Capturing the Economic Value of Innovation

This concern is based on the fact that what is innovated in America is increasingly industrialized elsewhere. Even in industries where labor cost is not a deciding factor, the high-paying production and engineering jobs that go with large-scale manufacturing often end up offshore.7 Increasingly, experts believe that this off-shoring of manufacturing is contributing to the decline in the innovative capacity of the United States.8 Gary Pisano and Willy Shih have argued, for example, that the “ability to develop very complex, sophisticated manufacturing processes is as much about innovation as dreaming up ideas.”9 And as more and more production moved offshore, other industries in the host countries increasingly benefit from the knowledge, networks and capabilities that are also relocated.

The result has been a loss of opportunity to lead in major emerging industries. The key technologies for rechargeable lithium-ion batteries and liquid-crystal displays were developed in the U.S., for example, yet were commercialized in Japan and now are almost entirely produced in Asia.10 Other materials and product technologies where the United States was the innovator, but then lost significant market share include oxide ceramics; semiconductor memory devices; semiconductor manufacturing equipment such as steppers; flat panel displays; robotics; solar cells; and advanced lighting.11

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Academies Press, 2007. Jorgenson, Ho, and Stiroh have documented the step-up in total factor productivity introduced by these semiconductor-based technologies. See Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, Productivity, Volume 3, Information Technology and the American Growth Resurgence, Cambridge MA: MIT Press, 2005.

7 See Gary P. Pisano and Willy C. Shih, “Restoring American Competitiveness,” Harvard Business Review, July-August 2009. For an analysis of why the U.S. is losing new high-tech manufacturing industries, also see Pete Engardio, “Can the Future be Made in America?” BusinessWeek, Sept. 21, 2009.

8 See for example, Roger Thompson, Why Manufacturing Matters, Harvard Business School, March 28, 2011. Access at http://hbswk.hbs.edu/item/6664.html. See also Stephen Ezell and Robert D. Atkinson,” The Case for a National Manufacturing Strategy.” Washington, DC: ITIF, April 2011. To some extent, the off-shoring of manufacturing may be reversing. A recent survey of manufacturing executives found that 85% of them identified low-volume, high-precision, high-mix operations, automated manufacturing and engineered products requiring technology improvements or innovation as the primary forms of manufacturing returning to the U.S. The survey was conducted by Cook Associates Executive Search, which polled nearly 3,000 manufacturing executives primarily in small- to mid-sized U.S. companies from October 13 through November 18, 2011.

9 Pisano, Gary P., and Willy C. Shih. “Does America Really Need Manufacturing?" Harvard Business Review 90(3), March 2012.

10 See Chapter 6 of this volume for case studies of the advanced battery and flexible display industries. See also Ralph Brodd, “Factors Affecting U.S. Production Decisions: Why are There No Volume Lithium-Ion Battery Manufacturers in the United States?” ATP Working Paper Series Working Paper 05–01, June 2005.

11 Gregory Tassey, “The Manufacturing Imperative,” presentation at NAS Conference on the Manufacturing Extension Partnership, November 14, 2011.



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