Why American innovation will beat out China's
Rail attendants pose with the Chinese high-speed trains at a station in Shanghai
March 10th, 2011
11:53 AM ET

Why American innovation will beat out China's

Editor’s Note: Dr. Adam Segal is the Ira A. Lipman Senior Fellow at the Council on Foreign Relations and author of Advantage: How American Innovation Can Overcome the Asian Challenge.

By Dr. Adam Segal – Special to CNN

Sometime this year, the Chinese government will announce a new initiative to lure ten scientific superstars to research labs throughout China.  The government hopes that if it offers a $23 million dollar award to Nobel Prize winners and other luminaries, they will relocate and raise the quality and prestige of Chinese research and development.

The program is part of a larger strategic push to shift from “made in China” to “innovated in China.”

The Chinese have great ambitions, but can they be met?

Spending on research and development as a percentage of China’s GDP has tripled over the past fifteen years from half a percent to 1.5%.  By 2020, about 2.5% of China’s mammoth GDP will likely go to R&D.

A 2006 Chinese planning document introduces 17 megaprojects in areas such as high-end generic chips, manned aerospace and moon exploration, developmental biology, and nanotechnology.

In 2010, China passed the United States and Japan as the world’s largest filer of patent applications.

But as with other announcements, anecdotes, and data sets that appear to herald the inevitable rise of China, they mask significant weaknesses.

There are serious shortcomings within China’s innovation system.

The government retains strong central control of research agendas and the careers of researchers.  There is cultural deference toward authority.  The state’s intervention in the market, which is motivated by a desire to reduce dependence on foreign technology, perversely creates incentives for copying and reverse engineering rather than bold innovation.

Patent filings have been driven up by tax breaks and other policy incentives.  Ultimately, many of  these filings have very little to do with innovation and are instead designed to position Chinese companies to sue foreign firms as they enter local markets for alleged patent infringement.

Chinese policymakers are aware of these problems.  They are addressing them. But progress will be slow because these problems are beyond just policy – they are at their heart social and political.

Take Google’s departure from the Chinese market.  While it was the attacks on human rights dissidents and the theft of the search giant’s intellectual property that garnered the most attention outside of China, those hurt the most may have been Chinese scientists.

Of the 784 Chinese scientists who responded to a survey conducted by Nature, 84 percent said that Google’s departure would “somewhat or significantly” hamper their research. History suggests that it will be difficult to build a truly innovative economy while tightly controlling information.

In the West, the dominant policy recommendation in response to the rise of China has been to spend more on R&D and train more scientists and more engineers.

U.S spending on R&D was $395 billion in 2010.  This is more than two and a half times larger than China’s expenditures of $141 billion.  But given the size of the Chinese economy and current growth rates, that gap will close.

Additional funding, especially for basic research and development, is necessary, but the United States cannot compete over the long term on raw numbers alone.

Nevertheless, the United States should take heart.  It has significant advantages, which it needs to exploit.  It has great social and cultural strengths, including the ability to conduct cutting-edge, interdisciplinary research; recognize new markets and consumer demands; manage across time, distance, and culture; tolerate risk and support entrepreneurship; and welcome new ideas and talent no matter what their origin.

Openness is essential, and the United States must remain the place where the most talented and skilled still yearn to come.

This means we must make some changes:

First, visa regulations must be reformed and the path to citizenship for highly-skilled immigrants made much smoother.

Second, the United States needs to remain open to the flow of money since foreign investment is essential to its economic health and innovative capability.  In particular, money must flow to early-stage start-ups.

Under the Obama Administration’s “Startup America” Initiative the government will launch a $1 billion early-stage innovation fund that will provide a 1:1 match to private capital raised by early stage funds.  Cuts in payroll taxes help lower the cost of hiring new workers, but the government should also consider reducing or eliminating capital gains taxes for investments in start-ups.

The single-minded focus on increasing the absolute numbers of scientists is distracting from the other work that must occur.

Third, what it means to be a scientist must be expanded.  The range of skills a scientist develops must be broadened, and there should be new pathways to careers in science. The Alfred P. Sloan Foundation now helps universities develop a professional science master’s degree, which includes two years of graduate-level coursework in math and science, interdisciplinary research, and classes in business management as well as the fostering of communication, teamwork, and entrepreneurship skills.

Future competiveness will be assured not by trying to match China in raw numbers, but by strengthening the software of U.S. innovation – the social, political, and cultural institutions that move ideas from labs to marketplace and have made America the center of innovation for decades.

The opinions expressed in this commentary are solely those of Adam Segal.

Topics: China • Economy • Innovation • United States

soundoff (129 Responses)
  1. Pepe Marino

    You are dreaming my friend. This morning I was holding in my a hand mobile accessory in its casing. The labeling says: "Designed in USA", "Made in China". If US dreams are being implemented in China then how can you beat China?

    March 14, 2011 at 11:32 am | Reply
  2. capnmike

    "Innovation" means almost nothing. In the long run, the US "innovates", then the Chinese take our innovations and produce them at a fraction of the cost. Look...What was invented in the USA: Computers, Television, Telephones, Airplanes, production lines, plastics...tons of invention and innovation, and what do we have to show for it? "Made in China" and a failing economy. We need to stop buying foreign-made goods and sending them our technology.

