Where innovation creates value

McKinsey Q, Feb 2009
Off shoring of manufacturing to countries with low-wage, unskilled labor, was followed by off shoring of services of data entry, routine software programming and testing, and the operation of phone banks. Now overseas workers are analyzing financial statements, test trading strategies, and design computer chips and software architectures for US companies.
This gives rise to worries that the United States could become significantly less competitive “as large developing countries like China and India harness their growing scientific and engineering expertise to their enormous, low-wage labor forces.”
According to the author there is no need to fear that the United States is on the verge of being pummeled by a technological hurricane. He says that worries about the off shoring of R&D and the progress of science in China and India arise from a failure to understand technological innovation and its relation to the global economy. Innovation does play a major role in nurturing prosperity, but we must be careful to formulate policies that sustain rather than undermine it—for instance, by favoring one form of innovation over another.
The most important point for national prosperity is not where scientific discoveries and breakthrough technologies originate who commercializes them. The United States is not behind in that race.
All innovators and innovations play necessary and complementary roles. Innovations that sustain prosperity are developed and used in a huge game involving many players working on many levels over many years.
Similarly, globalization is characterized by complexity and a variety of cross-border flows can be important innovators. Many kinds of global interactions have become more common, but not in a uniform way: international trade in manufactured goods has soared, but most services remain untraded. Of the many activities in the innovation game, only some are performed well in remote, low-cost locations; many midlevel activities, for example, are best conducted close to potential customers.
The author feels that Techno-nationalists and techno-fetishists oversimplify innovation by equating it with discoveries announced in scientific journals and with patents for cutting-edge technologies developed in university or commercial research labs, ignoring the contributions of the other players—contributions that don’t generate publications or patents since they rarely distinguish between the different levels and kinds of know-how.
Globalization is also oversimplified. Since in today’s world breakthroughs travel easily, their national origins are fundamentally unimportant.
Since innovation is not a zero-sum game among nations, and high-level science and engineering are no more important than the ability to use them in mid- and ground-level innovations, the United States should reverse policies that favor the one over the other, and it should cease to worry that the forward march of the rest of the human race will reduce it to ruin.
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