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Renewing American Innovation
Photo: Tierney/Adobe Stock
By: Sujai Shivakumar
The stress placed on the United States economy by the COVID-19 pandemic prompts a fundamental evaluation of its industrial and innovation strategies. Our current system of innovation and production, designed to take advantage of the cost savings made possible by lean production and global sourcing, has also led to dependencies on foreign sources for the procurement of critical technologies and a lack of redundancy in domestic manufacturing capabilities. These concerns come on top of recent fears about the permeability of the U.S. research and innovation infrastructure to espionage and large-scale theft of intellectual property through targeted actions by the Chinese government. Moreover, the U.S. can no longer count on a large technological lead in many technology areas to secure its competitiveness and strategic advantage. Other nations have in recent decades made substantial investments in growing their innovation economies, and the fruits of these investments are now ripening.
These developments call for a careful assessment of the structure of the nation's industrial production and the underlying innovation systems that ensure U.S. economic growth, global competitiveness and national security. In broad terms, this engagement is not new: the United States has repeatedly risen to the challenge, reinventing its economy and industrial strategy to ensure its competitiveness, security, and broad-based economic growth. It is time once again to take up this task.
A Tradition in Industrial and Innovation Strategy
Innovation has long been critical to addressing the nation’s challenges in economic growth and security, and to improving the health and wellbeing of its citizens. Indeed, in response to new global realities, the nation has developed successful industrial strategies throughout its history. In 1791, Alexander Hamilton, the first Secretary of the Treasury, approached Congress with a report - the Report on the Subject of Manufactures - that outlined a strategy to develop the US manufacturing sector. Its goals were to reduce dependency on Britain and build the material base for an independent national defense. Throughout the nation’s economic expansion, the Civil War, and the World Wars, the nation benefited from de facto industrial strategies that enhanced its security and technological leadership, often through large-scale investments in the telegraph, railroads, radio, aviation, radar, nuclear power, computers, satellites and, of course, the Internet. These technologies have in turn laid the foundations for strategic advantage and American economic leadership.
Much of today’s industrial strategy was designed in the 1950s to meet the needs of the Cold War. The United States ensured its continuing technological leadership through the creation of new institutions such as the National Science Foundation, expanding the National Institutes of Health, and by developing new infrastructure for research and development through the organization of National Laboratories and expanded funding for research universities. This strategy — based on a national consensus of national challenges — contributed to winning the Cold War while generating new information and communications technologies that transformed the U.S. economy and underpin its economic leadership today.
Innovation policies developed in the 1980s in response to the competitive ascendency of Japan were extensive and ultimately effective. A key component of the response was a vigorous innovative trade policy, notably the Semiconductor Trade Agreement, backed by qualitative improvements in manufacturing through the SEMATECH consortium. In addition, the passage of a series of laws and measures-- including the Bayh-Dole Act of 1980, the Small Business Innovation Development Act of 1982, the Cooperative Research Act, and the Omnibus Trade and Competitiveness Act --accelerated the process of bringing to market products derived from federally funded research in universities and national laboratories. A number of these innovative policies have since been emulated around the world.
Despite this success, many of the nation’s current institutions and procedures no longer reflect today's technological and geopolitical realities. Principal among these is the emergence of China as a major commercial competitor and strategic adversary. Furthermore, today’s economy—the way we work, consume, and communicate—is mediated on a digital platform whose security is now a critical concern as a result of systematic cyberattacks. Moreover, the legacy institutions and procedures in place to develop, procure, and secure emerging technologies have become sclerotic with age, and are poorly adapted to rapidly address pressing needs.
The Renewing American Innovation Project
To meet the challenges of a new era, the United States must develop strategies to regrow its knowledge, training, production, and distribution networks as well as the governance structures that support them.
Rebuilding the US Manufacturing and Skills Ecosystem: The pandemic pointedly raises the question of how we should reconcile efficiency in industrial production with resiliency. Resilience has not been a major factor in organizing the manufacturing economy in recent decades as U.S. firms, driven by considerations of market efficiency, made massive investments in distributed production, notably in China. Accompanying this development has been a drop in the rate of increase of domestic worker productivity and declining investments in technical skills.
Reinforcing Regional Economic Growth and Production: The recurring and increasingly frequent outbreaks of illnesses in our globally connected world – AIDS, SARS, MERS, Ebola, and now COVID-19 and its multiple variants — may suggest the need for greater dispersal of economic activity. During WWII, the U.S. placed important defense facilities in the heartland to prevent exposure to attack (e.g., Boeing in Kansas), and in remote areas to ensure secrecy, (e.g., Los Alamos in New Mexico). While circumstances are different today, it is important to examine how regions, such as the New York Capital Region, successfully renewed their economy after a period of industrial and economic recession. The lessons from this successful effort are also relevant to current bipartisan proposals that seek to establish regional technology hubs across the country to launch new companies, revive American manufacturing, and create new jobs to jumpstart local communities.
