The United States needs a more proactive industrial policy, especially as China ramps up its own investments in new and emerging technologies.

President Donald Trump’s decision to halt issuance for work visas and green cards through the end of 2020 is a major setback for U.S. innovation. On Twitter, Alphabet CEO Sundar Pichai wrote, "Immigration has contributed immensely to America's economic success, making it a global leader in tech, and also Google the company it is today." Box CEO Aaron Levie tweeted, “This is unbelievably bad policy on every level. It will only mean more jobs move outside the US, and in no way makes America better or more competitive.”

According to the Paulson Institute’s MacroPolo, nearly 60 percent of the world’s top artificial intelligence (AI) researchers work in the United States, even though only 20 percent of them completed their undergraduate studies at U.S. universities. Robust immigration policies make it possible for the world’s top talent to flock to the United States. 

Even before the coronavirus pandemic, U.S. innovation was waning. In November, Duke University scholars Ashish Arora, Sharon Belenzon, and their colleagues reported that the rate of American productivity is slower today than it was one hundred years ago. Innovation drives productivity.

Meanwhile, other countries, especially China, have caught up. According to the Center for Strategic and International Studies’ Global Innovation Index, which ranks 120 economies by innovation output and capabilities, in 2013, China’s economy was the 35th most innovative economy in the world (the United States was fifth). By 2018, China had climbed 18 spots, to 17th place, and the United States had dropped to sixth place (behind Switzerland, the Netherlands, Sweden, the United Kingdom, and Singapore).  

To usher in a new century of innovation, the United States needs to open its borders to immigration, not close it. But this is just the beginning of a long list of things the United States should do to keep its innovative edge.

 

A Roadmap to Renewed Leadership

First, as it did in years past, the U.S. government should promote greater collaboration among government, academia, and industry in research and development (R&D) to propel new innovations. This kind of forward-thinking industrial policy was once synonymous with the United States. 

Throughout World War II and most of the Cold War, the federal government funded “moonshot” research projects in close collaboration with academia and industry to help the United States become the most innovative country in the world. Defense Advanced Research Projects Agency–funded activities led to the creation of the Internet. Federal funding for strategic missile programs helped the Intel Corporation develop ways to encode information on silicon chips. Geospatial technology applications, from modern avionics to Google Maps, exist because of U.S. government–funded research during the Cold War. 

Second, the U.S. government should increase R&D spending. In 1967, the federal government accounted for more than 65 percent of all U.S. R&D spending; by 2018, the federal government’s R&D spending share had dropped to approximately 20 percent. But as U.S. firms have taken the lead on R&D spending, they have also scaled down funding for long-term research in favor of more short-term product development. This shift in priorities has resulted in top American corporations shuttering many of the country’s most advanced research centers. This approach may improve the next quarter’s profits, but it does not set the United States up to lead the next fifty years of global innovation.

The U.S. government should specifically direct more resources to existing mechanisms that fund high-risk R&D like the Small Business Innovation Research and Small Business Technology Transfer programs. It should also make more research grants available to universities with incentives to conduct research that can be easily applied or commercialized (academia tends to reward discovery over utility). Programs like these can help bridge the R&D “Death Valley,” the long period of time between R&D and commercialization, when so many startups fail and research dies in the appendices of scientific journals. 

Third, as former Undersecretary of Defense for Policy Michèle Flournoy writes, U.S. government agencies and Congress should ask hard questions about how they presently spend money. Congress and the Department of Defense should consider if one more frigate will make the difference in a potential wartime scenario, or if an equivalent investment in AI would give the United States a bigger edge over a potential adversary. 

Fourth, U.S. federal agencies should also create more senior- and mid-level positions with dedicated hiring pipelines to recruit officials with deep technology expertise into government. Additionally, these agencies should reform antiquated procurement processes to make it easier to purchase new technology, including from Silicon Valley startups that are not well-configured to comply with onerous federal regulations.

Fifth, American infrastructure needs an upgrade. In addition to bridges, railways, highways, airports, and energy grids, the United States should invest more in internet fiber optic cables and 5G telecommunications networks. The future will not just be about how advanced a country’s technology is (where the United States has an advantage), or how much data they have (where China has an advantage), but also how quickly people can process and transmit that data.

China is making these investments. As part of its coronavirus economic recovery plan, China will direct massive investments to high-tech and modern infrastructure projects, President Xi Jinping said in a speech in March. In 2008, it responded similarly to the global financial crisis, with investments in AI that helped many Chinese firms close the technology gap with their competitors in the United States. Now, Xi is pledging major resources for 5G networks, data centers, AI, and other technologies of the future, which may total nearly $2.5 trillion over five years, according to some estimates. 

Finally, the United States should re-engage the rest of the world again, including by reducing barriers to trade with U.S. firms and by working more closely with allies to develop shared technology and security standards. 

To enable this, the United States needs to increase its participation in multilateral fora where its competitors and adversaries have influence. In standards-setting bodies like the International Standards Organization and the International Telecommunications Union (ITU), decision-making happens whether the United States is at the table or not. In the ITU’s Security Study Group, for example, which recommends global cybersecurity and telecommunications security standards, Chinese representatives serve as the rapporteur or associate rapporteur for 11 of the Study Group’s 14 sub-committees whereas U.S. representatives serve equivalent roles on just three sub-committees. When the U.S. does not show up for meetings or seek to take more active leadership roles, it gives countries like China and Russia a free pass to write rules that serve their own interests (and potentially harm U.S. ones).

 

Innovation and the Future Global Economy

The country that makes the biggest breakthroughs in 5G, quantum computing, AI, new energy, and other emerging technologies will lead the global economy for the next generation. China has announced plans to be a global high-tech manufacturing leader by 2025, the world’s AI leader by 2030, and a major global technology standards setter by 2035, and it is dedicating massive investments to realize these goals. China is also increasing links between the country’s top technology giants and its military as part of an ambitious civil-military fusion plan.

The United States should not fall asleep at the switch. It still has more top researchers and research institutions than any country in the world, and a more mature economy than China’s, but the U.S. risks squandering these advantages if it does not act now.


Walter Kerr is a former career U.S. diplomat, where he served overseas in China and Brazil. He is also the author of the Chinese Journal Review, a biweekly newsletter, a multilateral bank consultant, and leads partnership development at Zenysis, a Silicon Valley big data startup. The views expressed here are the author’s alone and do not necessarily reflect the policies or positions of his employers. You can follow him on Twitter @WalterAKerr.