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United States to gain access to our markets, giving this nation the largest stock of foreign direct investment in the world and employing 5.4 million Americans.13 New products and services are designed, marketed, and launched here. Technical standards are set here. But as other markets overtake us, we could lose these advantages.

Innovation-Based Development

Driving the rapid growth in developed economies and in emerging markets is a new emphasis on science and technology. A report of the President’s Council of Advisors on Science and Technology (PCAST) notes, “Other countries are striving to replicate the US innovation ecosystem model to compete directly against our own.”14 Through investments in R&D, infrastructure, and education and aided by foreign direct investment, many nations are rapidly retooling their economies to compete in technologically advanced products and services.

One sign of this new priority is increased R&D spending by many governments. The European Union (EU) has stated its desire to increase total R&D spending (government and industry) from less than 2% of GDP to 3% (the United States currently spends about 2.7%).15 From 1992 to 2002, China more than doubled its R&D intensity (the ratio of total R&D spending to GDP), although the United States still spends significantly more than China does both in gross terms and as a percentage of GDP. Other nations also have increased their numbers of students, particularly in science and engineering. India and China are large enough that even if only relatively small portions of their populations become scientists and engineers, the size of their science and engineering workforce could still significantly exceed that of the United States. India already has nearly as many young professional engineers (university graduates with up to 7 years of experience) as the United States does, and China has more than twice as many.16

Multinational corporations are central to innovation-based development strategies, and nations around the world have introduced tax benefits, subsidies, science-based industrial parks, and worker-training programs to


Organization for International Investment. “The Facts About Insourcing.” Available at:


President’s Council of Advisors on Science and Technology. Sustaining the Nation’s Innovation Ecosystems, Information Technology Manufacturing and Competitiveness. Washington, DC: White House Office of Science and Technology Policy, December 2004. P. 15.


Organisation for Economic Co-operation and Development. Science, Technology and Industry Outlook 2004. Paris: OECD, 2004. P. 25. Available at:,2340,en_2649_ 33703_33995839_1_1_1_1,00.html.


McKinsey and Company. The Emerging Global Labor Market: Part II—The Supply of Offshore Talent in Services. New York: McKinsey and Company, June 2005.

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