The US should fix immigration and patents or kiss its innovation edge goodbye

Management theorist Peter Drucker famously declared that companies must “innovate or die.” Washington today is full of similar warnings, based on the premise that the US is losing its innovation edge. The fear is that industrial and technological advancements in other countries—and in China in particular—threaten to leave us behind.

In fact, the overwhelming evidence suggests that the US still has an advantage in supporting high-growth industries and scientific breakthroughs. But that’s not to say the country should rest on its laurels. There are serious problems with the patent system, immigration law and “basic research” that could hurt the US down the line.

On the bright side, the US is home to 16 of the 20 top research universities. Scientific articles produced by US researchers have been concentrated in the top percentiles for quality (as measured by their number of citations) across all scientific fields for decades.

There’s no doubt China is making gains in research. It’s investing heavily in universities and now produces more PhD graduates than the US, while Chinese academic papers are climbing in the citation rankings. But when it comes to scientific breakthroughs, China still has long way to go.

American companies are also besting their rivals. No other country has come close to developing powerhouse companies like Apple, Google and Microsoft. The US consistently comes out on top in international surveys that rank the ease of doing business across various countries. And government policy has largely done a good job of supporting the smaller startups that disproportionately drive transformative innovation.

Yet despite these advantages, the US needs to do more to ensure it stays in the lead.

The patent system is one area in need of improvement. It works well for the pharmaceutical industry, where establishing differences between drugs is relatively easy. Doing so is much more difficult when it comes to hardware and software. Innovation tends to be more incremental and must build on countless previous innovations. The Apple iPhone, for example, has 250,000 patented pieces. The world’s richest company can easily foot the legal bill to disentangle fuzzy property lines. But low-budget startups too often get gobbled up in the litigation morass, limiting their ability to innovate.

Immigration law is also a problem. The US is lucky to receive much of the world’s top science and engineering talent. But our immigration system makes it far too difficult for high-skilled foreigners to stay in the country. Their best bet is to come as a student and then remain here by marrying Americans. Most others must first secure a job offer and then enter a lottery for H1-B visas, with no guarantee that the visas will go to those who are most qualified.

Other big immigrant destinations like Canada, Australia and the United Kingdom have work visa systems that prioritize immigrants by level of skill. But proposals to overhaul the outdated US system have languished for more than a decade now, since Congress has been unable to agree on comprehensive legislation that would address other immigration issues such as border security and the legalization of unauthorized migrants.

And while we do have many talented workers, research incentives in the US are misaligned. We’re experiencing a steep decline in “basic research”—research spurred by curiosity that may have little immediate practical value, but can pave the way to transformative discoveries in the future.

The unlocking of the human genome to better understand the human body is one example of game-changing basic research. It could open the door to a new generation of drug therapies for genetic disorders such as cystic fibrosis and Huntington’s disease.

The private sector used to do a lot more basic research, via research-and-development arms such as AT&T Bell Laboratories and Xerox PARC. Google and Microsoft still devote some resources to it. But basic research makes up a smaller slice of big technology firms’ R&D spending than it used to. It’s hard to blame them: they have a bottom line to worry about and shareholders to appease. Venture capital, too, has shifted toward risk-averse projects with shorter-term goals.

Universities are better positioned to take on basic research. But the academics who rely on government research funds are becoming more risk-averse themselves. Federal grants also increasingly go to older, established researchers who tend to produce less transformative discoveries.

Fortunately, these are not insurmountable problems. Sensible policy tweaks now could address these challenges and position the US to stay on top of innovation.

First, we should change patent law to make property lines more clear. This could mean creating separate rules that give information technology inventions shorter patent lives, so that incremental innovation becomes less burdensome.

Second, the immigration system should be overhauled to favor those with higher skills, an effort that enjoys broad consensus in Congress.

Lastly, the federal government should increase basic research funding to compensate for the business sector’s cutbacks. And research grants should encourage ambitious scientists even if their efforts sometimes fail, rewarding long-term success over small, short-term advancements.

It’s good news for the US that it still leads the world in innovation. If the country makes the right moves, it can stay in first place for a long time.

This article draws on research for the Council on Foreign Relations report “Keeping the Edge: U.S. Innovation Policy.” We welcome your ideas at ideas@qz.com.

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