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National Research Council (US) Committee on Comparative National Innovation Policies: Best Practice for the 21st Century; Wessner CW, Wolff AW, editors. Rising to the Challenge: U.S. Innovation Policy for the Global Economy. Washington (DC): National Academies Press (US); 2012.

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Rising to the Challenge: U.S. Innovation Policy for the Global Economy.

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The ability to combine theory, creativity and engineering was a great achievement of postwar America. For 50 years, economic growth and job creation were propelled by transistors, lasers and other discoveries that came from the willingness to nurture theoretical research in conjunction with applied science and manufacturing skills. But these days, manufacturing is being outsourced, and funding for pure sciences is being curtailed. With Bell Labs and other such idea factories disappearing, and with government research money endangered, what will propel innovation and job creation for the next 50 years?

Walter Isaacson, New York Times, April 8, 20121

The capacity to innovate is fast becoming the most important determinant of economic growth and a nation’s ability to compete and prosper in the 21st century global economy. Innovation encompasses not only research and the creation of new ideas, but the development and effective implementation of the technology into competitive products and services. Governments around the world now recognize that innovation, not just inputs such as capital and labor, is critical to sustaining economic growth, creating good jobs, and fulfilling national needs. Industrialized nations and emerging powers alike have boosted spending on research and development and unveiled comprehensive national strategies to build innovation-led economies. Indeed, just as the global movement toward freer markets in the 1990s became known as the Washington Consensus, the second decade of the 21st century is witnessing the emergence of what may be called the Innovation Consensus.

At the same time that the rest of the world is investing aggressively to advance its innovation capacity, the pillars of America’s innovation system are in peril. America’s public research universities are facing severe financial constraints. High budget deficits and public debt are exerting extraordinary pressure on federal and state lawmakers to cut spending on the very things that made the United States the world’s innovation leader in the post-war era—and that are needed to keep the U.S. economy competitive and productive.

Policymakers are being forced to make painful choices about funding for universities, applied-research programs, help for small business, and new energy technologies. While other nations race to build state-of-the-art transportation systems and ubiquitous high-speed broadband networks, America’s critical infrastructure suffers from a lack of sustained investment needed to match rising world standards. Failure to invest in these areas threatens to inflict long-term damage to America’s innovation ecosystem, and therefore to its economy and security.

Formulating policy to shore up competitiveness is complicated by the fact that the United States is one of the few industrialized nations whose policymakers have traditionally not thought strategically about the composition of the nation’s economy. America’s international competitiveness is based on its capacity to innovate and manufacture new services and high-technology products. While innovation is often thought to result from the operation of a free market, in fact the government plays an instrumental role through its investments in R&D, as well as through policies that foster the commercialization of new ideas.

Since World War II, U.S. science and technology policy has been conducted under the assumption that federally funded basic research will be translated by the private sector into commercial products and new U.S. industries. Indeed, sometimes this transfer to the private sector does occur as expected. In many other cases, such as with nuclear power, computers, semiconductors, and aerospace, early government support and procurement has proved critical to the development of new industries. But the popular mythology that the American economy has thrived for decades under solely a laissez-faire tradition and linear approach to innovation policy tends to discount both the complexity of innovation and the vigorous government role in the development and deployment of new technologies. It is not just policies directly addressing the development and deployment of new technologies but also policies concerning tax, trade, intellectual property, education and training, and immigration, among others that play a role in innovation. In an age where Internet content is increasingly important to the economy, a broad range of skills is needed to secure American capabilities in innovation and competitiveness.

Whatever its source, America’s preeminence no longer can be taken for granted. New players that regard innovation as a matter of strategic importance are on the rise. Many governments are seeking to adapt the best features of America’s innovation ecosystem, such as close collaboration between universities and business, public and private pools of risk capital, and programs that encourage researchers to start up their own companies.

