Is The U.S. Really Losing Its Innovative Edge?

Guest post written by Gerard J. Tellis

Gerard J. Tellis is Neely Chair of American Enterprise, Director of the Center for Global Innovation, and Professor of Marketing, Management and Organization at the USC Marshall School of Business. His forthcoming book is Unrelenting Innovation: How to Create a Culture of Market Dominance.

Gerard J. Tellis

Innovation is critical for the improvement in consumer living standards, the growth and success of firms, and the wealth of nations. In the late 19th and early 20th centuries, the U.S. surpassed Great Britain as the world’s premier economy on the strength of its innovations. These innovations spanned a wide spectrum of industries. Innovations flourished in a variety of heavy industries such as aeronautics, automobiles, defense, communications, electricity and power generation. Innovations likewise blossomed in consumer goods and services such as soap, photography, shaving and entertainment. The U.S. also pioneered innovations in university education, land ownership, home ownership and individual rights. The U.S. lead in innovation lasted through most of the 20th century.



Is the U.S. now losing its edge in innovation?

Consider that China and India each now graduate more engineers and scientists per year than the U.S. The U.S. share of patents issued here has fallen below 50%. Spending on R&D by some Asian countries exceeds U.S. levels. And Asian countries such as Taiwan, South Korea, Japan, China and India are developing home grown innovations, which have propelled their native firms to market leadership in some industries. Will the 21st century belong to Asia just as the 20th belonged to the U.S.?

Technical variables such as number of engineers and scientists, investment in R&D and patents are important correlates of innovation. But they are not sufficient for innovation. My co-authored research suggests that the most important driver of innovation is culture. This is an intangible factor that is easily overlooked, hard to measure and hard to replicate. To appreciate that, consider the following examples:

  • Countries the world over have tried to develop a high-tech innovation cluster like Silicon Valley. None have so far surpassed or equaled the original. Why?
  • Steve Jobs was neither a scientist nor an engineer. Yet he was arguably the leading innovator of the last decade. Why?
  • When Apple surpassed Sony in mobile music (iPod made the Walkman obsolete), it had a fraction of the patents of Sony. How did it do it?
  • The U.S. continues to attract talent from around the world, who flourish here as entrepreneurs and innovators. Why?

The answers to all these questions revolve around the theme of culture. At the level of individual firms, a culture of innovation consists of three important traits: an embrace of risk, a willingness to cannibalize successful entities, and a focus on the future. These traits in turn are fostered by three practices: incentives for enterprise, empowerment of innovation champions, internal competition. At the national level, one can add one more trait to this list: openness to new ideas and people. Consider how the U.S. excels in these traits and practices:


The embrace of risk comes from a culture that is unafraid of failure and learns from it. The U.S. has one of the most liberal environments for failing entrepreneurs: he or she can declare bankruptcy and start again. In Germany or Japan, it’s almost impossible for a bankrupt person to start a new business. In many countries, failure is a shame. In the U.S., failure is forgiven. In the Valley, failure is badge of honor. The U.S. and especially Silicon Valley thrive on failure.

U.S. students rank low on math and science among developed nations. But part of that problem is that performance on math and science is based on standardized tests. U.S. schools do not emphasize rote learning, which leads to good performance on standardized tests. On the other hand, U.S. students would excel on enterprise, if indeed someone had developed a test of that trait. Rote learning is just the opposite of what is need for innovation. It creates robots. Innovators are dissidents: people who are fed up with and challenge the status quo. The U.S. education system fosters dissidents by its emphasis on independence, debate and experimentation. Indeed, no education system in the world encourages these traits as do schools in the U.S. This is the cradle for champions of innovation.

Likewise few countries in the world have an environment of brutal competition, where small new firms can compete with established giants, which in turn are allowed to fail if they do not supply the latest innovations. While U.S. industries are constantly invigorated with startups, some developed economies are handicapped with aging, lumbering giants. Free entry and free failure ensure survival of the most innovative rather than the best politically connected or the ones that are the largest. And the U.S. ranks high on survival of the most innovative.

Perhaps the most valuable trait of innovation is openness to new ideas and new peoples. The U.S. was founded by people who were persecuted or rejected by other countries or disheartened by meager opportunities in other lands. That immigrant spirit inspired the U.S. Constitution, pervaded its immigration policy, and underscored its laws against discrimination. Aside from Canada and Australia, no country matches the U.S. in its openness to new peoples. My co-authored research in history suggests that when civilizations peak, they seem to have the most open policy to new ideas and people. New peoples provide new ideas, fresh perspectives and new energy for innovation. New ideas are the seeds of radical innovations.

Today, the U.S. is in danger of lagging other countries on some important hard metrics that correlate with innovation: graduations in math and science, R&D investment, and patents. But the U.S. still dominates one critical intangible driver of innovation: culture. “Cracks” in this culture are emerging: rescue of lumbering giants, tightening of immigration policy, suppressing of dissidents in some organizations. The U.S. absolutely must not lose the culture of innovation. In so doing, it can remain the pre-eminent innovative economy of the 21st century.



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