Indiana-based strategic consultant David Virag sent me the following commentary today, partly in response to my recent posting on the Nature of Innovation. Virag is well-placed to speak on issues relating to technology and innovation, with more than 20 years of experience in consumer electronics and high tech managing business and technology strategies.

With the current mortgage crisis and high unemployment rates, there is a general feeling of uneasiness among most people regarding the U.S. economy and future prospects.  Current efforts by the Federal government to kick-start the economy with subsidies and low-interest rates have yet to take hold.   With the unemployment rate sticking at 10%, many economists are predicting a jobless recovery.  However, without a strong labor force, it’s unclear how much recovery can ever take place.  An AP analysis published this week found very little job creation from public road construction programs.   Perhaps a jobless recovery is one where the economy merely stabilizes.

Government policy notwithstanding, one thing that does have the ability to recharge the economy is good old-fashioned innovation.  The US has been a global leader in innovation over the past century.   This innovation is one of the critical elements that propelled our standard of living to be the highest in the world.   Looking back through the past 50 years or so, the U.S. has been at the forefront of virtually every major technological change in the world.  We played key roles in the research and development, manufacturing, and sales of radio, television, automobiles, airplanes, computers, cellular phones, and the Internet.  Each of these technologies changed the way people live and businesses work and with it millions of jobs were created.   If one looks at just the last century, mankind has literally progressed from driving a horse and buggy to walking on the moon.  Only 95 years ago, we celebrated the first coast-to-coast telephone line.

Just as in the study of the stock market, past performance does not guarantee future results.  As technology has changed so has the global landscape.  Some of the very inventions created in the U.S. now enable global competition.   The Internet allows for nearly instantaneous access to data and information from anywhere around the world.  Low-cost computers and networks give everyone access to what was equivalent to a super computer only a decade or two ago.   Transportation allows for manufacturing of goods at the lowest cost location.  The U.S. university system is still the best in the world.  The best foreign students come to school in the United States; however, it is now easier (and perhaps more profitable) to return home and put new found skills to use in competition.

Statistics from the U.S. Patent office illuminate these trends.   In 1963, a total of just over 45,000 patents were granted to U.S. and non-U.S. inventors.  By 2008 this number jumped to over 157,000 patents, a change of nearly 250%.  The decade of the ‘90s represented a 56% increase over the 1980’s demonstrating the innovation linked to the emergence of computers, cell phones, and the internet.  The first 9 years of the new millennium provided over 1.45 million patents granted, or a 31% increase over the 1990’s.

While the past 9 years have been bountiful, it is worth highlighting a couple of things.  First, the number of grants to U.S. inventors peaked in 2006 with declines in both 2007 and 2008.   While two data points don’t make a trend and declines have prevailed in the past, it is highlighted by the second trend of note, the rise in patents issued to foreign inventors.  In fact, 2008 represents the first year in which a majority of the patents granted at the U.S. Patent Office were granted to foreign inventors (50.8%).   By comparison, patents granted of U.S. origin represented 81% of the total patents granted in 1963.  Since 2000, 51.7% of the patents granted are to U.S. inventors.  For the decade from 1970-79 this number was 66.7%.   The U.S. Patent Office determines origin by the residence of the first named inventor.

Globalization is here.  Competition is good.  Through innovation, competition, and collaboration, the surest way to return to prosperity is through invention.  We need the next Microsoft and Intel, the Qualcomm of the 21st century.  We need not just evolutionary thinking but a revolutionary mindset.  Tough times can make for outside the box thinking.  When that next leap in innovation does come, odds are it will be more of a global effort than in the past.

David E. Virag has extensive expertise in developing new technologies and applications, business valuation, leadership, and strategy.  He holds an MBA from the Booth School of Business at the University of Chicago, and is currently a Principal consultant with New Era Strategies.  To learn more about David, please go to www.techonomicstoday.com

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