Most other industrialized nations also are taking strong measures to bolster industries in which they are or wish to be competitive and to gain the benefits of jobs and growth afforded by established or emerging high-tech industries. In this highly competitive environment, the U.S. needs, once again, to devote policy attention and resources to the process of innovation because our future competitiveness as a nation is at stake. This commitment is needed if high paying jobs in sufficient numbers are to be created and if America's security is to be assured. The U.S. must understand and urgently address the underlying factors that may be weakening industries in which we might well compete.2 The world of innovation is undergoing rapid and significant change, and America must change with it if the nation is to continue to prosper.

But what exactly should a national innovation policy look like and aim to achieve? In its essence, innovation is the alchemy of transforming ideas into new goods, services, and processes. Fortunately, the United States remains very strong in innovation as it is generally referred to—having ideas that have economic value to the inventors and in many cases other social value. Yet to create substantial value for the U.S. economy, policy must seek to achieve more than to encourage discovery and invention. America’s tremendous investments in research and development cannot just be seen as a global public good. The fruits of innovation should translate into new marketable products, companies, industries, and jobs—and better living standards for Americans. There was a time when the proximity of U.S. companies' production to U.S. researchers was sufficient to give U.S. companies a big advantage that made speed less critical. Modern information and communications technologies have greatly reduced the significance of proximity, and many countries are taking actions to increase the pace of innovation.

Understanding how this process works—and how it can be advanced with public policy—is no simple task. The transformation of ideas into economic value occurs within adaptive networks of people and institutions that interact in complex, often ad-hoc ways. National “innovation ecosystems” typically include universities, private enterprises, public agencies, pools of investors, and national laboratories. Cultural norms and policy frameworks condition and shape interactions within and among these organizations. What’s more, the innovation process can no longer be confined within geographic boundaries. Globalization has ushered in a swiftly evolving new paradigm of borderless collaboration among researchers, developers, institutions, and entrepreneurs spanning the world.

Many nations and regions have developed strategies to commercialize and industrialize technological advances. These efforts demand attention from American policymakers. By investing in extensive applied technology programs, for example, Germany and Taiwan have remained successful export manufacturers in advanced industries despite relatively high labor costs. European nations such as Finland and Belgium have demonstrated the power of public-private partnerships. Through its steady investments in education and infrastructure, Singapore is seeking to raise the bar of what it takes to compete in knowledge industries. India is demonstrating how to drive economic growth and exploit its intellectual capital by becoming an integral node in international innovation networks—largely through creating the necessary human resource base and avoiding excessive regulation of this entrepreneurial activity. The sheer ambition and scale of China’s investments in science, technology, and next-generation industries, as well as its less laudable interventions, seek to redraw the map of the global economy.


The global economy is characterized by increasing locational competition to attract the resources necessary to develop leading-edge technologies as drivers of regional and national growth. One means of facilitating such growth and improving national competitiveness is to improve the operation of the national innovation system. This involves national technology development and innovation programs designed to support research on new technologies, enhance the commercial return on national research, and facilitate the production of globally competitive products. The Board on Science, Technology, and Economic Policy (STEP) proposes to study selected foreign innovation programs and compare them with major U.S. programs. The analysis, carried out under the direction of an ad hoc Committee, will include a review of the goals, concept, structure, operation, funding levels, and evaluation of foreign programs similar to major U.S. programs, e.g., innovation awards, S&T parks, and consortia. This analysis will focus on key areas of future growth, such as renewable energy, among others, to generate case-specific recommendations where appropriate. The Committee will assess foreign programs using a standard template, convene a series of meetings to gather data from responsible officials and program managers, and encourage a systematic dissemination of information and analysis as a means of better understanding the transition of research into products and of improving the operation of U.S. programs.

The first step toward understanding the implications for public policy of these global trends is to inform ourselves about the new nature of global competition for human and financial capital—not only between and within companies but also between governments.3 To this end, the Committee on Comparative National Innovation Policies (CIP) of the National Research Council’s Board on Science, Technology, and Economic Policy (STEP) convened a series of symposia from 2006 through 2011 examining select innovation policies and programs of different nations and comparing them to those of the United States. These conferences brought together leading government officials, industrialists, academics, researchers, and economists from advanced and emerging nations. The mission was to learn about national strategies designed to meet the new competitive challenges of the 21st century global economy and to identify best practices of private and public programs to strengthen industries, advance new technologies, and meet critical national needs.4 It is important to note that the Committee did not seek to quantify the impact of these national strategies and programs. Nor did it seek to directly compare them with each other, recognizing that these policies and programs combine different levels of resources and organizational forms to seek different sets of outcomes within the contexts of different national innovation systems.