COVID-19 and Challenges to Global Supply Chains: The COVID-19 pandemic has also exposed structural vulnerabilities in global supply chains, specifically in the automobile and pharmaceutical industries, with potentially severe consequences. Single points of failure can have reverberating repercussions across the world, threatening the health of the entire system. Restructuring supply chains from the ideal of “just in time” to “just in case” that affords greater resilience provides further weight to the need to re-shore some of the nation’s high-tech manufacturing capacity.
Securing Leadership in Intellectual Property: Clear and enforceable Intellectual Property Rights (IPRs) — a foundation of America’s innovation system — provide incentives to firms and entrepreneurs to invest in research and development, participate in standardization activities, and contribute their advanced technologies to the process of defining global standards. China has invested heavily and incentivized action throughout its nation, seeking to exert more influence over the development and use of technology standards, raising important questions about standardization’s impact on the broader networks of innovation, competition, trade, and security. To sustain the broad benefits of innovation, what steps must the United States take to maintain a unified global, rule-based system for standards?
Reinventing Government Procurement: With the strategy underpinning the nation’s defense-industrial base now over seven decades old, many barriers have accumulated over time in the rules and practices that govern planning, publicizing, soliciting, evaluating, and negotiating the award of federal contracts. Moreover, technological change and new global developments have made many existing regulations governing research, prototype development, and production obsolete.
Security, Research, and Innovation: The nation’s military strategy depends on maintaining a substantial lead in the development and deployment of next generation technologies. This lead, in turn, is generated through long-term and substantial investment in research conducted in the nation’s universities and laboratories. This process, however, is increasingly surveilled by foreign adversaries to acquire and deploy the fruits of this research. There is growing evidence that the Chinese have in place “an elaborate, comprehensive system for spotting foreign technologies, acquiring them by every means available, and converting them into weapons and competitive goods.”[1] How will this strategy threaten the health of the U.S. research enterprise and how can the U.S. protect its research and development networks?
The aim of the CSIS Renewing American Innovation Project is to explore these and other questions to develop a strategy that balances the nation’s unique traditions of individualism, self-organization, and distributed governance with a long and successful history of industrial policy. It is the challenge of our time, and we look forward to your partnership in this effort.
Sujai Shivakumar is director and senior fellow of the Renewing American Innovation (RAI) Project at the Center for Strategic and International Studies (CSIS).
The Perspectives on Innovation Blog is produced by the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
The stress placed on the United States economy by the COVID-19 pandemic prompts a fundamental evaluation of its industrial and innovation strategies. Our current system of innovation and production, designed to take advantage of the cost savings made possible by lean production and global sourcing, has also led to dependencies on foreign sources for the procurement of critical technologies and a lack of redundancy in domestic manufacturing capabilities. These concerns come on top of recent fears about the permeability of the U.S. research and innovation infrastructure to espionage and large-scale theft of intellectual property through targeted actions by the Chinese government. Moreover, the U.S. can no longer count on a large technological lead in many technology areas to secure its competitiveness and strategic advantage. Other nations have in recent decades made substantial investments in growing their innovation economies, and the fruits of these investments are now ripening.
These developments call for a careful assessment of the structure of the nation's industrial production and the underlying innovation systems that ensure U.S. economic growth, global competitiveness and national security. In broad terms, this engagement is not new: the United States has repeatedly risen to the challenge, reinventing its economy and industrial strategy to ensure its competitiveness, security, and broad-based economic growth. It is time once again to take up this task.
A Tradition in Industrial and Innovation Strategy
Innovation has long been critical to addressing the nation’s challenges in economic growth and security, and to improving the health and wellbeing of its citizens. Indeed, in response to new global realities, the nation has developed successful industrial strategies throughout its history. In 1791, Alexander Hamilton, the first Secretary of the Treasury, approached Congress with a report - the Report on the Subject of Manufactures - that outlined a strategy to develop the US manufacturing sector. Its goals were to reduce dependency on Britain and build the material base for an independent national defense. Throughout the nation’s economic expansion, the Civil War, and the World Wars, the nation benefited from de facto industrial strategies that enhanced its security and technological leadership, often through large-scale investments in the telegraph, railroads, radio, aviation, radar, nuclear power, computers, satellites and, of course, the Internet. These technologies have in turn laid the foundations for strategic advantage and American economic leadership.
Much of today’s industrial strategy was designed in the 1950s to meet the needs of the Cold War. The United States ensured its continuing technological leadership through the creation of new institutions such as the National Science Foundation, expanding the National Institutes of Health, and by developing new infrastructure for research and development through the organization of National Laboratories and expanded funding for research universities. This strategy — based on a national consensus of national challenges — contributed to winning the Cold War while generating new information and communications technologies that transformed the U.S. economy and underpin its economic leadership today.
