This past week, I’ve look at the trends in U.S. innovation, commenting on Michael Mandel’s powerful and compelling thesis about the deceleration and interruption of American innovation. With the help of my MPI team, I’ve tracked patent data since 1980, examined patent trends for U.S. resident and foreign, non-resident inventors, and looked at the geographic distribution of patenting.

Overall, the trend in patenting is up – both in absolute numbers and controlling for population. Innovation has increased over the past decade, but not at the breakneck pace of the 1980s and 1990s. There have been two dips in patenting over the past decade – the first in the wake of the tech crisis of 2001 and the second, more recently, concurrent with the onset of the housing and financial bubbles and the subsequent economic crisis.

American innovation has shifted and become more geographically concentrated. Places like Silicon Valley and Seattle have seen a steady increase in innovation while older, industrial centers like Pittsburgh and Detroit have declined significantly. Innovation in large cities like New York and Chicago has stagnated. And American innovation has grown increasingly dependent on non-resident, foreign inventors.

Today, I focus on a broader historical question: How do economic crises affect American innovation? Does innovation slow down or speed up during periods of crisis?

Joseph Schumpeter long ago argued that crises were seedbeds of innovation and entrepreneurship. Innovations developed during crises generate the gales of creative destruction that launch new technologies, remake existing industries, and give birth to entirely new ones – setting in motion new rounds of economic growth. Economists Gerhard Mensch and Christopher Freeman have examined the historical timing of innovations, with Freeman famously arguing that the pace of innovation is actually relatively constant: Innovations bunch up during crises, only to be unleashed as economic conditions are restored.

The graph above is reproduced by economist Alfred Kleinknecht. It shows patent activity from 1750 to 1970. It tracks actual patents granted from 1901 to 2005. There are clear spikes in innovative activity during the Long Depression of the 1870s and 1880s and the Great Depression of the 1930s.

The historical literature also suggests that crises are periods of significant innovation. Joel Mokyr and Naomi Lamoreaux have documented the rise of important innovations like the incandescent light, the steam turbine, and the transformer during the Long Depression. Economic historian Alexander Field finds the 1930s to be the “most technologically progressive” decade of the 20th century.

The chart below, compiled by the MPI’s Patrick Adler based upon a reading of the historical literature, identifies some of the major innovations of the Long Depression and the Great Depression. If the past is any guide, we should expect some acceleration of innovation – and particularly of the dramatic innovation Mandel wants to see – in the coming decade.

The graph below, compiled by my colleague Charlotta Mellander, updates the story, charting patents granted per 10,000 people from the 1890s to 2007. The rate of innovation rose significantly after the Long Depression. It then dipped during the Great Depression before trailing off considerably during the World War II period. American innovation rebounded remarkably in the post-war period before trailing off in the 1970s. Since the early 1980s, however, American innovation has surged to record highs. There have been two dips in innovation in the 2000s. But as of 2006 or 2007, innovation has fallen only slightly from its record pace.

So what’s happened to U.S. innovation? Like virtually every other facet of the economy, it has been – and continues to be – reshaped by globalization. As we saw on Thursday, foreign non-resident inventors have become a key element growing U.S. patenting and a big piece of the American innovation system. Beginning around 1980, non-resident inventors essentially closed the gap with U.S. inventors. By the late 1990s, they had pulled even and were at times outpacing U.S. inventors. This is part and parcel of the globalization of the economy and the fact that the U.S. is the biggest market and most innovative nation on the planet.

This has altered the American system of innovation in a deep and fundamental way – changing it from a system that for the better part of a century was based on producing and commercializing innovations to one that is more attuned to attracting inventors and innovation globally. This shift is also reflected in the changing geography and regional concentration of U.S. innovation – the decline of old, integrated, regional innovations systems in locations like Pittsburgh and Detroit and the rise of new, globally focused clusters like Silicon Valley.

Innovation is no longer an American game – or, for that matter, a game of any one nation. The countries of the world are now all part of a much more global innovation system. Strategically, this shift means from organizing to generate new breakthrough innovations to organizing to absorb innovations coming from many different sources worldwide.