Participants at these conferences addressed topics that included the future of the solar power and advanced battery industries, the issues and opportunities associated with the rise of China and India, successful applied-technology and commercialization programs in Europe and Asia, regional innovation cluster strategies, and the role of such early-stage finance programs as the U.S. government’s Small Business Innovation Research (SBIR) program.

The National Research Council has recently conducted a number of studies of U.S. competitiveness. Of particular note are the 2007 report Rising Above the Gathering Storm5 and a follow-up report published in 2010.6 The Gathering Storm reports focused heavily on the inputs into America’s innovation system, such as K-12 science and math instruction, the supply of scientists and engineers, and federal research funding. The report also included a series of recommendations to address these deficiencies.

This report—the product of a series of international conferences, review of the work of the National Academies and similar institutions, and extensive discussion within the Committee on Comparative National Innovation Policies—by contrast, focuses on the outputs of the innovation process. This volume seeks to increase the understanding of the challenges the U.S. faces in converting new ideas into new commercial products, companies, industries, and jobs. While it endorses the findings of the Gathering Storm reports, the emphasis is on policies and programs that can generate more economic value out of the discoveries and inventions that flow from American taxpayers’ substantial investments in research.


A report of this nature necessarily has limits to its scope. Recognizing this early on, the Committee chose to focus on a limited set of countries and an illustrative set of industries in its review. No single report can cover the full range of issues and technologies on this complex topic.

Choice of Countries and Regions: As noted in the Statement of Task, the purpose of the study is to take a selective review of important (notably China, India, and Germany) as well as noteworthy policy initiatives (e.g., Flanders) to develop national innovation capacity and industrial competitiveness. The intent is not to present an all encompassing overview such as those produced by the OECD but to highlight major developments and national strategies and consider their implications for the United States. The selection of countries was also driven by the willingness of leading policymakers, industrialists, and academics in these countries to engage with the Committee in an in-depth dialogue on these issues.

Choice of Sectors: The Committee also could not look at all sectors in adequate depth, within the necessarily limited scope of the study. It chose to focus on advanced manufacturing because it serves to illustrate a broad set of major challenges facing the U.S. in a highly globally competitive sector. We are aware that the report does not provide an in-depth discussion of very large and important sectors such as bio-medicine, aeronautics, and services, where the U.S. continues to set the technological pace.


This volume draws together our findings from this extensive study while also drawing upon existing research concerning the global competitiveness challenge and the policies and programs that drive it. The report is in two parts. Part I describes the role of innovation in addressing the competitiveness challenge and highlights key policies and programs that leading nations and regions are undertaking to address this challenge. Part I concludes with the Committee’s consensus findings and recommendations. Part II of this report provides supporting data, including in-depth case studies of policies and programs being promulgated in leading nations and regions of the world to accelerate innovation, grow new industries, and foster knowledge-based economic growth. The Overview at the front of this volume draws together the key points.

Part I: The Innovation Challenge

Chapter 1 describes the policies implemented around the world and the rapidly changing competitive landscape, reviewing the challenges they present to America’s technological leadership and our ability to convert research and invention into economic value in the form of new products, companies, industries, and jobs.

Chapter 2 reviews the wide range of innovation policies adopted by other nations and regions, as well as by U.S. states, to attract, retain, and nurture the innovative industries of today and tomorrow. It identifies key trends in foreign programs and contrasts them with the erosion of existing U.S. strengths.

Chapter 3 sets out the Findings of the Committee.

Chapter 4 sets out the Recommendations, the consensus view of the Committee concerning steps the U.S. needs to take to address the challenges and opportunities in research and innovation that the United States faces in the 21st Century.

