americans are finding it hard to accept their decline in the world. They can’t admit that smart Asians and Europeans and others are not coming to the U.S. nearly as much as they used to for study. Or that there are increasingly more innovative startups outside the U.S. than inside the country. They don’t see all the people who got advanced degrees at U.S. universities going home to greater opportunities.

Our policy-makers find it hard to understand the consequences of U.S. corporations outsourcing their R&D to China and India or the firing of top-rate engineers, scientists and designers in the U.S. so they can be replaced by cheaper brains overseas.

Mike Mandel has a great cover story out that says “Over the past year, U.S. employment of scientists and engineers—the people who create the next generation of products and make the U.S. more competitive over the long term—has fallen by 6.3%, according to a BusinessWeek tabulation of unpublished data. Yet overall employment has fallen only 4.1%.” Corporations are firing designers, engineers, scientists while cutting back on employee education—outsourcing just about everything overseas. To what consequence?

In Washington, they don’t see the consequences of an immigration policy that favors the uneducated over the educated. Or an economy based on illegal cheap labor rather than one based on high-value skills.

Perhaps the wake-up call is the growing realization that we have just had what we said we would never have—A Lost Decade. Just like Japan, we’re waking up to see the S&P 500 recover to 10,000—where it stood in 1999. We’re discovering that our past decade of prosperity was bought with debt and speculation, not innovation and productivity.

I’m not totally despairing. Gen Y is a Learn-Share-Make generation that appears very comfortable with a Design Thinking-type of collaborative, iterative, generative paradigm necessary for innovation. Their use of social media platforms and a general comfort level with digital technology makes Gen Y a born-again innovation generation. I see it almost every day at the Parsons School of Design and so do my buddies at Stanford, the IIT Institute of Design, CCA, the Rotman School of Management, CMU, the U of Cincinnatti and dozen other places of higher learning in the US. They are a tool-using generation that likes to remix and makes new stuff.

I don’t see much of this at the policy-making level. President Obama is making some good moves in the direction but not nearly enough. City mayors are way behind their conterparts in Asia and Europe. And as for our business elite, I mostly do despair. There is a big nostalgia binge for Peter Drucker because he saw management as a practice, a calling, like a doctor, with all the social responsibility to employees and community and nation that the notion implies. What we now have is a business elite divorced from nation, community and employees, working only for “shareholders” who belong to a narrow speculative financial culture. It’s hard to make innovation work in that environment.

Maybe the Boomers who are messing up badly should all just move over and let Gen Y take power now.

Reader Comments

Daniel Christadoss

November 16, 2009 12:51 AM

Change as we say is always refreshing and good for all economies. The Gen Y is definitely a smarter generation. I see a lot of my Boomers falling by the way side as the tool using generation moves on with innovation and growth. There will always be that section of boomers who will by their knowledge, experience and tool using capability who will continue to run as fast. They will continue to innovate and contribute side by side. We have seen Deming and Juran contribute to the world well into their eighties. We generally do not talk about the unsung heroes which are part and parcel of every company. However if we look at the example of ESSAR of India this theory may not fly. But ESSAR does not dabble in cutting edge technology directly.

Sorry to disappoint you, but Gen Y isn't going to save US.

November 16, 2009 1:49 AM

"President Obama is making some good moves" Really?
Please elaborate on a few of them, Bruce.

Bob Clarebrough

November 16, 2009 11:04 AM

As usual, the question of American pre-eminence in innovation is totally misunderstood, both by Nussbaum and Zakaria.

Scientists and engineers are being fired by firms? That may be excellent news - many of them will use their newfound freedom to set up their own busnesses to develop the ideas that they couldn't sell to the large firms that employed them.

And what new industries might emerge? As I write, two sub-scale modules of a future space habitat are in orbit - one for over three years and the other for more than two and both performing flawlessly. These are the product of a hotel magnate who has entered the emerging private-enterprise space industry and is now called to Washington to explain how things will develop to lawmakers. In July this year a satellite was launched successfully by SpaceX - the first privately-built rocket to put a payload into orbit. These are but two examples of many companies who are producing breakthrough products and capabilities and building a new-to-the-world industry (and who are urgently recruiting scientists and engineers!). And garage tinkerers too. A father and son team from California recently competed in the Northrop Grumman lunar lander challenge with their home-built lander.

