The United States Cannot Win the Twenty-First-Century Innovation Race with a Twentieth-Century Playbook

Certainly, this linear pipeline playbook was, at times, tested and updated. The Soviet Union’s launch of Sputnik in 1957, for example, led to the establishment of the Defense Advanced Research Projects Agency and a quadrupling of National Science Foundation funding within a year. Significantly, the rise of Japan as an industrial competitor in the 1980s strengthened policies around tech transfer, such as the Bayh-Dole Act reforms and the Small Business Innovation Research program, to incentivize the transfer of research results to the market.

However, such adjustments preserved the paradigm, focusing on accelerating innovation within a linear model. It failed to address the impact of the then-relatively recent focus on maximizing shareholder return (and the corresponding incentives for executive compensation) and ignored how corporations engaged in manufacturing were increasingly incentivized to move manufacturing overseas, a process that accelerated dramatically after Chinese accession to the World Trade Organization. These pressures led to many foundational technologies that originated in U.S. labs, including the first semiconductors, then TVs, followed by display screens and, more recently, solar panels and lithium batteries, to be produced and then steadily improved in East Asia. Over time, the “innovate here, produce there” mindset combined with closed East Asian home markets, large, steady state subsidies, export incentives, and process improvements, led to an erosion of U.S. advanced manufacturing and with it the U.S. industrial commons—that is, the networks of suppliers, specialized skills, and know-how needed to support manufacturing and innovation.

Today, the United States faces a near-peer rival in China, a country that has fused industrial policy and strategic patience to become a formidable technology competitor. China’s model, which does not rely on firms reporting quarterly profits in new emerging technologies, combines long-term state investment with aggressive scaling, inter-firm learning, and strategic protection of its domestic market. By contrast, in the United States, major displacement of manufacturing across the board from high to low tech has led to massive job loss and social displacement. Indeed, these upheavals have fueled skepticism about whether innovation benefits ordinary Americans and stoked resentment of elite institutions.

Meanwhile, amid today’s global competition for skills and resources and the power they generate, innovation has accelerated and become multipolar. Advances in semiconductor technology now underpin advances in AI, quantum technology, biotechnology, and other strategic areas. The supply chain chokepoints exposed by the Covid-19 pandemic showed how deeply vulnerable the U.S. had become after decades of offshoring key production. And today’s highly networked world means that promising ideas born in U.S. labs can be, and are, rapidly commercialized elsewhere. The scholars who warned about the first “China Shock” now predict a race with even higher stakes.

The upshot is clear: last century’s assumptions—that market forces alone will align supply and demand for advanced skills, that capital will flow to scale transformative technologies, and that manufacturing will capitalize domestically on R&D—no longer reflect the realities of markets shaped by state-sponsored competition.

A Systems-Based Innovation Strategy for the Twenty-First Century

How can the U.S. innovation system more competitively absorb and transform new ideas emerging from the U.S. research enterprise? It needs a strategy that recognizes how innovation works today, as a complex ecosystem of interdependent parts that must function together. That includes the following:

• research networks—such as U.S. universities, research institutes, national laboratories, and funding agencies;
• financial networks—for example, banks, incubators, angel investors, early-stage venture capital, later-stage funds, and deep equity markets;
• education and training networks—including universities, community colleges, and vocational institutes, supported by public-private partnerships of teachers and employers that contribute to skilled technical workforce training; and
• networks of manufacturing companies, including those organized around shared facilities.

While innovation systems are highly complex, it can be useful to think of these networks as interlocking gears: When one gear jams, the whole system slows.

As Figure 2 visualizes, each gear is dependent not only on the rest of the innovation system but also the “grease” of the regulatory/policy environment.