Part II: Global Innovation Policies

Chapter 5 provides case studies on several major emerging markets (China and India), successful industrializing nations and regions (Singapore and Taiwan), and more mature industrialized nations (Germany, Japan, the Flanders region of Belgium, Finland, and Canada). Despite their wide differences in terms of economic models and levels of development, the striking commonality among the strategies adopted by these nations is that they have adopted national innovation policies that often reflect the influence of U.S. practices, such as greater encouragement for universities to work with industry and incentives to spin off companies.

Chapter 6 of this report addresses America’s global competitive standing and policy approach in emerging high-tech industries. Our case studies are of advanced batteries, next-generation photovoltaic cells, semiconductor manufacturing, and pharmaceutical and bio-medical products. In each of these sectors, the U.S. has been at or near the forefront in terms of innovation and/or the creation of promising start-ups. Translating this advantage into globally competitive industries that create high-paying jobs and drive economic growth, however, is a challenge that the United States must effectively address. The case of semiconductors illustrates that U.S. policy can play a role in restoring and preserving the competitiveness of a critical innovation-intensive industry. The studies of the advanced-batteries and photovoltaic products assess policy strategies and options for bolstering U.S. competitiveness in these promising industries.

Chapter 7 addresses the policy instruments adopted by countries and regions around the world and across the U.S. to rise to the challenges of building innovation-led economies. One method is through the research parks with universities or national laboratories at their nucleus. The chapter explains how new research parks in the U.S. and abroad are adapting to the demands and opportunities of the 21st century global economy. The second part of this chapter analyzes regional innovation cluster initiatives around the U.S. It also explains the evolving role of the federal government in advancing regional innovation clusters. Case studies include bold and innovative initiatives in upstate New York, southeast Michigan, northern Ohio, South Carolina, West Virginia, and New Mexico.

Caveat: A few words are in order on the nature of this report. Our purpose in looking at other countries' innovation systems was to draw some useful lessons for the shaping of U.S. policy. Our intended audience is Congress, Executive Branch agencies, and all those interested in shaping U.S. policies that affect innovation.

Each country examined is markedly different from the United States—for example, Germany is the about the size of one and a half California's, China and India are at very different stages of development—but each offers insights into the thinking of policymakers as to what they think will be most effective to spur innovation. It is through observation of other's policies in this globalized world that the Committee members have informed their views as to what adjustments should be considered in U.S. policies.

The challenges and opportunities being created by the worldwide drive for innovation have never been greater in terms of jobs, income distribution, and ultimately competitive strength and the health of the U.S. economy. There is no single program or legislative enactment that will assure complete success; indeed, there is no panacea. But we are able to identify a series of steps necessary to improving the country's outlook in these regards. It has been said that the right thing to do is often hard but seldom surprising.7 America has great competitive strengths. It is our conviction that if the steps outlined in this report were adopted, our country's future would indeed be brighter.

The responsibility lies fully with the Committee for the recommendations contained in this report.


This Report would not have been possible without the collaboration with numerous scientific academies, scholars, technology company executives, and public officials at home and abroad. It also depended heavily on the volunteer efforts of CIP Committee members over an extended period of time. In particular, special appreciation is due to Bill Spencer, the chair of the Committee during the initial conferences. Special recognition is due to Pete Engardio, formerly of Businessweek, for his drafting and reportorial skills. His ability to synthesize a vast amount of material was essential for a report of this scope. William Noellert deserves our special thanks for his review of data and economic analysis, as does Thomas Howell for his many substantive contributions. Both were important to the scope and quality of this report. This project would not have occurred nor have been brought to its final report stage without the leadership, knowledge of national and international programs, and organizational skills of Dr. Charles Wessner. The commitment and support of his team at the National Academies, including in particular Dr. Sujai Shivakumar, has been central to the production of this report, as have the efforts of David Dierkshiede, McAlister Clabaugh, and David Dawson for the many international conferences that characterized this effort. This report would also not have been possible without its initiation by the STEP Board and the encouragement given to it by the Board and the National Academies, as well as the prior and ongoing work of the Academies on which this report builds.


The National Academies Board on Science, Technology, and Economic Policy would like to express its appreciation for the sustained support of the following agencies and departments: Office of Naval Research, National Institute of Standards and Technology, National Cancer Institute, Department of Energy, Defense Advanced Research Projects Agency, Sandia National Laboratories, and National Science Foundation Their contributions of time, expertise, and financial support were essential to the success of the project.

