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US losing its innovative edge? by mattsteinglass
June 5, 2009, 8:21 am
Filed under: Economics, Science, Trade

Last month, my news assistant came in with a new Blackberry. Only it wasn’t a Blackberry. It was a cheap Chinese knockoff of a Blackberry. Of course, the Chinese knockoff wasn’t the same as a real Blackberry. It was better. He’d had a real Blackberry for six months — bought it on a trip to the US for $400, then had to pay another hundred or so in Vietnam to get it unlocked for local mobile service — and it was inconvenient and flukey. The new one, he found easier to use. The parts, obviously, were exactly the same — they clearly came from the same factories. But he even found the Chinese software more convenient. They were adding features that hadn’t existed on the “real” Blackberry. The knockoff cost $150.

I thought about this after reading this Derek Thompson Atlantic Business post referencing BusinessWeek’s Michael Mandel’s article arguing that the US may be losing its innovative edge. Mandel points out that the US ran a $30 billion trade surplus in advanced tech in 1998. By 2007 it was a $53 billion deficit. Thompson asks: “Where Mandel’s explanation comes up short is: What are these innovators doing wrong?”

The example of the Chinese knockoff Blackberry suggests that maybe US innovators aren’t doing anything wrong. It’s just that they’re now competing against Chinese innovators, where they weren’t 10 years ago. This may have happened for two reasons. The first is that lack of intellectual property protection, combined with the outsourcing of manufacturing for all those high-tech products to China, gradually destroyed the US’s technological edge. The second is that in 1998, China didn’t have very many top-flight engineers. But they’ve spent the last 10 years doing nothing but graduate engineers, and now, they do. And that changes everything.

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11 Comments so far
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Since Research In Motion and their Blackberry are both Canadian, I don’t think a Chinese knock off says much about US innovation. Nice try though.

Comment by Chris

Ugh. You’re leaving a key issue here. And that is that mobile phones in the U.S, for DECADES have been CRIPPLED by the phone companies. It’s only been very recently, like the in the past couple years that we have even started to catch up with the rest of the world (such as Europe and Japan)

The Europeans and Japanese have had smartphones for a long time. We’re just getting them and it has nothing to do with U.S. innovation, but rather the fact that phone companies in the U.S. have a monopoly power that was regulated away in Europe.

They didn’t want anything on their phones they couldn’t profit from, and they couldn’t really profit from the web — so now real web browsing. They couldn’t really profit from letting anyone write programs, so no programs until the iPhone came along (now everyone is getting ‘app stores’ something that existed in Europe and Japan for years)

It’s not a question of innovation, here in the U.S. the cellphone market has always been about what the phone companies will let you get away with.

By the way, blackberry is a Canadian company. And the big “innovation” was just putting a keyboard on a cellphone. Not that exciting, save for the fact that restrictive cellular monopolies didn’t allow the kind of open access you have with home computers (and the wired internet), which come in all shapes and sizes and always have.

Comment by Example

The point is simply that you can now buy Chinese knockoffs of iconic Western products that, rather than being a step below the on-mark product, work better and add features that aren’t present on the originals. That speaks to a different level of technological attainment in China than was the case in 1998, when it would have been pretty shocking for a Chinese knockoff of anything to be superior to the on-brand US or German or Japanese version. For that matter, a Blackberry isn’t exactly “high tech”. But the point remains that the reason for the evaporation of the US’s “edge” in high tech since the late 1990s may have more to do with Chinese improvement than with US deterioration.

Comment by mattsteinglass

Are you talking about a U.S. edge or a “western” edge? Germany and Japan (and finland: look at Nokia) are not in the U.S. and Japan isn’t even a western country.

I wonder how much of the United State’s “edge” here is really just myopia. It’s easy to see what’s going on here without seen innovation in other places, but the fact is the U.S. is just catching up with the rest of the world in terms of cellphones (which is the example you picked)

China, of course, has advanced a lot in the past few years, but other countries have been able to come up with interesting stuff as well.

Comment by example

Example, I think you’re right that there are specific reasons why US phone development has lagged, going all the way back to the smarter Euro and East Asian decisions on regulating mobile telephony. But I think we’re talking past each other on the innovation thing. I’m just saying that the fact of awesome new designed-in-China phones is the kind of thing that results from their advancement to a country where things are designed and invented, not just built. And that this advancement is probably a factor in the US shift from high-tech exporter to high-tech importer. Of course one would expect such a shift to show up in EU and Japanese high-tech trade balances as well, so one would have to look there to see whether this thesis is borne out. Maybe I’m totally wrong.

Comment by mattsteinglass

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This is an unavoidable consequence of the Bush administration’s immigration policies. Wait times for Green Cards are way up compared to a decade ago, and there are huge roadblocks in the way of getting student and work visas to come to the US. So we cut off the path for existing innovators to come here and we cut off the path for future innovators. Is it any surprise that we lost our edge?

I might add that the IEEE (USA) has been very vocal in its opposition to giving foreign-born engineers and scientists any right to stay in the US. But they’ve never grasped that by pushing innovation to other countries, they reduce the number of jobs for their own members.

Comment by Mark

I do enjoy the way you have framed this specific issue plus it does indeed supply me some fodder for thought. Nonetheless, because of everything that I have experienced, I simply wish when the commentary pack on that people continue to be on point and don’t get started on a tirade involving some other news of the day. Yet, thank you for this excellent piece and though I can not really agree with the idea in totality, I value the viewpoint.

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“Since Research In Motion and their Blackberry are both Canadian, I don’t think a Chinese knock off says much about US innovation. Nice try though.” Agree.

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