America Needs a New International Strategy for Science, Technology, and Innovation

By Christopher T. Hill, David Cheney, Patrick Windham

The global environment for research and development, innovation, and technology-based economic development has changed dramatically over the past few decades. Science and technology funding and knowledge are now widely distributed around the world; companies are much more international, and China has become a leading economic and science and technology power that sometimes plays by different rules than other global economic leaders.

In the United States, science, technology, and innovation (STI) policies and institutions have not kept pace with these changes. Other nations are now better able to generate and capture value from science and technology investments at home and abroad. US STI strategy and institutions that made sense 40 years ago are poorly adapted to the new global reality. They need to change. Yet, as we have commented in Issues previously, recent legislative proposals aimed at policy reform are still built on a limited and outdated model.

Here, we provide a framework for guiding the next generation of STI policies in order to enhance the value of US R&D while also learning from the rest of world, especially through broadening international collaboration.

The New Global R&D Context

While the United States accounted for the bulk of global R&D funding in the decades after World War II, today the rest of the world is responsible for three-quarters of R&D funding and over 80% of scientific publications. China’s R&D funding alone now matches that of the United States. International research collaboration, measured by international coauthorship of papers, has steadily increased to almost 40% of all research in the United States and other leading countries. Scientific information, which has always spread globally, moves much more quickly via digital communications. Even in cutting-edge fields of science and technology, such as nanotechnology, artificial intelligence, quantum computing, and medical application of stem cells, research is globalized and ideas flow rapidly around the world.

Other nations are now better able to generate and capture value from science and technology investments at home and abroad. US STI strategy and institutions that made sense 40 years ago are poorly adapted to the new global reality.

Businesses, which perform the majority of R&D, are also increasingly globalized. Thirty years ago, one could safely assume that most companies would conduct most of their R&D and other high-value-added operations in their home countries, and, if they collaborated with universities, it would be mostly with universities in their own countries. No longer. Businesses often conduct R&D globally, and acquire technology externally from suppliers, start-ups, universities, and other sources around the world. Supply chains, often global, have become the innovation system for many companies. Businesses that source ideas and technologies globally are less tied to their home country’s R&D systems. And the jobs and tax revenues they create are also less tied to their home countries. Decisions by companies on where they locate their operations in turn strongly affect where benefits from national government funding of R&D end up—in the form of jobs, profits, and taxes.

At the same time, it has long been apparent that the simple linear model of innovation at the heart of post-World-War-II US STI policy—that government-funded basic research leads reliably to private-sector applied R&D, innovation, and domestic economic value—is deeply flawed. Much innovation is based not on new science but on recombining existing technologies and scientific knowledge in new ways, and many countries (such as those in East Asia) have achieved high levels of technology-based economic growth before they have exceled in research. As globalization proceeds, the linear link between domestic research funding and domestic realization of its economic value becomes ever weaker.

Today it matters less where scientific knowledge is generated or where inventions occur and more where and how knowledge is applied to generate value—whether economic value or other social value such as health or security. Generating value requires that people connect knowledge to meet needs, primarily through innovative activity in new or existing businesses. For a nation to capture the value of innovations, it must both put the innovations to use and assure that the businesses using the innovations are operating domestically.

US Strengths and Weaknesses

US dominance of global R&D may have declined, but the nation still has strong universities and research institutes and competent R&D funding agencies. Keeping these strong remains important, not only because strong R&D institutions lead to innovation and enable spin-off companies, but also because they attract people and companies and are necessary for making use of knowledge and technology from the rest of the world.

While the United States accounted for the bulk of global R&D funding in the decades after World War II, today the rest of the world is responsible for three-quarters of R&D funding and over 80% of scientific publications. China’s R&D funding alone now matches that of the United States.

The United States also has strengths in many aspects of capturing value from R&D, including strong intellectual property systems, robust technology transfer systems, and vibrant systems (e.g., venture capital financing and government-supported Small Business Innovation Research programs) for creating new technology-based companies. These systems have been greatly strengthened since the 1980s, through a variety of laws and programs that enabled new modes of university-industry collaboration, industrial consortia, and support for entrepreneurship. America’s ability to create new companies remains the envy of the rest of the world.