This systems-based view illustrates that each piece of the ecosystem not only benefits by being upgraded but also multiplies its impact by being connected: Drawing on this metaphor, it is essential to not only strengthen each gear, but also how the teeth of the gears connect. When capital doesn’t flow to promising technologies, when workforce training lags behind demand, or when permitting delays block the construction of new facilities, the system slows and underperforms. Instead, for a robust innovation system, R&D and prototyping must be linked to flexible, resilient manufacturing. Infrastructure must meet the demands of advanced production. Workforce pipelines must align with evolving industry needs. And policies and partnerships can be formed to reduce friction and address persistent failures of collective action, especially for scaling new technologies that are capital-intensive and risky.

This innovation systems approach highlights the key thrust of a twenty-first-century strategy:

• Center Manufacturing: The old “innovate here, produce there” mindset is no longer a viable approach in the current environment: To ensure the economic and national security benefits of innovation are captured at home, manufacturing must be at the center of this systems-based policy approach. Production is where new ideas are refined; it anchors the industrial commons that make sustained innovation possible in regional clusters across the country. While it is not plausible for the United States to produce everything it needs within its borders, strategically crucial technologies like semiconductors and biotechnology require persistent vision and support.
• Reduce Friction to Build and Procure: Modernizing regulatory frameworks that ensure clarity, speed, and predictability, while still safeguarding adequate environmental and community protections, are essential for rebuilding manufacturing at speed and scale. That means addressing physical bottlenecks like infrastructure gaps and the growing problem of regulatory delays. As National Security Advisor Jake Sullivan lamented, “It’s the sludge of so many different built-up processes. . . . You try to build anything, and you’re stepping into quicksand.” In addition to streamlining federal, state, and local regulations, tools such as advance market commitments, flexible procurement contracts, and cooperative facilities can help overcome the uncertainties faced by new technologies and compress timelines dramatically.
• Align Incentives to Train: Perhaps the linchpin of any country’s innovation is its workforce. Especially compared to its competitors, the United States has a deficit of both high-skilled and skilled technical workers necessary to build critical emerging technologies. Growing the domestic workforce will require a potent combination of domestic investment, immigration carve-outs for high-skilled labor, especially those trained in the United States, and improved policy alignment at the federal, state, and regional levels.
• Partner with Allies: Amid today’s global and multipolar innovation landscape, the United States cannot achieve the necessary scale in every critical technology alone. We must actively build concrete partnerships with allies and strategic trusted partners, potentially through mini-lateral efforts across industry-specific value chains rather than broad and necessarily diffused multilateral cooperation agreements. Universities and joint R&D hubs can also be key elements in regional growth engines that can continue to facilitate engagement with specific initiatives across borders with trusted partners.
   

The Path Forward

For nearly 80 years, the United States has relied on a model that viewed innovation as a pipeline: fund science, protect IP, let markets work. But the current turbulent era demands a systems approach where manufacturing, talent, infrastructure, capital, R&D, and policy are treated as interdependent gears that produce best when they turn together to develop and grow new ideas.

This does not mean discarding what works. The United States’ world-leading research universities and national labs remain crown jewels: some reforms may well be in order, but their contributions to U.S. innovation and growth are the envy of the world and a key source of national security. However, to meet today’s realities and tomorrow’s ambitions, our investments in education, innovation, and training must be expanded and supported with new approaches, especially for workforce training, applied research, and renewed efforts in international cooperation.

When it comes to twenty-first-century innovation, we have an opportunity and mandate to be creative. How can AI help identify and streamline redundant or outdated regulations? How can policymakers best use federal procurement to set demand signals to decrease uncertainty and encourage innovation without the burden of command-and-control investments and regulation? It is worth examining how to best use tools such as advance market commitments, prize competitions, collaborative partnerships, shared IP, and other incentive structures. Multiple paths forward exist. They should be actively explored and seriously supported with sustained and substantial resources.

The gears of innovation are turning, but they need to turn together. If the United States intends to “blaze a bold path” toward a “Golden Age of American Innovation,” as President Trump has called for, it is essential to ensure that innovation is anchored in production, powered by people, and organized for speed and scale.

Sujai Shivakumar is the director of Renewing American Innovation and a senior fellow at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Julie Heng is a research associate with Renewing American Innovation at CSIS.