U.S. President Barack Obama's plan to "win the future" by out-innovating the rest of the world was a ringing climax of his State of the Union address this week. Obama suggested increasing U.S. investment in research and development, a good and welcome step. But what will really determine U.S. competitiveness in the global ideas market isn't the money we can pour into the system. It's the strength of the system itself -- the social, political, and cultural institutions that shape ideas from start to finish.
There is no doubt that China and India are catching up with the United States when it comes to hardware -- the raw materials for innovation. They are increasing their spending on science and technology, training more engineers and scientists, applying for more patents, and churning out more research papers.
But the actual system for generating useful ideas in these places remains underdeveloped. Yes, more scientists are being trained, but that doesn't mean they're producing good science. Plagiarism and data fraud are rampant. In a survey of 180 graduates with doctorates quoted in China Daily, 60 percent admitted to paying for their work to be published in academic journals. Sixty percent also said that they had copied someone else's work. Even as a large number of Chinese and Indian scientific stars have returned to their native countries from abroad, they have been unable to transform a research culture characterized by strong bureaucratic control and deference toward age and seniority. In the words of Anita Mehta, a physicist at the S. N. Bose National Centre for Basic Sciences in India, "Diversity of research or personality is often frowned upon, those who don't match stereotypes or work on subjects that have been hammered to death are labelled 'too independent.'"
In the Indian and Chinese private sectors, there are very real bursts of entrepreneurial activity. But government incentives, especially in China, are focused on making Chinese versions of international products such as cell phones and semiconductors rather than on sparking bold, local innovation. In both countries, new companies must maneuver through an opaque legal system, unpredictable regulations, and volatile capital markets. And though policymakers in Beijing and Delhi are aware of these challenges, addressing them will require political and social change, and so progress will be slow and uneven.
America can't win the hardware race. There are simply too many people -- 2.3 billion people in India and China -- for the United States to compete when it comes to materials and labor. Given respective population size, China and India will one day have more skilled engineers than the United States, even if their quality doesn't match up now. Total U.S. spending on R&D ($395 billion in 2010) is currently more than two and a half times larger than Chinese expenditures ($141 billion), but that gap is rapidly shrinking.
But America can compete when it comes to software -- i.e., the ideas and innovation that are still out of reach for China's and India's more hidebound scientific and business communities. An important first step will be helping small start-ups. Small companies (those with fewer than 500 employees) generate about half of total employment in the United States; according to the Small Business Technology Council, they also employ more scientists and engineers than do large businesses and more than universities and federal labs combined. Specifically, as a recent study by the Kauffman Foundation shows, new small businesses are the ones creating these jobs. Since 1980 nearly all net job creation in the United States occurred in firms less than five years old; over the last four years, these young start-ups created two-thirds of all new jobs.