Innovation in America

[Extracted from Strategy+Business.]

S+B: How is the United States losing its innovation edge?
KAO: There are two complementary narratives at work here: what’s happening in the rest of the world and what’s happening inside the U.S. After World War II, the U.S. was the big mountain peak on the landscape of innovation. Our productive capability was unmatched. Our consumer products marched around the world. We invented the platforms for innovation, linking public and private resources in university settings. We innovated financing, inventing the concept of venture capital. We had demonstrated our prowess in top-down, large-scale efforts like the Manhattan Project, but had also excelled with emergent bottom-up, large-scale innovation models like the Lockheed Skunk Works.

But then we had our Sputnik moment in 1957 and we realized that we weren’t so smart after all. The Soviets had surpassed us not only with the first satellite but with the first animal in space, the first man and first woman in space, the first space walk, et cetera. This was a big wake-up call for America.

I think we’re at a Sputnik moment today, except that it’s a silent Sputnik. There is no obvious inciting incident such as an adversary putting up an object in space that is taunting us for not being first. Look at where we stand in comparison to the rest of the world. Look at our approach to human capital, which boils down to education, and to our ability to attract and keep talent. Look at our idea-generating capability and our approach to research and development. Look at our financial capital. We have real deficits in each of these areas, while other countries are gaining strength.