A book on innovation.

A review of Innovation Economics by Robert Atkinson and Stephen Ezell in The Economist states suggests that the United States is losing its lead in industrial innovation. Part of the problem is Chinese use of “innovation mercantilism”.

The Chinese government forces foreign companies to hand over intellectual capital to Chinese companies as a condition of gaining entry into the world’s most populous market. It also protects “infant innovators” from foreign competition by a mix of overt protectionism and regulatory subterfuge.  

The review concludes:

The authors are right to warn that America’s leadership in several areas has eroded much more rapidly than most Americans think. They are right to argue that classical economists are often blind to the fact that innovation is the product of ecosystems rather than individual companies and that ecosystems are fragile. They are also right to worry that “innovation mercantilism” can be much more harmful to its targets than traditional mercantilism: even if it doesn’t benefit the sinner in the long run it can seriously damage the sinned against. America will never again have the same dominance that it had in the second half of the 20th century. But wiser policy can ensure that it profits from the rise of the rest of the world rather than seeing its companies battered and its living standards reduced.

Who would argue against wiser policy, even it it may not be clear what that wiser policy might be. I would think that we must continue to support basic research, that we must maintain the strength of our research intensive universities, and we should revise our immigration policy to allow more people with technological skills and more entrepreneurs and prospective entrepreneurs to come into the country.

We need a strong infrastructure to be competitive internationally. We also need all aspects of the financial system for innovation -- angel capital, venture capital, a stock market that promotes IPOs, strong banks, and even Wall Street.

Celebrating our innovators and assuring there is economic incentive to innovate are important.