    March 14, 2011 at 11:52 am | Reply
  3. soundnfury

    I have had some unique experience in that I worked as a consultant to a Chinese mega-company on a large project in a third country. I actually generated a small stream of money flowing into the US from China, which is like a fish swimming upstream. Anyway, prior to my experience, my opinion was that the Chinese were going to out-compete us on many fronts and our days as an economic leader were numbered. I assumed this was a foregone conclusion. However, after working with the Chinese to move this project forward, I learned several things. 1) their engineers are intelligent and well trained; and, 2) they couldn't manage their way out of a paper bag. No one was able to make a decision because of fear of repercussions. They were absolutely paralyzed by this fear right down to the smallest decision, to the detriment of the project. When it comes to "innovation" I just don't see the Chinese making great strides.

    March 14, 2011 at 12:22 pm | Reply
  4. Gico Dayanghirang

    As you've pointed out in the article, America should provide the right economic, social and political foundation for innovation and invention. This means free enterprise, education and health care and democracy. The US economy is already as free as it can ever be. So is its political process. Unfortunately, Republicans, true to its credo of "you die if you ain't got it and "if you're not one of us you can't stay in the US", is taking aim at the role of the state in ensuring that all Americans be in good health and has the proper education and that it is country that welcomes inventors and innovators from around the world. Albert Einstein for instance has been a Jewish immigrant. If Republicans would have their way, only the wealthy can have proper education and health care and that innovators and inventors from elsewhere in the world are no longer welcome in the US because they take away jobs from American. But we here in Asia are not the least perturbed. We have Europe, China and India to work with if the US self destructs as it is now in the process of doing so. As the saying goes "whom the gods wish to destroy they first make mad". Good luck to you Americans if you continue to vote Republican as you've just did in the last mid-term election! You're no longer the only big player in the world.

    March 14, 2011 at 2:15 pm | Reply
  5. Welfare Case

    Our immigration system is terrible. We allow people to bring in family members that offer little benefit to the country. We should discountinue the family-based policies and only accept people with skills and/or other resources that are in-demand.

    March 14, 2011 at 9:25 pm | Reply
    • Cru

      If they can't bring family, they won't move here – therefore we lose.

      March 15, 2011 at 12:00 pm | Reply
  6. Jorson

    I just came back from Southeast Asia and I stayed there for 1 1/2 years. The power of China is quite obvious. Economies there are running selling mostly Chinese made products. I could not find any American made products. They do have American brands for sale but made in China. They love the Iphone and Ipad but it is made in China. I am not sure if we can compete with the Chinese for we don't make anything anymore. Yes we are creative but then we send it to China and India to be made and develop and then they just copy it.

    March 14, 2011 at 9:50 pm | Reply
  7. Rubadubadoobag

    China has a much larger population, so all things being equal, it will return to the forefront of innovation unless there are inbuilt factors in Chinese society (e.g. racial or cultural) that will limit it from reaching this potential. The question is whether you believe that or not. That is what the main article and a lot of the comments are asserting – saying that America can 'conduct cutting-edge research' and 'manage across time, distance, and culture' (can you get any more vague) – and that by implication China cannot do the same – is just a 'polite' way of repeating the tired stereotype that the Chinese learn only by rote, have no creativity, etc etc.

    I think this is rubbish. For the last 2,000 years (which is just a minor segment of human history anyway), China has been the most technologically advanced nation for about 1,700 of those years. That's not to say theyre smarter, but there are just more of them. Sure, jets and battleships are more impressive than gunpowder and paper money, but are they more of a conceptual leap at the time? The fact that Chinese people are inventing things all the time on behalf of Western companies (just look at recent Nobel prizes in Chemistry etc, biased towards the West as they tend to be) suggests that there is nothing inherently limiting about Chinese ethnicity or culture, no matter what insecure Westerners would like to believe.

    Now the political system is more likely to stifle innovation than tired sterotypes about deference to authority (puh-lease, its not feudal times anymore FFS) but the political system is likely to evolve, as it already has done dramatically since the Mao days. Also Chinese culture breeds a strong sense of loyalty towards country and race – only strengthened by the prejudice and contempt faced by Chinese people in Western countries – so its likely that many Western-raised Chinese will return to the motherland as it grows more prosperous to share their knowledge and expertise. So I see no reason at all why American innovation is going to surpass Chinese innovation (or Indian for that matter) for the foreseeable future. It will happen even faster if policy-makers comfort themselves with tired racial and cultural stereotypes rather than trying to improve their own R&D processes.

    March 14, 2011 at 11:30 pm | Reply
    • awesome

      Sometimes part of that "prejudice and contempt faced by Chinese people in Western countries" is due to just what you mentioned, which is "Also Chinese culture breeds a strong sense of loyalty towards country and race". Some Chinese people I have met are just as racist as any 'southern redneck' can be or worse, and only like to stick with other Chinese... not simply because mainstream America rejects them.... they reject others because they don't feel comfortable. This breeds resentment towards them and it's a viscious circle.

