U.S. Slipping in Tech Innovation – Pacific Research Institute

U.S. Slipping in Tech Innovation

America’s position as a technology innovation leader–and hence a prime destination of venture capital funds–may be under threat. That’s the conclusion of a recent survey of venture capitalists at Deloitte and the National Venture Capital Association.

The report shows regions in Europe and Asia are becoming competitive with the United States in some technology-related sectors.

The survey polled 398 venture capitalists. Forty-one percent of those surveyed were from the United States, 25 percent were from Europe, 20 percent were from Pacific Asia, 10 percent came from the non-U.S. Americas, and 4 percent hailed from Israel.

The survey’s authors focused on venture capitalists because their outlook on the technological innovation climate will determine where money for such efforts is invested.

Not to Worry

Analysts and observers differ on the meaning and importance of the findings, which were released to the public May 27.

“I think the threat is not as serious as it is often made out to be, especially in terms of China,” said Daniel Ballon, Ph.D., a fellow in technology studies at the Pacific Research Institute (PRI).

“You can’t purchase innovation; it develops when the atmosphere is right,” said Ballon. “The way the education system is set up in China is very vertical, and people are not really encouraged to think outside the box or color outside the lines. So in that regard, the kind of free flow of ideas that is necessary for innovation is not there.

“They can throw as much money at it as they want, but there won’t be a change unless they encourage the kind of transfer of information and ideas that is necessary to innovate,” Ballon continued.

Concerns Raised

But not all experts think the United States has no worries regarding the atmosphere for technological innovation.

“I would agree that America is on top in terms of technological innovation, but that is not a done deal,” said Sonia Arrison, a senior fellow in technology studies at PRI. “If we don’t keep working really hard and create policies that allow us to innovate, we could lose our status, and it’s a real threat.

“There’s a lot of really interesting things going on in Israel,” Arrison continued. “Being close to a war zone gets people thinking about technology. When it comes to China, there are a lot of people there, and they are smart people.

“I would be most worried about China and Israel,” said Arrison. “Europe tends to have government policies that slow innovation, and because of that their entrepreneurs are at a disadvantage.”

Smarter Regulation Advised

If the United States wants to continue to be a leader in technological innovation, Ballon and Arrison agree the government must intrude as little as possible on the industry.

“It’s important that the United States keep a light regulatory touch on the sector so that people can innovate,” Ballon advised. “I’m more concerned about places, like Israel, that have a thriving tech sector and are creating an atmosphere for venture capital and innovation. Ultimately, I’d like to see policymakers do as little as possible when it comes to interfering with the new development of technology.

“What we need is a meritocracy,” Ballon continued. “Let the best products rise and the worst ones fail. Any attempt to protect an inferior product is going to prevent new ideas from rising to the top.”

Antitrust Reform Called For

Though agreeing regulation should be kept at bay, Arrison says there are some areas where active reform could bring positive results.

“I think antitrust policy, both on the domestic and international level, is really important for U.S. competitiveness,” said Arrison. “We have antitrust issues that take time and money away from innovation and instead put those resources toward legal matters. And you have governments not only at home but also abroad putting U.S. companies under the antitrust microscope, which takes away from innovative capabilities and time. And those other countries don’t have that pressure.

“The United States needs to clean up its own mess here and change antitrust laws that have been causing our tech companies so much grief and burdening their time and resources,” Arrison continued. “We should also look into easing up taxes for tech companies so more money can go toward innovation.”

Such changes may be necessary if America intends on keeping its spot as top dog in technological innovation, the analysts note. According to the survey’s authors, some 57 percent of U.S. venture capitalists are currently investing outside the country.

Aricka Flowers ( writes from Chicago, Illinois.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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