"Software" of Innovation Is Crucial for Maintaining the U.S. Competitive Advantage Over Asia, Says Author

In "Advantage: How American Innovation can Overcome the Asian Challenge," Adam Segal contends the U.S. will continue to maintain a comparative advantage in innovation over Asia due to the "software" of innovation. The "software" of innovation revolves around the political social and institutional factors that move ideas from the lab to the market place. America's cultural values of individualism, social mobility, entrepreneurship, limited barriers to market access and low risk-aversion provide it a significant advantage over our Asian competitors. It is necessary to leverage and continue to cultivate the U.S. "software" of innovation because Asia's science and technology sectors (S&T), specifically China and India, are rapidly catching up to and should overtake the U.S. in several areas including the number of Ph.D.s awarded, investments in product innovation, number of patents obtained and facilities — Segal terms these quantifiable factors as the "hardware" of innovation. Segal, a senior fellow at the Council on Foreign Relations, argues that this decline in the U.S. domination of the "hardware" of innovation is not a negative, but as a long-term positive for national prosperity.

In the early chapters, Segal performs a detailed comparative analysis of Asia's S&T sectors. Even though these countries differ greatly in political, social and economic institutions — the Asian Tigers (i.e., Hong Kong, Singapore, South Korea and Taiwan), China and India all have committed to making two drastic changes in their S&T sectors. First, they intend a switch from "made in" countries to "innovated in" countries. Segal contends Asia is no longer content being just the producers of goods, but they also want to be hot spots of innovation. Second, Segal contends Asian countries traditionally have focused on "process innovations" — incremental changes to foreign products for the domestic/regional market. However, they are turning towards "product innovation" — the creation of a new to market technology.

To achieve these transformations, the countries have sunk extensive resources into developing a talented S&T workforce, creating world-class facilities and increasing attention from Foreign Direct Investment (FDI). Due to the size of these investments, rapid population growth and central government interventions (e.g., investments, sector targeting) these countries (specifically China and India) will replace the U.S. as the world leader in the "hardware" of innovation. According to Segal, they will surpass the U.S. because the U.S. lacks the population growth and financial resources to compete long term with these countries in "hardware innovation."

In the later chapters, Segal argues that this inability to compete with hardware innovation is not necessarily a negative, but actually a positive that could fuel long-term, sustained U.S. economic growth. He contends the U.S. cannot maintain a "zero sum" strategy of innovation focusing only on increasing domestic innovation. The U.S. must develop a strategy that increases global innovation and builds relationships with our most feared Asian competitors. These mutually beneficial relationships will spur long-term prosperity if the U.S. focuses its strategy on three areas: regional innovation ecosystems, immigration reform and international collaboration.

Globalization requires local specialized clusters that take advantage of a region's comparative advantage according to Segal. He acknowledges the importance of federal government and multinational corporations in driving large-scale innovation projects (e.g., green energy), but highlights the importance of regional innovation ecosystem in spurring innovation and cultivating sustained growth. Regions cannot simply rely on major corporations to fuel the local economy due to globalization. Instead, these regional networks would create new niche industries that address both domestic and global S&T needs.

Segal proposes that the federal government focus on developing collaborations between these regional networks and international "hot spots" (i.e., international industry clusters) that are based on technology transfers, talent migration and large-scale research projects. This would lead to increased FDI into the U.S. and create relationships between U.S. small business and foreign markets. He also points towards immigration reform that would allow the U.S. to maintain its ability to attract and retain world-class talent that has increasingly returned to Asia due to new opportunities. The streamlining of immigration for individuals in the S&T sectors would provide America the talented need to develop these networks.