While the US innovation system has worked well for information technologies and e-commerce industries, however, it has worked less well for manufacturing industries, both with respect to commercializing new technologies and employing new technologies in existing businesses. More significantly, the outsourcing and offshoring of manufacturing and the concomitant loss of manufacturing companies has weakened the nation’s ability to capture value from R&D. Simply put, if the only companies that can use an innovation have their operations overseas, most of the value of that innovation will accrue overseas. The United States loses much of the benefits of government investment in such fields as energy equipment or electronics R&D when the key manufacturing is overseas. This in turn affects US R&D capacity: with fewer jobs there are fewer students and faculty, less industry funding of R&D, and less incentive for federal R&D funding in relevant fields.

The US loss of industry reflects factors that are bigger than STI policy, including taxes, regulations, workforce capabilities, and trade and labor policies. Behind this complexity, however, lies a systemic challenge to effective policymaking: although there are many agencies that affect industry performance, no single agency has overall responsibility for supporting the conditions that will lead businesses to succeed internationally, keep jobs in the United States, or move jobs to the United States. (The Department of Commerce, the obvious candidate, has diverse responsibilities but only limited ability to help industry.) There is little linkage between tax policy, regulatory policy, immigration policy, and other policies that affect the location of companies and their incentives to innovate. States and localities meanwhile play an outsized role determining the business environment, a situation that has become increasingly dysfunctional as competition has become international and other nations seek competitive advantages through national-scale strategic approaches.

Many countries have stronger institutions and programs than the United States for supporting and attracting industries. For example, most other countries have a ministry of economy or industry or innovation that seeks to create conditions for domestic industry to succeed. Many countries have R&D institutions to support existing industry, such as the Fraunhofer Institutes in Germany (which inspired the Manufacturing USA institutes set up in the past several years in the United States, an effort that remains far too limited).

As globalization proceeds, the linear link between domestic research funding and domestic realization of its economic value becomes ever weaker.

Other countries also have mechanisms that serve to encourage companies to keep high-value operations at home. Many countries in the Organization for Economic Co-operation and Development and the European Union have laws requiring worker representation on corporate boards, which encourages companies to consider domestic jobs. Major companies such as Airbus, Volkswagen, and Renault have government shareholders. While these are not necessarily the solutions for the United States, in a world where other countries are actively seeking to build, attract, and keep the highest value industries and jobs, the United States lacks effective mechanisms to play the game.

The United States also has strengths and weaknesses in its ability to capture value from R&D done elsewhere in the world. It continues to attract scientists and engineers from around the world through its strong universities and openness to innovation. Its universities and open market also attract foreign companies and entrepreneurs.

But due to the nation’s large size and historic leadership in science and technology, its STI institutions often fail to look outward for knowledge, technology, or policy innovations. Smaller innovative countries such as Finland, Israel, and Singapore have long recognized that most valuable knowledge and technology is to be found outside their borders. Other countries, notably those in East Asia, including China, have aggressively pursued foreign knowledge and technology through government-supported mechanisms that include:

• Sending students and researchers abroad and attracting foreign S&T talent
• Acquiring foreign technology and diffusing it to domestic companies
• Acquiring foreign technology companies
• Attracting foreign direct investment in manufacturing and research labs
• Funding international researchers and international research collaborations
• Enabling industrial espionage, reverse engineering, and copying of technology
• Adopting trade policies that favor domestic industries

The United States needs to adopt or expand some of these mechanisms. Others, such as industrial espionage or technology transfer requirements as a condition of market access, should be the subject of stronger international sanctions promoted by the United States.

In recent years, US policymakers have often sought to impose limits on the participation of students from other countries in US R&D programs or to set up barriers to faculty collaboration with researchers in laboratories elsewhere. While there are occasions where such limitations may be necessary, policies that discourage legitimate international participation and collaboration will undermine US prospects in the longer term.

