Editor's Page -- Profit Pursuits Are Choking Innovation

Feb. 12, 2005
Will a short-term focus set us up for a fall?

A lot of people are worried about the U.S.' innovation infrastructure, and I'm starting to be one of them. The concerns I'm reading and hearing about -- from business leaders, academics, think-tank researchers and government officials -- run the length of the innovation supply chain from its very origin, basic research, to its deployment into the marketplace, and several points in between, including our education system, business practices and government policies.

I'm usually an optimist. I believe U.S. industry repeatedly has proven its ability to adapt. However, the voices of concern are becoming increasingly insistent, their arguments more compelling.

While most of the debate is taking place in the public policy arena, manufacturing executives must play a role, whether by joining the debate or reviewing their own companies' innovation pipelines and practices for signs of weakness.

Here are some ideas to consider:

Public Space: Richard K. Lester, the director of the Industrial Performance Institute at the Massachusetts Institute of Technology (MIT) and Michael J. Piore, professor of Economics at MIT, argue persuasively (See National Innovation Summit Only Gets It Half Right) in their recent book, "Innovation: The Missing Dimension" (2004, Harvard University Press) that we've failed to understand the origin of the 1990s economic boom. While most people believe the surge of innovation derived only from the intense competition and technological entrepreneurship of the era, Lester and Piore contend that it also was built upon advances made much earlier "in government-funded university laboratories or in organizations such as AT&T's Bell Labs and IBM's Thomas J. Watson Research Center." There, they say, researchers had time and space to experiment free of quarterly profit pressures -- and to create the basic technology upon which products and services deployed in the '90s were based.

R&D Funding: Lester and Piore's assertions segue with a chorus of others, Intel CEO Craig Barrett among them (See "Fund the Future," January 2005), who decry continued anemic federal funding for basic industrial research. Such funding has grown at less than the rate of inflation for the past five years. Meanwhile, industry-led R&D is increasingly allocated to product development, rather than to the basic research that will lay the groundwork for future product and service innovation.

The Brain Drain: Still others worry about the growing skills gap with the rest of the world. They've noted the precarious drop since the mid-1980s in the number of U.S. graduates with degrees in the physical sciences, mathematics and engineering; the growing proportion of foreign students who graduate from U.S. universities with degrees in those disciplines; and the dramatic increase in graduates in those disciplines abroad. Compounding their concern more recently are new immigration controls that have caused a 32% decline in the number of foreign-born students coming to the U.S. to study.

Technology Transfer: Shih-Fen S. Chen, a professor of international marketing at Brandeis University's International Business School, worries that U.S. companies are giving away technological advantage when they outsource production (see The Dire Consequence Of Outsourcing -- IBM's Fall To Lenovo). In a paper published online in December by the Journal of International Business Studies, Chen describes how Schwinn ceded technological leadership in bicycle manufacturing to its Taiwan supplier, Giant, and subsequently declared bankruptcy. In an op-ed article, he declares, "In the pursuit for quick profits from outsourcing, U.S. firms seem slow to realize that they are losing technologies to subcontractors, and the dissipation of technology edge is accelerating."

The U.S. innovation infrastructure, led by the manufacturing sector, remains among the strongest -- if not the strongest -- in the world, but that doesn't guarantee it's future. The intense competition and new market realities of the last few years have caused us to focus on short-term results. It's time to start planning and investing for the long term.

Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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