Is innovation enough?

As manufacturing moves from North America and Europe to Asia, conventional wisdom has it that developed, high-wage countries can succeed through innovation. Thomas Friedman in the New York Times makes that case with respect to clean power. He advocates a partnership between America and China, in which the US specializes in research, innovation, investment, and services while China specializes in mass production. Friedman calls for “a long-term carbon price that stimulates and rewards clean-power innovation” in the US.

That’s all well and good, but can developed countries really innovate their way to economic health and full employment? In a Huffington Post item titled “The Innovation Delusion,” Ralph Gomory, a professor and former IBM senior vice president for science and technology, says innovation alone won’t lead to economic salvation.

Gomory writes, “We hear that because of low Asian wages we must innovate because we cannot really compete in anything else. Inventive Americans will do the R&D and let the rest of the world, usually China, do the dull work of actually making things. Or we’ll do programming design but let the rest of the world, usually India, do low-level programming.” This, Gomory writes, “is a totally mistaken belief and one that, if accepted, will consign this nation to second- or third-class status.”

He notes that if high wages are an incurable handicap, Germany and Japan would not be as successful in the automotive industry. Conversely, he notes that the high-investment, low-labor-content semiconductor industry has migrated to relatively low-wage Asian countires. He concludes, “The premise that the inescapable burden of competing against low wages means failure is simply not correct.”

He goes on to explain that the US simply cannot be innovative enough to make up for a lack of manufacturing capability. He writes, “As one who spent many years as the head of research of a large corporation, I know how much R&D matters; I also know how small it is. Eight percent is a very large percent of revenue to spend on R&D. Even in manufacturing, which is relatively R&D intensive, 4 to 5 percent is typical. It is really wrong to think that you can scale up R&D to be big enough so we can trade it for the huge quantity of things we need but don’t make in this country.”

With regard to Friedman’s advocacy of clean-energy innovation in the US and production in China, Gomory writes, “Specializing in R&D, but sending its fruits on to others is a strange and completely unworkable strategy for a nation.”

Further, as Gomory points out, developed countries don’t have a lock on innovation. Consider that when Intel in 2007 announced a new $2.5 billion facility in China, CEO Paul Otellini said, “Our goal in China is to support a transition from ‘manufactured in China’ to ‘innovated in China.’”

Gomory’s solutions involve balanced trade and incentives for US companies to produce at home. He calls for an end of the one-way flow of jobs, technology, and innovation out of the country. He says that globalization has caused the interests of the US and its corporations to diverge, and he calls for a realignment of those interests “consistent with our history and with the limited capabilities of our government.”

None of this is to say innovation isn’t necessary–it just isn’t sufficient. For examples of innovation, check out the finalists in EDN’s 20th Annual Innovation Awards program and vote for your favorites.

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