We would also like to express our appreciation for the active participation and contributions of the following companies and organizations, who share a desire to better understand the changing competitive landscape of the 21st Century: Intel Corporation; International Business Machines; Cisco Systems; Volkswagen Group of America; Palo Alto Research Center; M Square, the University of Maryland Research Park; and Association of University Research Parks.

Acknowledgement of Reviewers

This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Academies’ Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the process.

We wish to thank the following individuals for their review of this report: William Bonvillian, Massachusetts Institute of Technology; James Burns, Sanofi/Genzyme; Erica Fuchs, Carnegie Mellon University; Howard Gobstein, Association of Public and Land-grant Universities; Manuel Heitor, Technical University of Lisbon, Portugal; Ron Hira, Rochester Institute of Technology; Krisztina Holly, University of Southern California; Mark Kryder, Carnegie Mellon University; Richard Lester, Massachusetts Institute of Technology; Raghunath Mashelkar, National Innovation Council of India; Richard Nelson, Columbia University; Charles Phelps, University of Rochester; Clyde Prestowitz, Jr., Economic Strategy Institute; Mu Rongping, Chinese Academy of Sciences; Denis Simon, Arizona State University; James Stevens, Dow Chemical Company; James Turner, Association of Public and Land-grant Universities; and Richard Van Atta, Institute for Defense Analysis.

Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Christopher Hill, George Mason University, and Granger Morgan, Carnegie Mellon University. Appointed by the National Academies, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.


The international competition in innovation is increasing. Globalization has accelerated the pace of change. There is much to be learned from and about foreign measures and policies that will shape the U.S. economy, the nation's security and the well-being of the U.S. workforce. Best practices should be considered for adoption. Measures of foreign governments and entities that distort international competition must be examined and responses crafted. There is much to be gained from international cooperation with respect to global challenges in energy, climate, and health, among others. It is the strongest recommendation of the Committee that that an ongoing work program to address these needs and opportunities be put into place.

To this end, the National Academies Board on Science, Technology, and Economic Policy will establish a new Innovation Policy Forum. The purpose of this forum is to act as a focal point for national and international dialogue on innovation policy. The Forum will bring together representatives from government, industry, national laboratories, research institutes, and universities—foreign and domestic—to exchange views on current challenges and opportunities for U.S. innovation policy and to learn about the goals, instruments, funding levels, and results of national and regional programs and discuss their lessons for U.S. policy and potential impact on the composition of the economy.

Alan Wm. Wolff

Chair, Committee on Comparative National Innovation Policies



Walter Isaacson writing “Inventing the Future” a review in the New York Times of April 8, 2012, of Jon Gertner’s book The Idea Factory – Bell Labs and the Great Age of American Innovation.


Chapter 6 of this report addresses America’s global competitive standing and policy approach in emerging high-technology industries including advanced batteries, next-generation photovoltaics, flexible electronics, and pharmaceutical and bio-medical products.


In multinational companies such as IBM, American workers often compete against Indian, Chinese, and other employees that work in their offshore R&D and manufacturing facilities.


The National Academies Board on Science, Technology, and Innovation (STEP) has underway a study examining Best Practices in State and Regional Innovation Systems across the United States. The study is reviewing the practices and policies of particular regions as well as the synergies between federal, state, and regional efforts to build high tech clusters of competency and growth.


National Academy of Sciences, National Academy of Engineering, and the Institute of Medicine, Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic future, Washington, DC: The National Academies Press, 2007.


National Academy of Sciences, National Academy of Engineering, and Institute of Medicine, Rising Above the Gathering Storm, Revisited: Rapidly Approach Category 5, Washington, DC: The National Academies Press, 2010.


Adam Gopnik in the New Yorker, April 9, 2012, on Albert Camus, in an essay entitled “Facing History” about in part editorials that Camus wrote for Combat a resistance newsletter.

Copyright © 2012, National Academy of Sciences.
Bookshelf ID: NBK100305


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