Editorial: Should U.S. TBED Worry As Multinationals Increase Overseas R&D Investments?

The rise in the late 1990s in the concept of a "new economy" was coupled with the rapid growth in research and innovation investment within the information and communication technology (ICT) sector. When the dot-com bubble burst, some state and local strategies were revamped to look for the next big thing, which in many places was biotechnology or nanotechnology.

The recent mega investments in R&D by big ICT companies should suggest the return to rosy times for America's info tech advocates, then, right? Probably not.

In fact, some would argue that these strategic decisions, perhaps the latest big one being the $1 billion investment announced by Silicon Valley based Cisco Systems in October or Hewlett-Packards announced new R&D facility, should sound significantly loud alarms for state and regional tech-based economic developers.

Why? Because, as this column's headline points out, these investments are not occurring in the US. Nor are they occurring in other North America ICT research centers like Ottawa. During the next three years, Cisco Systems is putting $750 million into R&D in its Indian facilities. The company also announced plans to create a $100 million seed investment fund to support the growth of India's booming tech entrepreneurship climate and to provide $10 million for rural connectivity in India. The campus, alone, for the new R&D facility costs $50 million and will house up to 3,000 Cisco employees.

Will future innovation be driven from outside the U.S? In September, the National Science Foundation (NSF) reported industrial R&D expenditures in America's academic research institutions declined for the second consecutive year (see Sept. 12 Digest).

On the other hand, why shouldn't these investments occur in India, a country of 1.2 billion people projected to sustain annual growth rates of 7-8 percent, according to a Nov. 9 article in Asia Pulse? The article stated the Asian Development Bank "might scale up assistance to US$3 billion annually and is ready for another Rupee bond issue for funding the private sector."

As top-selling titles like The World is Flat and Three Billion New Capitalists tell us, economic progress in countries such as India and China is a good thing. Improved living standards for the entire globe should be an embraceable goal of any political party. By merely looking at any of the numbers, however, the non-U.S. shift in the balance of global economic power should seem inevitable.

So what should be the reaction of the tech-based economic development community within the U.S.? Calls for protectionism? Paralysis through worry and despair? Shrugging acceptance as a fait accompli? Or, as Berkeley economists Dwight Jaffee and Ashok Mardhan suggest in their new paper Innovation, R&D and Offshoring, should America's tech centers be preparing for a wave of new jobs and economic growth from smaller technology and research firms? The 20-page paper is available at: http://repositories.cdlib.org/iber/fcreue/reports/1005/

All of these trends combined won't trigger a U.S. economic collapse, but the policy decisions and strategic investments we make or fail to make at all levels of government could. Therein lies much to worry about, based on the state of things in the nation's capital.

As solutions don't seem imminent from Washington, states and regions will have to take more significant roles working with their business, academic and research communities to identify and address the impact of trends such as the increased globalization of industrial R&D.

In many states, tax revenues are again in a mild surplus mode, enabling many governors and state legislatures the opportunity to make strategic investments and/or tax reimbursements to strengthen their positions in a global economy. SSTI will be watching and reporting as the nation's governors release budget requests during the next few months.