9 data points on American innovation worth considering.
For those interested in the future of American innovation here are 9 diverse data points worth considering. Each point should be treated with caution and for reasons too obvious to merit elaboration:
Large Companies, High Finance and R&D
- America’s largest 1,000 companies are investing less in innovation as a percentage of earnings than at any point over the last 50 years.
- Even if these companies changed course, corporate debt is skyrocketing, which in itself limits the ability of companies to redirect future earnings towards productive ends.
- Total US Federal R&D spend as a percentage of GDP is at a 40 year low, and perhaps the lowest since 1946
- High quality science research from China has grown rapidly in recent years, according at least to the publisher of Nature. At the same time, while not widely reported, it has been declining in the United States.
- In important fields like AI, China has now eclipsed the United States in terms of research output, and the quality of the output is striking. Below is a chart (fig. 1) for Deep Learning research output.
- While some caution is advisable in the usage of patent statistics in particular, the United States has until recently dominated in the creation of intellectual property. But now China has surpassed the United States and the gap is growing at a historically unprecedented rate. Patent filings in the United States actually declined last year, while they increased by a staggering 45% in China (fig. 2).
Venture Capital, Startups and Robots
- According to the National Venture Capital Association, in Q1 2017 there was a full 25 per cent decline in the number of venture investments. That represents a near half decade low. The value of total investment also declined.
- A single quarter, however, does not capture a broader trend, so consider this point: While the population of the United States has increased by over 40% over the last 40 years, the number of startups created each year is at a 40 year low (fig. 3).
- Finally, and this point should be treated somewhat carefully: The use of robots in factories in the United States has been broadly hailed as a means to help reshore manufacturing, but most of the robots will be Chinese, and if not Chinese then Japanese and South Korean. Tesla’s Model 3, for example, will be built using Kuka robots, now a Chinese company.
To reiterate, while the above data points should be handled with great care, and while there are many other more positive measures, I think medium term it’s prudent to be at the very least cautious on American innovation.
I also want to add that over the last 10 years more shares have been bought back from existing companies than shares issued for new companies. Furthermore, since 1996, the total number of American public companies has not increased, nor has it remained constant. In fact, it’s plummeted by almost 50%, while non-US listings have increased by nearly 30%.
Cherry picked data aside, over the longer term, I’m optimistic. Historically what has set the United States apart has been its capacity to course correct. I’ve no doubt the US will find a new course.
Ps. I’m interested in compiling contradictory or supportive data. If you’ve any please share it in the comments.