      June 27, 2013 at 5:31 am | Reply
  8. Cru

    China would have to increase the average worker's pay TEN-FOLD to give them the same standard of living as Americans. Sure, on a country-size economic scale they're #3 and the US is #2 in purchasing power. But, break that down per capita, and you notice your average purchasing power of a Chinese citizen ranks around 83 – 101 depending on who is counting. The U.S. by comparison, ranks from 5th to 8th on the same measurement – worlds apart.

    Add to that the regional instability of China with each state making friends with neighboring countries combined with an authoritarian domestic policy and you have a recipe for tension and internal strife. Fears of China are overblown.

    March 15, 2011 at 11:58 am | Reply
  9. Albert Einstein

    Cru, don't get too excited about statistics, as the saying goes Statistics lies, damn lies and more lies. America is highly in debt, from private citizens, to municipal, to state to federal government, to students with their ballooning student loans. We don't need to look outward towards China all the time, I am beginning to worry about this fear about China, the biggest fear I think is surely within America, this is where the fears is, America need to take hold of the debt situation before it gets out of hand, it doesn't take a genius like me to know, everyone else in the world knows, that is why precious metals are skyrocketing.

    March 16, 2011 at 7:28 am | Reply
  10. master Kong

    America is still very innovative here is why:
    1. Post 9/11 we innovated new policies that made it hard to retain exceptionally intelligent foreign born researchers
    2. The tea party counts as a form of recent American innovation (they invented "reverse cavemaneering")
    3. In fact we are so innovative that we devised as a way of spending over $200 billion on an Afghan war to fight the 20 Al qeada that remain there.
    4. We are so innovative that we are spending far less on R&D today than we did in the 50's
    5. We are so innovative that our immigration policies are implemented in ways that are overly friendly to excessive amounts of low skilled illegal immigrants while conversely, are harsher to higher skilled legal-immigrant researchers (try maintaining your technological lead that way)
    6. We are so innovative that our representatives declined to grant Francis Chu"s (dept of Energy czar) request for $15 Billion dollars for Clean/Renewable energy research, while at the same time they approved over $400 Billion to Freddie and Fannie and over $180 Billion to Citi, (innovative prioritizing).
    7. We are so innovative that we spent the last 10 years focusing our efforts on Iraq/Afghanistan in a world that is increasingly being dominated by China, India, ASEAN and MERCOSUR,

    My point here is complacency. America still has it, but everyone else is hungry for what we got, and the playing field is no longer even, at least for purist capitalist nations like ours. Unlike before, today we are dealing with state-capitalism, getting competition from nations with non free floating currencies, maintaining an expensive military empire that is too thinly spread and worst of all, the issue is compounded by having two political groups that are becoming more ideologically incompatible to move the nation forward. Am excited about whats happening in China and the rest of the emerging world, and am still a believer in American exceptionalism, but as of lately it scares me to see that our leaders are unwilling to cooperate in tackling serious issues that confront our great nation.

    March 23, 2011 at 7:41 pm | Reply
  11. Mike

    Innovation can't come without free thinking. China is great at cranking out good mathemeticians and scientists, but they produce no stellar ones. Why? Programs that look to stifle "extremism" are growing as China looks to combat its own social instability, combined with a thin-skinnned political elite that cannot bear to face criticism.

    America has many problems too, as our innovation is also stifled by poor economic choices, and with a frankly toxic political environment a lot of the innovations created in America will not go on to benefit America, but to corporations that will only seek increase profit and not America's global competitiveness.

    Now the question is, knowing that how do we deal with those problems?

    April 2, 2011 at 1:14 pm | Reply
  12. Adam Jackson

    I hear that americans will have sex with animals for fast food. What a sad and pathetic bunch of subhumans.

    April 6, 2011 at 10:12 am | Reply
  13. Johnnie Lynum

    Thanks for a really interesting read, learn quite a few tips here, trying hard to improve my credit , i did a consumer proposal 7 years ago and just now i am starting to rebuild my credit slowly but surely and trying to avoid that credit card trap.

    June 5, 2011 at 2:56 pm | Reply
  14. Jon

    This article is ridiculous. How many U.S. scientists, engineers, innovators and entrepreneurs are foreign-born? How many are Asian? If you go to Silicon Valley, the phone books often look like Indian or Chinese phone books. How about the universities? Last time I checked, Harvard, Princeton, and the University of California system were heavily Jewish, Chinese, Indian and Korean.

    In other words, American innovation is heavily dependent on foreigners, immigrants, and non-White Americans. Trust me, I'm a Chinese American and I see plenty of Chinese scientists and engineers in the US who want to do something in China. Not to mention, Chinese students are far more eager to study science and technology, while most American children still think studying hard is "uncool".

    Whatever future there is, the US's will probably not be as good as today.

    June 15, 2011 at 8:28 pm | Reply
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    September 12, 2012 at 11:13 pm | Reply
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