The Heat Is On

As industries and jobs move overseas, the U.S. has focused on cutting-edge innovations to stay one step ahead. But if the U.S. is an economic Energizer Bunny, the rest of the world is determined to step up the pace.

In July, France announced plans to invest $1.82 billion to create 67 "competitiveness centers" to fuel research and innovation, with more to come. China is building a world-class university system to produce scientists, and now ranks third behind the U.S. and Japan in nanotechnology patents.

As other countries invest more in R&D, education and entrepreneurship, business and academic leaders are asking an uncomfortable question: Is the U.S. losing its innovative edge? Consider these statistics: American companies now account for just 52 percent of U.S. patents; we rank 13th in household broadband penetration among 15 highly developed countries; and only 29 percent of papers published in top physics journals in 2004 were by Americans.

It doesn't stop there. Only 6 in 100 American undergraduate degrees are in the natural sciences or engineering. In a December 2004 survey, meanwhile, American teenagers ranked 24th out of 29 industrialized countries in everyday math skills. The problem, says Robert Boege, executive director of the Alliance for Science and Technology Research in America, is that Americans aren't aware of the growing threats to our competitiveness. "Does there have to be an innovation Pearl Harbor to wake people up?" he wonders.

Entrepreneurial activity shows troubling signs, too. A survey of 12,000 Americans ages 18 to 74 by the Pino Entrepreneurship Center at Florida International University in Miami calculated a 20 percent drop in entrepreneurial activity between 2003 and 2004, with 4 million fewer Americans starting and running new companies. "I didn't expect this big of a drop," says Paul D. Reynolds, a lead researcher on the annual study.

Innovation goes beyond bits, bytes and biology; it includes coming up with unique processes and business models. For entrepreneurs like Michael Murphy, however, the process of innovating is getting harder. Murphy is CEO of Gentris Corp., a 4-year-old pharmacogenomics company in Morrisville, North Carolina, with 30 employees and 2004 sales of $2.3 million. Because of a re-interpretation of federal rules prohibiting small firms from qualifying for Small Business Innovative Research grants if the majority of company shares are owned by private institutions, Gentris slashed R&D spending by 50 percent this year.

"This is very much going to inhibit people from either starting companies or being able to compete for those research dollars that [drive] a lot of innovation," says Murphy, 50.

Stories like Murphy's fuel the Council on Competitiveness, a 175-member nonprofit group comprised of labor leaders, university presidents and CEOs. In 2003, it launched a 21st Century National Innovation Agenda that includes the development of "innovation hot spots" to drive growth; encourages greater investment in research and education; and calls on the government to issue green cards to foreign-born, U.S.-educated scientists and engineers. "Innovation is the most important factor in determining our country's security and standard of living," says Deborah Wince-Smith, the council's president.

Alan Ying, founder and CEO of MercuryMD, a 4-year-old Durham, North Carolina, medical software firm with 75 employees, sees opportunity in globalization. "I don't think [entrepreneurs] see [China] as a threat necessarily," he says. "They see it as a huge opportunity that they don't know how to take advantage of easily." Ying, 33, believes Americans must address the underlying issue: Will we be protectionist regarding global talent, or become open to it? "Having [foreign talent] here is going to raise the bar of performance for everyone," he says.

In May, Congressman Frank Wolf (R-VA), chairman of the House Appropriations Committee Subcommittee on Science, State, Justice, Commerce and Related Agencies, called on President Bush to triple spending on basic research. With so many competing priorities, however, pushing an innovation agenda will be hard work. But the biggest challenge could be changing how we think. Says Murphy, "We need to make math and science cool."