‘Like no other country, Switzerland has succeeded for many yearsin keeping the other emerging and innovation-oriented countries ata distance. Switzerland has had a consistently high rating on theInnovation Indicator for almost the complete evaluation period.Only few nations have succeeded in achieving similarly goodpositions.
This leading group (Switzerland, Singapore, and Sweden) isfollowed by a broad midfield of countries. This ranges from Germanywith an indicator rating of 57 to South Korea with 43 points.Germany lies neck and neck with Finland, just ahead of theNetherlands (56) and Norway (55). These four countries thus differonly marginally in their overall innovation capacity.
Erosion of USA
Behind this group of countries in this year’s ranking areAustria and the USA (rating 53). Austria especially has advancedseveral places in the past years. After hovering around the 14thplace since the beginning of the new millennium, it now lies in 8thplace, according to the forecasts for 2010.
This year’s analysis clearly revealed that the USA no longerbelongs in the leading group and that with the ranking 9th place(rating 53) in 2010 they belong only in midfield – behind Germany.Due to the banking and economic crisis which began in the USA andhad its worst impacts there, the country has dropped down severalplaces in the past two years.
An erosion of the US-American position, however, was clearlyrecognizable even before 2009. For a long time they were able todefend second place behind Switzerland, but in the wake of the NewEconomy crisis at the millennium they were overtaken already bySweden and Finland as well as finally Singapore and theNetherlands. Now the USA have slid down even further and havefallen behind – even if only just – Germany, Finland, theNetherlands, Norway and Austria.
As this development results from structural problems, the USAthreatens to remain permanently in the midfield, if not to slidedown even further. It is still the largest R&D nation and itsscience system is also the largest worldwide, in absolute terms.However, more could be expected of the USA because of the size ofthe country. In addition, greater dynamics are presently found inother countries.
A particular challenge for the USA is the enormous balance oftrade deficit, especially for high-technology products. The USAimports around 40 percent more high technology than it exports. Allthings considered, the massive investments in R&D and scienceno longer bring advantages for the USA on the international sceneto the former extent. This is partly because other countries havealso recognized the significance of research and innovation andcompetition has increased.
The American economic system
Ultimately, the American slide down the Innovation Indicator isalso a symptom of more fundamental problems in the entire economicsystem. A currently sharply rising budget deficit, and inparticular a notoriously negative balance of trade exert pressureon the system, whereby the high budget deficit is already almost atradition in the USA since the days of the Reagan administration inthe 1980s. At that time, significant tax cuts and state investmentswere intended to boost the economy.
These debt levels exploded as a result of the massive militaryexpenditures since 2001. This was accompanied by the challenges tothe welfare systems caused by the current banking and economiccrisis. The budget deficit of the Obama administration has morethan tripled from 2008 to 2009. Despite the ideal of leangovernment that all political parties claim to represent, which theAmericans have associated for decades with dynamic growth, it isquestionable in the meantime whether a paradigm shift towards adebt-financed government activity has not taken place.
Experiences from the 1970s as well as from the 1990s in Japanindicate that such politics are not sustainable in the long term.Rather, the state expenditures financed by excessive borrowingincrease the money supply and, under certain circumstances,discourage private investment. Possible consequences are inflationand a lower medium-term economic growth.
Budget deficits in the USA
In addition to the federal deficit, the USA also has an enormouscurrent account deficit, which increases the need for capitalinflows and thus exerts pressure on the US dollar, which againincreases inflation. The problem of American indebtedness toforeign countries is in many respects more problematical thanGermany’s.
Firstly, the German budget deficit is lower – not only inabsolute terms, but also measured in terms of economic power.Secondly, in Germany the budget deficit is countered by a highsurplus from the private sector, so that in net terms the state isindebted to its own citizens, while in the USA the private sectoris becoming increasingly indebted to foreign countries, i.e. thenation as such is also becoming ever more dependent in the mediumterm.
The problem is also how the debt-financed resources areutilized. The US trade deficit is primarily due to consumer goods.Many consumer goods such as, for instance, electronic articles aresubject to stronger price competition today than was the caseseveral years ago, so that producing these goods cheaply isabsolutely imperative. However, the western industrialized nations- also including the USA – have not been able to offer cheapproduction sites for some time now.
For this reason, the significance of innovations and newtechnologies at a qualitatively high level are a basicpre-requisite for the success of western industrialized countries,at least for those that have no raw materials to offer, like Norwayor Russia. It can be assumed that the incurred debts will not beutilized in such a way that economic returns in the form ofstrengthening the US-American competitive position are to beexpected.
The USA is losing importance
According to the analyses in the new Innovation Indicator, theUSA will no longer be among the leaders in the coming years, notonly in relation to its size and expenditures. In the medium term,it will no longer occupy a leading place in absolute terms, neitherfor R&D expenditures nor in scientific publications or patents.In a far distant future it will also no longer be the largesteconomy in the world.
This is already foreseeable today, because the USA’s populationis too small. It is to be expected that at least China and possiblyeven India, if they continue to increase the productivity of laborand capital inputs at the present pace, will catch up with the USAin terms of economic power and ultimately overtake it. This must,however, not be a fundamental problem for the USA or for othercountries.
With an indicator rating of 52, just behind the USA, Belgium isin tenth place. This is followed by a group consisting of Canada(51), Taiwan (50), Denmark (50) and the two large Europeanindustrial nations France (50) and Great Britain (49), withAustralia (48) and then Ireland (47), which is unlikely to maintaineven this place in future in view of the austerity policiesresulting from the economic crisis.
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