notes, “a strategy that provides resources to talented people in an atmosphere that promotes creativity—focused on outcomes ranging from new products to customer satisfaction to new scientific insights to improved social programs—to create wealth and/or improve the human condition.”³ In this information age, continuing economic leadership requires that nations adapt such a strategy to the new realities of globalized research, development, and manufacturing. As we see below, while the innovation systems in United States and Japan reflect major strengths, they also face new challenges in remaining competitive.

Competitive advantages enjoyed by the United States include a large and integrated domestic market, and an economic and institutional infrastructure able to quickly redeploy resources to their most efficient use. These are buttressed by a strong higher education infrastructure, deep and flexible capital and labor markets, and strong S&T institutions. Flexible managerial and organizational structures and a willingness to adopt innovative management practices and products are distinguishing features of the U.S. economy. A major asset is an entrepreneurial culture that accepts failure as a byproduct of new entrepreneurial initiatives and a willingness of investors to provide second opportunities to experienced, if initially unsuccessful, managers. This cultural and business perspective on failure of a startup is buttressed by bankruptcy laws that limit the liability entrepreneurs face when new ventures fail. The combination of these features generates an adaptive and rapidly changing innovation ecosystem that creates many successful small companies and enables some to grow into new large firms.

Some of these competitive advantages are the result of substantial and sustained public investments in education and research and development (R&D), many of which date to policies adopted in the cold war period. Although overall economic prospects in the United States today remain healthy, business leaders, senior academics, and experienced policymakers believe that the country is now facing major challenges to its technological leadership. Many point, for example, to inadequacies in the education system, especially at the secondary level where U.S. students score below their peers abroad in science and mathematics. These concerns have spawned recent studies that highlight troubling trends in publications, foreign-student retention, high-technology exports, and the production of information technology products. It is also true that fewer U.S. students are pursuing science careers and that the United States may be losing some of its attraction as a destination for the best students from around the world.⁴