Innovation policies developed in the 1980s in response to the competitive ascendency of Japan were extensive and ultimately effective. A key component of the response was a vigorous innovative trade policy, notably the Semiconductor Trade Agreement, backed by qualitative improvements in manufacturing through the SEMATECH consortium. In addition, the passage of a series of laws and measures-- including the Bayh-Dole Act of 1980, the Small Business Innovation Development Act of 1982, the Cooperative Research Act, and the Omnibus Trade and Competitiveness Act --accelerated the process of bringing to market products derived from federally funded research in universities and national laboratories. A number of these innovative policies have since been emulated around the world.
Despite this success, many of the nation’s current institutions and procedures no longer reflect today's technological and geopolitical realities. Principal among these is the emergence of China as a major commercial competitor and strategic adversary. Furthermore, today’s economy—the way we work, consume, and communicate—is mediated on a digital platform whose security is now a critical concern as a result of systematic cyberattacks. Moreover, the legacy institutions and procedures in place to develop, procure, and secure emerging technologies have become sclerotic with age, and are poorly adapted to rapidly address pressing needs.
The Renewing American Innovation Project
To meet the challenges of a new era, the United States must develop strategies to regrow its knowledge, training, production, and distribution networks as well as the governance structures that support them.
Rebuilding the US Manufacturing and Skills Ecosystem: The pandemic pointedly raises the question of how we should reconcile efficiency in industrial production with resiliency. Resilience has not been a major factor in organizing the manufacturing economy in recent decades as U.S. firms, driven by considerations of market efficiency, made massive investments in distributed production, notably in China. Accompanying this development has been a drop in the rate of increase of domestic worker productivity and declining investments in technical skills.
Reinforcing Regional Economic Growth and Production: The recurring and increasingly frequent outbreaks of illnesses in our globally connected world – AIDS, SARS, MERS, Ebola, and now COVID-19 and its multiple variants — may suggest the need for greater dispersal of economic activity. During WWII, the U.S. placed important defense facilities in the heartland to prevent exposure to attack (e.g., Boeing in Kansas), and in remote areas to ensure secrecy, (e.g., Los Alamos in New Mexico). While circumstances are different today, it is important to examine how regions, such as the New York Capital Region, successfully renewed their economy after a period of industrial and economic recession. The lessons from this successful effort are also relevant to current bipartisan proposals that seek to establish regional technology hubs across the country to launch new companies, revive American manufacturing, and create new jobs to jumpstart local communities.
COVID-19 and Challenges to Global Supply Chains: The COVID-19 pandemic has also exposed structural vulnerabilities in global supply chains, specifically in the automobile and pharmaceutical industries, with potentially severe consequences. Single points of failure can have reverberating repercussions across the world, threatening the health of the entire system. Restructuring supply chains from the ideal of “just in time” to “just in case” that affords greater resilience provides further weight to the need to re-shore some of the nation’s high-tech manufacturing capacity.
Securing Leadership in Intellectual Property: Clear and enforceable Intellectual Property Rights (IPRs) — a foundation of America’s innovation system — provide incentives to firms and entrepreneurs to invest in research and development, participate in standardization activities, and contribute their advanced technologies to the process of defining global standards. China has invested heavily and incentivized action throughout its nation, seeking to exert more influence over the development and use of technology standards, raising important questions about standardization’s impact on the broader networks of innovation, competition, trade, and security. To sustain the broad benefits of innovation, what steps must the United States take to maintain a unified global, rule-based system for standards?
Reinventing Government Procurement: With the strategy underpinning the nation’s defense-industrial base now over seven decades old, many barriers have accumulated over time in the rules and practices that govern planning, publicizing, soliciting, evaluating, and negotiating the award of federal contracts. Moreover, technological change and new global developments have made many existing regulations governing research, prototype development, and production obsolete.
Security, Research, and Innovation: The nation’s military strategy depends on maintaining a substantial lead in the development and deployment of next generation technologies. This lead, in turn, is generated through long-term and substantial investment in research conducted in the nation’s universities and laboratories. This process, however, is increasingly surveilled by foreign adversaries to acquire and deploy the fruits of this research. There is growing evidence that the Chinese have in place “an elaborate, comprehensive system for spotting foreign technologies, acquiring them by every means available, and converting them into weapons and competitive goods.”[1] How will this strategy threaten the health of the U.S. research enterprise and how can the U.S. protect its research and development networks?
The aim of the CSIS Renewing American Innovation Project is to explore these and other questions to develop a strategy that balances the nation’s unique traditions of individualism, self-organization, and distributed governance with a long and successful history of industrial policy. It is the challenge of our time, and we look forward to your partnership in this effort.
Sujai Shivakumar is director and senior fellow of the Renewing American Innovation (RAI) Project at the Center for Strategic and International Studies (CSIS).
The Perspectives on Innovation Blog is produced by the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
[1] William C. Hannas, James Mulvenon, and Anna B. Puglisi. Chinese Industrial Espionage: Technology Acquisition and Military Modernization. (Routledge, 2013), 378 pp.