The work going in space, biotech, nanotech, clean energy, smart infrastructure technology and more is evidence of a new golden era in American innovation, not the end of an era.

Finally, read Amar Bhide's book, The Venturesome Economy, and discover that innovation only works when it is married with management skills, sales and marketing skills, and a willingness to take risks that exist to a much greater extent in the US than elsewhere. Bhide also highlights the importance of the venturesome consumer who is willing to try the new and untested innovations that are presented. Again, this is a feature of the American people.

Innovation can and does happen everywhere. But nowhere is participation so widespread as it is in America. How many father/son teams around the world have built a lunar lander?

Murli Nagasundaram, PhD

November 16, 2009 12:17 PM

I recall that the 1980's used to be known as America's "Me Decade" with its concominant "Me Generation". Such pronouncements from the media did nothing to dampen innovation in the US; if anything, the 1980's and the 1990's were technologically very significant. The big danger is from the younger generation becoming complacent -- unlikely, after the downturn. There is a lot of anger directed at Wall Street, and bear in mind that Twitter and Facebook are YouTube are under five years old. Innovation is alive and well in the US, but this time around, the US will face stiff competition from Asian giants. The young techies in Bangalore today are an entirely different species from the ones I knew in the early 1980's: they are bright, ambitious, worldly-wise, aggressive, and, yes, plugged into innovation. I think competition from around the world won't kill American innovation but stimulate it to attain greater heights.

So I'm not giving up on US innovation yet. Not for a while.


November 16, 2009 3:42 PM

Boomers went to the moon - what the hell did Gen Y do? Gray boomer engineers write lots of columns in engineering mags about what's wrong. These guys know. You don't have any idea. Just like this fixation on the younger generation solving all our problems. What a joke. You don't have any idea what the problem is.


November 16, 2009 4:06 PM

...move over and let Gen Y take power now? Sounds like the argument women can do anything a man can do... if only someone would give her permission, and loan her a bunch of money, and give her special treatment as a woman-owned business.
Many boomers have already retired. What else do you want? Maybe the REAL problem is that America has become a nation of liars and cheats.

Melissa Dutmers

November 16, 2009 5:41 PM

Hi Bruce,
You noted, "In Washington, they don’t see the consequences of an immigration policy that favors the uneducated over the educated. Or an economy based on illegal cheap labor rather than one based on high-value skills."

Sounds like a social elite divorced from the principles in which the U.S. was founded. I love the rest of your article, but your statement is equivalent to the accusations you make of the "business elite"?

Mark Proffitt

November 16, 2009 5:51 PM

Predictive Innovation Method reveals all innovations for any product, service or entire industry and quickly shows how to create it. This game changing approach has been offered to US companies and government but leaders in the USA say, "We don't need it."

Other countries like Mexico and Thailand set up ministry level meetings to discuss implementing this technology nationwide. They say, "We need help being innovative. Innovation will give us an advantage."

When Dr. W. Edwards Deming offered statistical process control to US Auto Makers he was told, "We don't need it." Japan eagerly embraced it and became the world leader. The same thing is happening again with innovation.

Steve from Cali

November 16, 2009 5:59 PM

Yup...which is why the Republican Party is the greatest threat to America. Between its support of so-called free trade, and its nativist bigotry, the GOP has managed to both export skilled jobs overseas and to send a signal to the world's best and brightest that they are not welcome here. Good job!


November 16, 2009 6:27 PM

This article touches on the most important aspects of the political and economic decline in the USA. The problem is that the author seems to be pinning his hopes on Gen Y because its members are so hard-wired into social media, technology, and "ideas." What this author fails to mention is that Gen Y is one of the most spoiled "ME" generations of all time. Its members have rewarded and coddled throughout their lives, often receiving rewards and accolades for having accomplished nothing except to wake, eat, and sleep. Most of the Gen Y types we have encountered in our field (Information Technology) think that the world owes them big salaries and continual accolades just because they show up at the workplace. Anyone who has high hopes for Gen Y to pull this nation out of its descent might as well be smoking the ganja and hoping that alone will preserve his body forever.