The U.S. is uniquely positioned because of its size, scale, universities, and venture capital system; its sophisticated end-users and customers; and its ability to attract global talent – to harness and reap the benefits of this global system. Its major innovation clusters reinforce this advantage and they will be hard to displace. That said, for the first time, the overall rate of American innovation has come to depend on foreign inventors. Anything that might slow the immigration or inflow of foreign inventors – or redirect their inventions and patents – would undoubtedly damage the rate of American innovation.

The key question for the future is less about the slowdown in innovation and more about which people and places will prosper in this new age of accelerating global innovation.

The past couple of days, I’ve looked at the trends in overall patents and nationality of inventor. Today I turn to the regional distribution of innovation across U.S. regions.

It’s well-known that high-tech industries are concentrated and clustered in areas like Silicon Valley, Greater Boston, Seattle, Austin, and North Carolina’s Research Triangle. Paul Krugman won a Nobel Prize for his pioneering work on the relationships between urbanization, trade, and economies of scale. And Michael Porter has shown how and why innovative firms cluster.

The graph below, compiled by Scott Pennington of the Martin Prosperity Institute, shows patent trends from 1976 to 2007 for the top 10 U.S. regions. The graph identifies a clear shift in the geography of patenting. The level of innovation has fallen off considerably in older industrial regions like Pittsburgh and Detroit. It has also fallen off in Sunbelt regions like Dallas with a large presence in computers and communications and Houston with its strong concentration of resource and energy industries. On the other hand, innovation has increased substantially in high-tech regions like Silicon Valley, San Francisco, and Seattle and also in Los Angeles. Two other large regions – New York and Chicago – more or less conform to Mandel’s thesis: Both saw dramatic growth in the late 1990s followed by precipitous drops in the 2000s which erased those gains. Overall, American innovation has become more geographically concentrated and spikier.

The decline of industrial regions as centers of invention reinforces the point made by Henry Ergas two decades ago: The U.S. innovation system is skewed heavily toward “shifting” (the creation of new breakthrough technologies and products) and away from “deepening” (the application of new inventions and technologies to the continuous, incremental upgrading of older industries). The decline of GM and Chrysler – and in particular the latter’s acquisition by Fiat to gain access to new technology – stand as testimony to that. The decline of innovation and commercialization in older industrial regions means that in certain key areas of technology, the U.S. has essentially ceded the potential to develop new industrial goods and consumer products to other countries – from established competitors Germany and Japan to emerging ones like India and China – which possess the industrial infrastructures to embed them in commercial products.

Yesterday, we looked at overall trends in U.S. innovation measured by patents. Today, we break out U.S. patents between U.S.-resident and non-resident or foreign inventors patenting in the U.S.

Numerous studies have shown that, over the past two or three decades, the role of foreign scientists, technologists, and entrepreneurs in U.S. innovation has increased. Recent studies by AnnaLee Saxenian and Vivek Wadhwa and others find that anywhere between a third and half of all Silicon Valley start-ups during the 1990s had a foreign entrepreneur or scientist on their core founding team. As I have previously argued, foreign-born scientists currently make up 17 percent of all bachelor’s degree holders, 29 percent of master’s degree holders, 38 percent of PhDs, and nearly 25 percent of American scientists and engineers. My earlier research shows that Japanese companies – and some European companies as well – chose to locate research labs in the U.S. to access a diverse mix of scientific talent they cannot attract in their home countries.

The graph below shows the overall trend in patenting for U.S.-resident and non-resident foreign inventors between 1980 and 2005. Non-resident inventors have just about pulled even with U.S. inventors in patenting, and their rate of inventive activity more or less tracks that of U.S.-based inventors. But here again, even with two dips since 2000, the rate and level of innovation over the past decade remains up.

Clearly, foreign inventors have become a key feature of the U.S. innovation system. Without them the level of innovation would be much lower. Another way of saying this is that the American system of innovation has become increasingly dependent upon non-resident inventors. Foreign inventors patent in the U.S. to secure intellectual property protection in the large U.S. market. Clusters of sophisticated and demanding consumers and end-users help make the U.S. the place to be for high-end innovation, as Amir Bhidé points out in The Venturesome Economy.