Three Lines of Action

A first step for the United States is to recognize the new realities. The notion of an insular domestic innovation system where economic benefits accrue along a linear path starting with US basic research needs to be set aside. US research is still important, but as much to build talent, to attract companies, and to absorb foreign knowledge than simply to create innovations that lead to new companies and economic value. When three-quarters of new knowledge is generated outside the United States, US R&D policies and programs need to be redesigned to capitalize on R&D done elsewhere. R&D programs need to be aware of and connected to global research. Funding agencies should increase support for researchers and students to work and learn overseas, and should support more international collaborations. Federal R&D program managers need to be able (as some already are) to make connections to the best work in the world in their fields and must be able to devise programs that learn from the world and contribute to domestic innovation.

Simply put, if the only companies that can use an innovation have their operations overseas, most of the value of that innovation will accrue overseas.

The United States must also focus public policies on capturing value from R&D as well as generating it. The nation needs to strengthen R&D connected to existing businesses, particularly in capital-intensive technologies such as power generation/storage or precision manufacturing. But more important will be a comprehensive approach to keeping key industries and jobs in the United States, through shaping the factors that affect industry competitiveness and the location decisions of international companies. Since relevant policy areas include taxes, immigration and workforce laws, environmental and other kinds of regulation, and trade, as well as R&D, the nation needs to coordinate the work of many agencies, including the Departments of Treasury, Commerce, and Homeland Security, along with the Environmental Protection Agency and other regulatory agencies. A revitalized and strengthened National Economic Council is the logical home for this coordinating function, perhaps supported by stronger industry connections and analytical capabilities in the Department of Commerce.

Finally, the United States must assert renewed leadership in setting the “rules of the road” for international science and technology cooperation and exploitation. Improved and expanded collaboration must be accompanied by rules to prevent abuse of international norms. The proper mechanism for establishing new international R&D rules is not clear, but discussions in the Group of Twenty, the global forum comprising the world’s 20 largest economies, may be a good place to start. Key areas include the following:

Strengthen and enforce international norms about acceptable practices for capturing value from foreign R&D. Rules to prevent industrial espionage and cybertheft and requirements to transfer intellectual property as a condition of market access need to be adopted, along with international mechanisms to enforce the rules.

Reduce barriers to international collaboration and expand international programs in key areas of technology development. Many areas of technology development, such as 6G telecommunications, renewable energy, artificial intelligence, climate change adaptation, and infectious disease medicine, cry out for greater levels of international collaboration. US policies and regulations should enable and support that collaboration wherever feasible. Countries that lead in R&D funding should cooperate to harmonize national rules to enable easier collaboration.

States and localities meanwhile play an outsized role determining the business environment, a situation that has become increasingly dysfunctional as competition has become international and other nations seek competitive advantages through national-scale strategic approaches.

Develop common approaches to manage the risks and ethical issues in emerging areas of science and technology. Human genetics, stem cell research, artificial intelligence, data privacy, geoengineering, and other areas of innovation pose risks or ethical issues that are global in reach. There need to be stronger mechanisms for developing and implementing international agreement on such issues.

Establish common minimum levels of support for basic research. As countries pursue a self-interested focus on value capture from global R&D, basic research needs to remain well funded. Countries might agree to fund minimum levels of basic or fundamental research as a percentage of their gross domestic product (the broadest measure of goods and services produced by a national economy). Another approach would be to develop an international support mechanism for R&D, perhaps modeled after the European Union’s Framework programs (the EU’s main instruments for implementing its common scientific and innovation policies), with basic funding commitments from all major industrial countries.

Harmonize rules for multinational companies. Decisions made by multinational companies about where they locate their operations and how they transfer their technologies play a large role in determining who benefits from national taxpayer-funded R&D. The nations that dominate government-funded R&D should strive for a more harmonized international business environment to prevent multinational companies from playing countries against each other for tax and other benefits.

In the United States, both Democrats and Republicans recognize the challenges to the nation’s technological and economic leadership posed by China and sense that many US policies and institutions do not serve current US interests well. This shared concern is a political opportunity. But Democrats will need to recognize that it is critical to create a business environment that allows domestic companies to thrive and that attracts foreign companies. And Republicans will need to recognize that a government limited to supporting basic research and defense R&D cannot compete in a world where governments actively work to gain national advantage from R&D. Leaders on both sides must come together to craft a new, international approach to science and technology that can help assure the future well-being of the United States.