June 5th, 2011
08:14 AM ET

The innovation challenge posed by China

Editor's Note: Zachary Karabell is president of River Twice Research, where he analyzes economic and political trends.

By Zachary Karabell – Special to CNN

For most of the 20th century, the United States was the undisputed leader in innovation. That could be measured not just in patents filed and products developed but also in the way in which those were adopted throughout the world. These ranged from electronics to weapons to services. There were of course other centers – Japan in the 1970s and 1980s most of all. Yet the scale of spending and an American culture that was friendly to entrepreneurs and innovation gave the United States an edge.

That edge is rapidly eroding today, and not just because spending on R&D in the United States is declining. It is also being challenged by new emerging centers, and none looms larger than China. (Watch the video above for Google Chairman Eric Schmidt on the innovation challenge posed by China.)

China does not yet rank especially high on overall spending. In fact, according to the Organization for Economic Cooperation and Development, the United States is now in eighth place spending about 2.5% of its GDP on research, with Japan, Sweden and Israel all spending more but on aggregate of course spending far less because their economies are significantly smaller.

Tune In: 8pm ET/PT tonight for a special CNN GPS show on "How to Innovate."

But in its new Five Year Plan, the Chinese government is committed to the rapid development of a self-sustaining domestic economy, and that entails massive spending on both infrastructure and domestic companies and technologies that are not dependent on foreign companies or on the United States. The most notable effort to date by the Chinese government has been an effort to create a homegrown next generation wireless technology known as TD-SCMA, which would obviate the need of Chinese mobile carriers to continue paying royalties to the likes of the American company Qualcomm.

Read: Fareed Zakaria's TIME article, The Future of Innovation: Can America Keep Pace?

Many of these efforts are still nascent. Huawei, the behemoth and secretive Chinese telecom equipment company, was one of the global leaders in patent registration in the past two years but much of its business still derives from equipment that it has largely copied from the American company Cisco.

The central government has made innovation a priority, but the national education system still excels at churning out highly trained and extremely competent engineers who innovate in processes but whose focus remains building rather than inventing.

Check Out: More from the "Global Innovation Showcase" created by the New America Foundation and the Global Public Square.

But simply because China has focused to date on infrastructure, exports, and reforming in domestic finances and governance says little about its future ability to become a global innovation leader. It is already spending much more aggressively on alternative energy and conservation technologies, which the government views as a national security imperative given the paucity of its oil reserves and the health and environmental costs of relying on coal. There is also considerable spending on Internet technologies, including the darker side of cyber warfare.

Read: Rebellion of an Innovation Mom.

It’s said that the United States retains the advantages of an open society where ideas can flow freely and capital can still be raised and deployed with comparative ease. Yet, state-sponsored innovation can be potent – as U.S. military efforts have show in developing the Internet and laser and infrared technology. Also true is that the United States still spends far more, including the venture capital and startup networks of Silicon Valley and various drug development companies funded privately. But China has made such spending a national priority, and it has shown a remarkable ability to turn such priorities into realities.

China should serve as a clarion call for American innovation. The only way to meet that challenge is for Americans to focus on domestic strengths. Those are considerable but are not efficiently deployed or used with urgency. American advantages will not be eclipsed tomorrow, or next year. But China is charging ahead and only a fool will operate as if that will come to a sudden halt.

The "Global Innovation Showcase" is a special feature created by the New America Foundation, a non-partisan, future-oriented think tank based in Washington DC, and the Global Public Square. Tune in tonight at 8pm ET/PT for a special edition of CNN GPS, "Restoring the American Dream: How to Innovate."

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Topics: China • Economy • Ideas • Innovation • United States

soundoff (8 Responses)
  1. j. von hettlingen

    "China should serve as a clarion call for American innovation".
    A bit of challenge is necessary! That's the only way for America to get back on its feet.

    June 5, 2011 at 6:12 pm | Reply
  2. John Dolittleson

    Fear Monger in chief of CNN.

    June 5, 2011 at 8:36 pm | Reply
  3. Andrew Goldstein

    I believe the U.S. government should receive a financial return (akin to a royalty on product or service sales) for funding research that results in new products or services and industry profits. Venture capitalists know that most investments in start-up companies will be unsuccessful but the small percentage that succeed are huge money makers. Why shouldn't NIH or DARPA funded projects get a pay back for the taxpayers?

    June 5, 2011 at 9:09 pm | Reply
  4. David M. Tetreault

    Is innovation the key to America rebuilding both its economic leadership in the world as well as its superiority as a global brand capable of creating the worlds most admired products, services and advanced technologies? This is the question of the day – the fact remains clear that a tremendous amount of the best jobs in the world are no longer found in the U.S. We have unfortunately seen these jobs disappear due to the MBAization of America. Our reliance on bogus financial modeling and earnings projections have allowed the brightest CEOs from large multi-nationals to VC backed start-ups to error on the side of outsourcing across all verticals and throughout all industries. This has had a devastating impact on the ASPIRATION for INNOVATION. True innovation in the U.S. must supersede the I-Phone 5, Solar Panels, Facebook Friends, the Ford Taurus, Google Keywords and many of the highly touted faces of innovation that our brought to us by the media. While each of the fore mentioned are highly respectable products and services – none mark the requirements of true innovation as required to take America to a higher level. The country is in need of aspirational innovation, which will motivate new generations to embrace the fileds of engineering, math and sciences. Think for a moment how John F. Kennedy inspired a nation in his quest to send men to the moon. His inspiration led to the ultimate Aspiration for Innovation, which spanned several generations and took America to its pinnacle as the developer and producer of the worlds greatest products.

    June 7, 2011 at 8:10 pm | Reply
  5. Vincent Lovece

    They said the same thing when Sputnik launched, and when Sony came out with the Walkman. Every time someone beat us the ANYthing, we are in a panic China isn't even an actual threat to our innovation yet, if they ever will be at all. The article itself mentions that China is a potential threat. Really, it is a country that builds its economy mostly on assembling and exporting goods made with foreign parts, and on a huge real estate/unnecessary infrastructure bubble that is taking a while to pop. It is not a country that produces legitimate innovation. Even though they have the world's fastest computer (for a few more months until the USA tops them again), it was built with American parts and runs on Finnish Linux software. In short, this is little more than a scare article.

    June 8, 2011 at 11:56 pm | Reply

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