CHINA MAKES THE MOST OF U. S. INNOVATION
China investsmore in research and development, which commercializes products and creates jobs
“Other countries are free- riding on the U. S. investment.” Justin Rose, who co- authored the Boston Consulting Group study
For decades, America lost factories and jobs to China but retained a coveted title: the world’s leader in inventing and commercializing new products. Now, even that status has been eroded, and it’s hurting the economy.
While the United States is still at the top in total investment in research and development — spending $ 500 billion in 2015 — a new Boston Consulting Group ( BCG) study released Monday has made a startling finding: A couple of years ago, China quietly surpassed the U. S. in spending on the later stage of R& D that turns discoveries into commercial products. And at its current rate of spending, China will invest up to twice as much as the U. S., or $ 658 billion, by 2018 on this critical latestage research.
In other words, the U. S. is doing the hard work of inventing new technologies, and China, among other countries, is reaping the benefits by taking those ideas and turning them into commercial products, the report says.
“Other countries are free- riding on the U. S. investment,” says Justin Rose, who co- authored the BCG study.
The slippage is a significant blow for the U. S. economy, costing tens of billions of dollars a year in manufacturing output and hundreds of thousands of factory jobs over the past decade or so, BCG says. Companies that lead in commercializing ideas also typically build factories near their research centers so scientists can test products before making them.
The burgeoning commercial drone market is a prime example of the shift. The U. S. military developed drone technology throughout the 20th century for reconnaissance and other purposes, adding microchips for better wireless control and longer- lasting batteries. But China’s Da- Jiang Innovations has refined the unmanned vehicles to better avoid obstacles and has become the world’s largest builder of commercial drones. It sells them to U. S. real estate and construction firms for applications such as aerial photography and mapping. DJI has three factories in Shenzhen.
The U. S. has also given birth to a Smithsonian- worthy collection of breakthrough technologies — including flatpanel displays, digital mobile handsets, notebook computers and solar panels — only to fumble away their development to other countries, particularly China and Japan.
The BCG study concludes the U. S. has the potential to reverse the trend through better collaboration among private industry, universities and research consortia. Such a shift would increase annual manufacturing output by 5%, or $ 100 billion, and add 700,000 factory jobs and another 1.9 million in other sectors through ripple effects.
Yet while President Trump is focused on narrowing the nation’s trade deficit, his proposed budget would slash federal funding for R& D, potentially snuffing out a significant source of U. S. manufacturing jobs that could help accomplish that goal. Last year, the U. S. had an $ 83 billion trade gap in advanced tech products, according to the Census Bureau.
The country still is the global leader in “basic and applied” R& D, which makes early discoveries and further refines them. About a third of the $ 500 billion the country spends on R& D is funneled to those activities. But while two- thirds of the total goes to later- stage “development” R& D, China invests 84% of its R& D money on advances that yield commercial products. For the past decade, “development” R& D has been growing 20% a year in China, vs. 5% in the U. S., the BCG report says. As recently as 2004, the U. S. spent four times as much as China.
In China, many technology companies are state- owned, so they don’t have to worry if R& D spending yields losses until a product is commercialized, and even the research of private firms is often subsidized by the government, says Robert Atkinson, president of the Information Technology and Innovation Foundation. The Chinese government, he says, gives the private sector specific timetables for achieving dominance in areas such as solar, printers and drones.