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HONOLULU (July 19) — There is a broad consensus that the critical ingredients for economic growth, competitiveness, and welfare in the United States have been policies to encourage investment in research and development (R&D) and innovation. While manufacturing and low-level service jobs are moving offshore, it is widely assumed that R&D jobs are not.
Not so, says East-West Center (EWC) senior fellow Dieter Ernst, at least when it comes to where that technological innovation calls home. Ernst notes that over the past decade, “The rise of Asia as an important location for ‘innovation offshoring’ has begun to challenge” those ideas “and the sense of complacency they have engendered.”
A newly-published study, Innovation Offshoring: Asia’s Emerging Role in Global Innovation Networks (East-West Center Special Reports Number 10), documents that “…innovation offshoring is driven by profound changes in corporate innovation management as well as by the globalization of markets for technology and knowledge workers.” Ernst analyzes the forces behind the growing geographical mobility of innovation and shows that “U.S. companies are at the forefront of this trend, experimenting with new approaches to the management of global innovation networks.”
But, despite the prominent position of U.S. companies, Ernst says, “Asian governments and firms are playing an increasingly active role as promoters and new sources of innovation.” Hence, he points out, innovation offshoring has “…created a competitive challenge of historic proportions for the United States.”
He notes growing concern that this innovation offshoring could extend the “hollowing out” of the U.S. economy well beyond the manufacturing sectors. Homegrown research and development, the “most precious source” of U.S. economic growth could be endangered. Ernst says, “Some fear that a loss of knowledge worker jobs to Asia may erode the nation’s innovative capabilities.” A fear that, Ernst says, could feed a hunger for technological protectionism.
The study highlights ample reasons for the United States to be concerned. But, according to Ernst, U.S. policies should focus primarily on improving the domestic environment for innovation, rather than trying to slow down Asia’s progress. He says, “The simple metaphor — Asia’s rise versus America’s decline — is clearly misleading.” Ernst adds, “Innovation offshoring does not have to be a zero-sum game.”
A central message of the study is that the entry of Asia into the innovation equation “…creates new opportunities for the United States and for U.S.-Asia economic relations.” Ernst points out that stronger innovation capabilities in Asia create new markets for U.S. firms. More importantly, he adds, “Asia’s rise as a source of innovation creates a powerful catalyst for the United States to strengthen its innovation system.”
“More innovation in Asia does not mean less innovation in the United States,” Ernst states. “Asia’s progress may well enhance our capacity to produce significant innovations and market-defining standards.”
But, to take advantage of the new innovation landscape, Ernst emphasizes that, “the United States needs a new national strategy … to ensure that benefits of innovation offshoring are not countered by a creeping longer-term hollowing-out of the nation’s talent pool and its production and innovation system.”
Ernst recommends that such a strategy should include such elements as improved collection of and access to innovation-related data; addressing “home-made” causes that are pushing innovation offshore; tax incentives (especially for innovative start-ups) and reforming the U.S. patent system to support corporate innovation; provide incentives for U.S. students to study science and engineering; foster management, interpretive, cross-cultural, and other “soft” capabilities, and to encourage the immigration of highly skilled workers.
Ernst sees no immediate threat to U.S. dominance. But he says that in the long-term, “There is a real danger that Asia’s rise as an important location for innovation offshoring may challenge U.S. competitiveness in international trade and investment.” He adds, “It is thus time to accept that the United States no longer is preordained to lead the world in innovation.” Time to take steps to head-off any future risk.
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Dieter Ernst is a senior fellow in the Economics Study Area of the East-West Center Research Program. He is a former senior advisor to the OECD, Paris and former research director, Berkeley Roundtable on the International Economy (BRIE) at the University of California at Berkeley. Dr. Ernst has co-chaired an advisory committee of the U.S. Social Science Research Council to develop a new program on Innovation, Business Institutions, and Governance in Asia. He has also served as scientific advisor to several institutions, among them the Organization for Economic Cooperation and Development, the World Bank, the Asian Development Bank, the U.N. Conference on Trade and Development, and the U.N. Industrial Development Organization. Ernst can be reached at the East-West Center at (808) 944-7321 or via email at ErnstD@EastWestCenter.org
Innovation Offshoring: Asia’s Emerging Role in Global Innovation Networks, published by the East-West Center and developed in conjunction with the U.S.-Asia Pacific Council, is available in hardcopy or PDF. Hard copies can be ordered by contacting the East-West Center Publication Sales Office via email at ewcbooks@EastWestCenter.org. The single-copy PDF version can be found under the Publications section on the East-West Center website at www.EastWestCenter.org
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