Technology

Is the U.S. Losing Its Edge in Tech?


The U.S. still leads the world in IT, but other countries are closing the gap, according to a new study for the Business Software Alliance

There's no place like the U.S. when it comes to creating a thriving tech sector. Or is there? The U.S. still has the world's most competitive information technology industry, but its lead is slipping, according to a new study conducted by the Economist Intelligence Unit (EIU) for the Business Software Alliance (BSA).

The study, released Sept. 16, ranks 66 countries in six areas, including the availability of skilled labor, the "innovation friendliness" of a nation's culture, and the strength of its legal protections for intellectual property. The U.S. scored highest overall, but its rating fell from last year, and it was No. 1 in only three of the categories. "America should be proud that it's No. 1, but Americans should also be aware that it can no longer take its leadership for granted," says Robert Holleyman, president and CEO of the BSA, a Washington (D.C.)-based organization that promotes the interests of the software industry.

The EIU's analysis also weighed the quality of a nation's technology infrastructure, measuring the number of PCs per 100 people, market spending on IT hardware per 100 people, the availability of secure Internet servers per 100,000 people, and the percentage of the population with high-speed Internet access. Switzerland, ranked 11th overall, outscored the U.S. on IT infrastructure, which accounted for 20% of a country's score. The study also assessed the openness of a country's economy and the quality of government leadership on technology issues.

No. 5 in R&D Support

In a finding that's likely to vex would-be entrepreneurs, the U.S. scores even further down the list—No. 5—in support for R&D. Taiwan led the category, followed by South Korea, Japan, and Sweden. Here, the EIU scored countries based on the number of new IT-related patents, receipts from royalty payments and licensing fees, and public and private spending on R&D. Holleyman says the BSA plans to share its findings with both major Presidential campaigns and with members of Congress.

The U.S. also lags countries including Canada, Singapore, Britain, and Norway in support for IT development, which accounted for 15% of the overall score. This category covers such things as e-government initiatives, government spending on IT hardware, and access to financing.

The findings of the study will likely renew calls among both IT industry executives and politicians for the country to develop a national innovation strategy as countries such as Finland have done. "America needs a wake-up call," says John Kao, a former professor at Harvard Business School and author of Innovation Nation, a book arguing that the U.S. is losing its edge. "We don't really have a national strategy," he says. "And while I'm not a fan of top-down technocratic approach, I think that at this point in our history, having no strategy is not satisfactory."

Sounding the Alarm

As concerned as he is about U.S. competitiveness, Kao is not a favor of indexes that compare competitiveness among nations, saying they can misrepresent a country's true climate. "They're really abstractions of reality, and they often paint too rosy a picture," he says.

Kao isn't alone in calling the country's competitiveness into question. Judy Estrin, a former Cisco Systems (CSCO) executive, is sounding the alarm as well in a new book, Closing the Innovation Gap, published by BusinessWeek's parent, The McGraw-Hill Cos. (MHP). Estrin says that the lead America enjoys now is the result of work done decades ago, and that the same commitment to innovation and research that existed before has evaporated. "Innovation builds on innovation. We're reaping the benefits now of seeds planted 10, 20, and 30 years ago, and the problem is that we're not planting any more seeds," she says.

The study shows the U.S. still leads the world in the "human capital" category, which measures the number of students attending universities, a country's capacity to train scientists and engineers, and employment in the tech sector as a percentage of the overall workforce. Here too, though, the U.S. lead is threatened. While students from other countries still flock to U.S. universities to get their MBAs and PhDs, tight immigration policies are causing more of those students to go home after graduation. "Our own education system is not producing the innovators we need," Estrin says. "And we're not opening our doors to the best people, and our immigration policy is such that we have been making it harder for them to stay, and so they are going home and innovating elsewhere."

By highlighting vulnerabilities, the study doesn't just trumpet U.S. weaknesses; it points to areas where improvements can be made. "A strong tech industry is crucial to America's ability to address almost every economic and social challenge," Holleyman says in a statement. "Despite our current economic difficulties, the tech sector remains one of the primary engines of the U.S. economy. This index provides a guide to how we can keep that engine moving forward to ensure competitiveness in the future."

See BusinessWeek.com's slide show of the top countries for IT.

Hesseldahl is a reporter for BusinessWeek.com.

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