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A former Harvard Business School professor, Dr. John Kao has been called "Mr. Creativity" and "a serial innovator" by The Economist.   He is the author of the best-selling Jamming: The Art and Discipline of Business Creativity and more recently, of Innovation Nation.   He is also the founder of Kao & Company, a consulting firm to top-tier Fortune 500 business leaders. 

Question: In your book, Innovation Nation, you write that the United States is facing what you call a ‘silent Sputnik.’ What did you meant by that?

Kao: In 1957, when the original Sputnik went up, it was a wakeup call of profound dimensions to the United States.  I think the US had been complacent in terms of scientific and technical leadership, yet Sputnik gave the lie to that, and the country responded with a nationally-coordinated innovation agenda that embraced education, science policy, and investment in science.  NASA [National Aeronautics and Space Administration] was set up, DARPA [Defense Advanced Research Projects Agency], the National Defense Education Act and so on. 

Fast forward to today and there is no obvious inciting or traumatic incident to galvanize our country, but at the same time, one could say that the gap between where America could be and needs to be with regard to its national innovation agenda is growing larger by the day.  I call it a ‘silent Sputnik’ because the challenge today doesn’t have any obvious pain points.  For instance, the fact that graduation rates from high schools in the American public education sector are declining to absolutely shocking proportions doesn’t necessarily show up as pain in the same way that the sub-mortgage crisis or our geopolitical stance does.  Yet my view is that in the medium and long-term, if the United States were to lose its preeminence in terms of public education, science, investment and innovation capability, it would have very serious consequences. 

Up until now, America’s posture has been that we don’t need a strategy because the invisible hand will take care of everything, and I think current events are showing that even the US can’t rest in that position.  In contrast, many countries are now racing toward a new high ground of national innovation capability because they have national strategies, stewardship functions and investment programs and so forth. So there’s also a growing gap or ‘delta’ between conditions in the United States and conditions in a variety of countries where innovation has been put at the center of the national agenda.

Question: Can you talk about some of those countries? Who are today’s leaders in innovation?

Kao: There are a cluster of countries, primarily smaller countries, that have established real intellectual policy and have implemented leadership in the innovation area.  One which should be of particular interest is Finland. Finland has put innovation onto the centre of their national agenda; they’re doing interesting large-scale new initiatives to create platforms for supporting innovation within society there. You can say the same thing about other Nordic countries. Sweden for instance has an agency employing 300 full-time people to be the stewards and guides for their national innovation society.

Look at Singapore. Singapore has a very clear sense of agenda in terms of large-scale national projects in three areas: life sciences, digital media/content, and water/environmental technology.  They have a coordinated effort that goes all the way up to the prime minister through national research funding for a set of new, large-scale innovation platforms that include new buildings, new career paths, funding of education, new public-private partnerships and fiscal policy. It is a whole kind of integrated blend of policy initiatives to advance the innovation agenda.

Question: What are some indicators that prove that the United States is losing its innovative edge?

Kao: My interest is looking at the pillars for what I would call an innovation economy.  One pillar has to be talent. How do you grow talent through public education? How do you attract talent through immigration? America has been built on waves of immigrants coming here seeking the American dream and I think that these days, for very good reasons, it is increasingly likely that talented people are going to come from abroad to the US, get their graduate degree, but then go home… 

Home is now a lot better than it used to be, and so going home is a rational decision. I think people often find America’s current immigration posture, or maybe some of our geopolitical agendas, to be deterrents to wanting to stay here. Furthermore, they could be deterrents to buying into the American dream. Also, we are seeing little signs of reverse brain drain, where, in strategic areas like life sciences, young American scientists may find it actually more financially attractive and more professionally attractive to go to Singapore or to go to Western Europe to pursue their scientific careers.

Such is the case because of the way science is funded in the United States right now and also because of the climate for long-term career growth, which is not as supported as it used to be. On the one hand, we still do what comprises about half of the research investment in the United States on a worldwide basis, but on the other hand, the balance of the trade deficit, the GATT [The General Agreement on Tariffs and Trade], the geopolitical commitments and the need for refinancing infrastructure are all playing their roles in terms of limiting the amount of free cash flow that is available to fund the future.

America still has the majority of internationally ranking universities. It has a preponderance of scientific leadership in many areas. It has the largest number of Nobel Prize winners. America is still a rich country. It is still filled with talent, but what I am arguing in ‘Innovation Nation’ is that the ingredients are perhaps not being baked together in a way to produce the best results for our country long-term.  What we now need is a set of policies and agendas that will link together the federal, regional and local government levels, and also link the public, private and NGO sectors so that we can look at innovation in a more holistic, more contemporary, more 21st century way. Innovation in society isn’t just about getting more money for science and technology or getting more money for textbooks and teachers in schools. Innovation is really about understanding how national capabilities drive the national idea regarding progress, and what it is that we choose to do, and also what we choose not to do.

