Business: The Innovation Recession

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While the devaluation of the dollar may be the most dramatic measure of the U.S.'s reduced clout in world commerce, another event may ultimately have a greater impact on the nation's economic health. It is the shocking decline of good old Yankee ingenuity, otherwise known as research and development.

The U.S. has always prided itself on being the world's undisputed leader in technological innovation. Since World War II foreign demand for aircraft, computers, automated tools and other products of American labs and workshops could be relied on to provide a fat surplus in the nation's balance of trade. No more. Though the U.S. still retains an overall lead in total amounts spent on R. and D. and in numbers of new inventions, its chief economic rivals are expanding their research efforts at much faster rates. One consequence is becoming dramatically clear this year: because the U.S. no longer commands such a high share of the world's high-technology market, it no longer can offset its large imports of low-technology items such as shoes and clothing. As a result, in 1978 the country will import substantially more manufactured goods than it will export. The deficit for the first half of 1978 was $14.9 billion, which will do more damage to the trade balance this year than anything but the $40 billion in oil that the U.S. will import. By contrast, West Germany and Japan are expected to run surpluses in manufactured goods of $49 billion and $63 billion respectively.

According to the National Science Foundation, in the years 1953 through 1955 the U.S. introduced 63 "major" technological innovations. West Germany, Japan, Britain and France had together only 20. But now foreign competitors are bringing out as many new products and processes as the U.S.—or more. In the category of new patents, a key measure of R. and D. vitality, American inventors were granted 45,633 patents by major trading partners in 1966, while the U.S. gave only 9,567 to non-Americans that year. By 1976, however, the so-called patent balance had shifted radically. The number of U.S. inventors granted patents abroad dropped by more than 25%, to 33,181, while the number of foreigners gaming U.S. patents had almost doubled, to 18,744. Says Frank Press, the chief White House science adviser: "It is the trends that are important, and the percentage increases in some countries are growing faster than here."

Why did the trends begin to shift? Arthur M. Bueche, senior vice president for R. and D. at General Electric, which remains the most research-oriented of big U.S. companies (862 patents won last year), is concerned about a change in the American character. Says he: "We've gone from an expansive, gung-ho attitude to a defensive, 'What's in it for me?' attitude." Faced with a challenge, Americans are now more likely to say, "Let's not risk it." Among factors behind the U.S.'s "innovation recession":