While foreign patenting boosts the overall rate of innovation in the U.S., there is a considerable chance that these patented innovations are commercialized and produced off-shore, and thus that the U.S. economy will accrue less overall economic benefit from those technologies. While this is not direct evidence for Mandel’s innovation interrupted thesis, it provides a possible mechanism that might limit the commercialization and overall economic impact of innovation in the U.S.

As a kid born in the early 80s, a young black man, and DJ, when I heard that Michael Jackson died I was floored. It’s really hard to put into words what his run in 80s meant to me and other kids like me. As a DJ, Michael was the ultimate back door, a key that would fit every locked dance floor, to be reached for only in emergencies and handled with great care. As a dancer, when Fred Astaire calls you his heir, there’s not much left to say. What he did with his feet seemed impossible. Sometimes it was.

Never more mystifying was his impossible lean from the Smooth Criminal video (@ approx. 7:15). At first I thought that it was camera tricks, but then I heard that he did it live at shows – no wires, no cables. Just lean. How does a man defy gravity like that live on stage? In the posthumous craze, one of the more interesting bits of information that shook loose was the innovation that made that possible:

Michael invented and patented a special shoe and rig. Google Patent Search provides the details.

Richard has often talked about his interest in music as a “fruit-fly” industry. That is to say that the the study of the music industry is analogous to the scientific study of fruit flies to better understand more complex biological systems. Through studying music we can understand how innovations flow through other creative industries. Musical creatives don’t just innovate musically, but they’re often linked to technological innovation. This is true about individual innovations, from Jimi Hendrix to Grand Master Flash, as well as system wide innovations, as was evidenced by the MP3 revolution. This is just another example of the same from arguably the greatest of all time.

R.I.P. Mike.

Yesterday, we looked at the effects of class on economic growth. Today, we turn to the relationship between class and innovation.

It’s a well-established truism that innovation drives economic growth and development. Nations and regions around the world go to great measures to stimulate innovation in their attempts to create the “next Silicon Valley” which will generate new technologies, improve economic growth, and lift their living standards.

To examine the relationship between class and innovation, Charlotta Mellander used data on patents by country available from the World Intellectual Property Organization. Despite some limitations, patents are the best-available measure of innovation.

The relationships between class and innovation are, if anything, even stronger than between class and economic activity.

The working class and innovation – not so much. Countries with a large working class have much lower levels of innovation.

Source of all graphics: Martin Prosperity Institute

Recently, I was going through some U.S. Patent and Trademark Office data on patenting and I was looking at patenting around the world. In the accompanying Figure One, I have plotted patent data from various nations over the last half century. It is a little difficult to interpret because it is on a log-linear scale. What you will notice is that the number of patents in the U.S. has roughly doubled over the last half century. Germany has also roughly doubled. Japanese patenting, on the other hand, has expanded enormously from 1963 through 2007 and then it continued to grow quite slowly. Taiwan and Korea began their rapid patenting growth in the 1980s. Korea is continuing to expand the number of patents filed quite rapidly in 2000. In contrast, Mexico has remained at roughly the same low level for the past half century. The new players are China and India, which have started from extremely low levels, but are expanding at an astonishing rate. This is interesting but not surprising.

When one looks at Table One, which depicts the number of patents per 10,000 persons, the data is even more interesting. Japan, the U.S., and Taiwan have roughly the same number of patents per person and Korea is not too far behind and will likely pull even with them within 10 years. However, China and India on a per capita basis trail these nations by three orders of magnitude. What if these two nations can improve their per capita performance to only one-tenth that of the more advanced nations? In sheer numbers, each of them will surpass Japan and rival the U.S.! If, as is entirely plausible, in three decades they become as innovative as Korea, they will produce more than twice as many patents as the U.S. Would this mean that centuries-long technological dominance of the Western European and European settler nations will be over?

How plausible is this scenario?

USPTO Patents per 10,000 Persons, 2007 (Total Number)

• U.S.     — 3.07 (93,691)
• Japan   — 2.81 (35,924)
• Taiwan — 3.26 (7,491)
• Korea  — 1.51  (7,264)
• India    — .0051 (578)
• China   — .0057 (756)