Gregory Pleshaw

November 17, 2009 4:27 PM


I agree with your comment that Obama's trip to China lacked the commitment to civil rights that should be our nation's top priority, and I think you're also right that the smart money is no longer on the US as the cutting edge of everything.

However - there's an interesting article called "China's Economy: Beyond All the Hype" in Business Week (your own magazine) from the October 22, 2009 edition, by Dexter Roberts and Pete Engardio that bears re-reading insofar as China's own lack of innovation. Best summed up by the line, "Name a Chinese Brand,"it essentially points out the difficulty of a nation that is so bent on controlling the Internet (an essential component of the Learn-Share-Make generation) to control its populace limits innovation because "sharing" is not allowed and actually is punishable by charges of industrial espionage.

Throughout the West, Gen Y is already taking power to a degree and many are doing so by leaving the US - I see peers fleeing the country in droves to re-settle in places like Australia and Europe, not just because the US economy is shrinking and the credit crunch is making it impossible to buy homes and such, but because a crucial component of the Learn-Share-Make generation requires an infusion of new ideas and greater intellectual stimulus - and let's face it, America really likes to play like it's dumb as dirt a lot of the time. Witness the row over health care - feces-slinging loonies on Fox News arguing over abortion rights in the year 2009? Someone like Sarah Palin actually being handed a microphone when she talks about running for President? Morons like Lou Dobbs allowed to continue railing against Mexicans ad naseum like the racist cracker he is?

Goodness gracious.

Unlike their Asian counterparts, particularly in China, where Internet censorship is a norm, Western intellectuals and innovators absolutely expect - and require - a freeflow of information in order to create new ideas and new products. But let's face it - our dominant news sources are just an absolute joke when it comes to discussions of Real Quality or Real Ideas. While alternative viewpoints and alternative ideas are just a mouse-click away in the age of the Internet, many US smarties find that the *source* of many of these ideas or the nexus points where these discussions are occurring are happening OUTSIDE THE UNITED STATES, where people are just too proud to let absolute ninnies like Limbaugh, Palin, Dobbs, etc. run the national dialogue.

President Obama is a smarty and I trust his long-term strategy in foreign policy - for the moment. His call for the release of Burmese pro-democracy leader Aung San Suu Kyi at the ASEAN conference in Singapore on Sunday showed a real commitment to US interests in the spread of human rights across the globe. However - people like him on the national stage are in very short supply, and those who might stick around to help the US out of its current morass are thinking that the grass might be looking a little bit greener elsewhere.

warmest regards
Gregory Pleshaw

Sergei Dovgodko

November 18, 2009 1:40 AM

They are comfortable but but capable due to generally low degree of eduction. Plus, the US eduction system does not really promotes design thinking. The reality is that very few young graduates are able to design anything - product or business.

khaja ansari

November 18, 2009 3:16 AM

To me innovation often depends having different perspective. Perspective comes from experience. However if we bombard transformative experiences to many youngesters they can gain different perspective. There are two things we need to understand in the context of innovation. The one which is visible and other invisible. What we see and talk is about creativity and innovation. But the invisible thing is curiosity. Curiosity leads to creativity, and creativity leads to innovation. That means we should know the components of curiosity which will lead to creativity and innovation. To me they are
1. Good observation
2. Asking penetrating questions
3. Having a confidence
4. No negative judgment.
khaja ansari
management consultant


November 19, 2009 4:01 PM

You are half-correct: the Boomers are blocking the way forward.

While I appreciate your enthusiasm for Gen Y-ers, it is erroneous to look past the contributions Gen X-ers have been making to keep the ball moving down the field, as it were.

Gen Y may be overly enthusiastic and adaptable, but without the experience and insights Gen X have about "the way it's always been done," they do not have the perspective necessary to lead that change, as Khaja mentions in the comment above.

Nice Magazine

November 22, 2009 5:06 AM

Only post comments that favor your position.

Keep up the good work! I sincerely hope Bloomberg keeps you around.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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