Why America’s Innovation Edge Over China Will Endure

Recently Yazheng Huang warned that, because of dysfunction in the U.S. financial and political system, the United States is likely to lose its lead in technological innovation to China. Huang argues that state support for science in China is likely to exceed that in the United States soon, and this will eventually allow China to overtake the United States

Similarly, a recent report by the Center for a New American Security (CNAS) gives some advice with respect to retaining America’s technological advantage in an era of disruptive technological innovation and diffusion. The authors, like Huang, worry that the U.S. government is not making sufficient investments in technologies with great potential, such as directed energy weapons, advanced unmanned aerial vehicles, and human modification. The report paints a grim picture, suggesting that the consequence of falling behind in any or all of these technologies could be the unsettling of the existing Pacific balance of power. 

Unfortunately, the report fails to mention the legal environment in which scientists and engineers pursue technological innovation. One reason to suspect that China is not on the verge of passing the United States in innovation capacity is that China has yet to establish firm, well-respected rules of intellectual property. Public sector investment in innovation surely matters, but the ability of the private sector to innovate is also important in evaluating competitiveness. While it’s true that the bulk of intellectual property theft conducted by China involves foreign IP rights, and that a disregard for foreign IP sensibilities has in some cases facilitated innovation, in a situation of uncertain and unstable rights even domestic producers may lack incentive.

In particular, given that much modern innovation involves transnational interaction between private and public organizations, the lack of strong IP protection in China may make some foreigners reluctant to collaborate with their Chinese peers. Indeed, the authors of the CNAS report note that private sector innovation has increasingly come to dominate the advanced technology field.

But the U.S. system is hardly ideal from an intellectual property standpoint. The Pentagon has spent years trying to break the stranglehold that large defense contractors have over the system, pursuing policies intended to favor smaller, potentially more innovative firms.  It turns out, however, that in addition to a variety of other advantages, big firms have much greater capacity to secure intellectual property rights than their smaller competitors. 

It’s true that direct investment in advanced military technological innovation is declining in the United States, and that it will likely continue to decline in the future.  However, the U.S. continues to derive enormous advantages from a legal system that protects and supports technological innovation. 

Moreover, the U.S. could improve its technological standing by ensuring the extension of protection to smaller suppliers who are shut out of the current system.  Finally, the United States can continue to push China to adopt international standards of intellectual property protection, an effort which has already begun to pay dividends.