Understanding the U.S. National Innovation System

The future economic health of the U.S. economy will depend on the strength of its national innovation system.

The conventional view of innovation is that it is something that just takes place idiosyncratically in “Silicon Valley garages” and R&D laboratories. But in fact, innovation in any nation is best understood as being embedded in a national innovation system (NIS). Just as innovation is more than science and technology, an innovation system is more than those elements directly related to the promotion of science and technology. Rather, it also includes all economic, political and other social institutions affecting innovation (e.g., a nation’s financial system; organization of private firms; the pre-university educational system; labor markets; culture, regulatory policies and institutions, etc.). Indeed, as Christopher Freeman defined it, a national innovation system is “the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies.”

This report identifies the broad elements that make up a national innovation system, including a description of the innovation success triangle, which measures the business environment, regulatory environment, and innovation environment of a nation, and is used to predict the success of an innovation system in promoting technological development and economic growth. It then uses this framework to analyze the U.S. national innovation system and assess the strengths and weaknesses of individual components  and whether those components  are improving, stable or deteriorating relative to our competitors. Unfortunately, in many areas the U.S. national innovation system falls behind our global competitors, hampering our ability to foster the innovation that is imperative for success in the 21st century economy.

As nations compete to win the global innovation race, the effectiveness of their national innovation systems will be a key factor in deciding the winners and the losers. Thus, the challenge for the United States going forward is whether it can make the needed changes to its innovation system to keep up with the international innovation leaders and remain a key player in the innovation economy. The future health of our nation will depend on the answer.