Question: Are there certain preconditions for high innovation in a given society? Based on that, how would you assess the innovative potential of the former Soviet Union?

Kao: If you’re an economist or an econometric expert, you will probably do things like count patents, or count the number of papers published or science citations. However, as I said earlier, science and technology are only part of the equation. My feeling is you have to look a lot deeper. What you have to look at is the condition of innovation in a society.  This really comes about in an enterprise from the combination of three kinds of ingredients: human capital, intellectual capital and resource/financial capital, and they have to come together in effective and efficient ways for innovation to occur.

I’m speaking to you now from Mountain View, California, which is right in the heart of Silicon Valley.  The reason Silicon Valley is an innovative hotspot is because an entrepreneur can link up with a business plan and link up with a venture capitalist checkbook in a way that is extremely fluid and fast, whereas in a company, you might need to wait for a long time and pray a lot to get the corporate finance person to give you money to do something new.  In the former Soviet Union, clearly there is an enormous amount of talent.  The shift of the social system there has required a lot of that talent to figure out what it is going to do with the next phase of its career. A lot of that talent has immigrated or is looking for different career paths at home.

In such a case, if I were looking at the overall innovation eco-system, I would ask: what kinds of activities anchor homegrown talent to the homeland and to large-scale national agendas, and how does that talent get supported?  How does it link to a national mission?  How does it get paid? How does the power of those agendas attract other talent from other parts of the world to come and pile on? That is the first part.

The second part is that I would be asking about the condition of investment capital and part of that are national policies with regard to funding science or tax policy concerning favorable treatment of certain kinds of investment. Some of that is also what we in Silicon Valley are very familiar with in the form of a venture capital industry, which is a disciplined approach to applying capital to early-stage embryonic ventures.

In the case of the former Soviet Union, although I am not a deep expert on that specific area, I would say that probably the classic early stage capital that’s provided by professional people who deeply understand technology and the needs of new companies is not as abundant as it could be. This is certainly a factor in many countries, especially in the comparable countries of the European landscape that have great universities and great science and technology infrastructure. However, the fluid capital in the former Soviet Union to invest in new opportunities is not available, and so, if you don’t have the money, those opportunities are going to migrate elsewhere. The people might go to Israel or the United States, or to Asia; places where that kind of rich capital is more available. The other part is that having a lot of rich people with money is no guarantee of the quality of investment or investment expertise. What I am talking about is money coupled with expertise that adds value to the startup process.

Another thing that will be very interesting to see is that there is a movement afoot to regenerate science and technology in regard to large-scale national projects, which is very interesting and very important. You can see this happening in China and other countries that look at science and technology as almost national prestige agendas. The value there is in having these sunrise areas become organizing principles for talent creation, capital formation, venture capital investing and new kinds of infrastructure creation. One hopes for the former Soviet Union that there will be an in-depth strategy underlying the attention that will be paid to some of these sunrise areas, whether it’s in nanomolecular materials, synthetic biology, the exploration of space, or elsewhere. 

Question: If things continue on their present course for the United States, what could be the consequences of failing to innovate? 

Kao: What we’re talking about is nothing less than the future mechanisms by which wealth is created. To be an ‘innovation nation,’ and to have an innovative economy, is to have your hand on the engines of economic growth and prosperity.

If the talent can be peeled off easily, and if the money can flow rapidly, and if other countries are investing in specialized infrastructure to support large-scale innovation, then what might happen in the United States is a stagnation in innovation-fueled growth.  What we wouldn’t want from a U.S. perspective would be to see a whole generation emigrate because they couldn’t find opportunities in the United States that were comparable to what they could find in Helsinki or Singapore. 

Secondly, I could also see in an extreme case a two-class society where on the one hand, you would have an elite class that was well-educated and cosmopolitan and understood the skills of the innovation economy, and then a much larger kind of poorly-educated and poorly-skilled cohort which might feel entitled to what they see on television, but who lack the ability to accomplish their goals. It means the stage is set for social tension in the United States that we have not had to address for a long time.

Vannevar Bush, who was the science advisor to Franklin Delano Roosevelt, said a long time ago that countries that lose their skill to innovate in science and technology were countries that would lose control of their destiny because they would lose their ability to generate prosperity and national security. I think that is the issue for all countries these days: how to leverage innovation as a way of accomplishing prosperity and security so you can be the country you want to be, as opposed to being pushed around by circumstance.