Sunday, April 18, 2010

The U.S., Europe and innovation

In a recent column on the Obama Administration's seeming desire to remake the U.S. as more of a European-style social welfare state, Jonah Goldberg makes the following observation:
But [national defense is] not the only way in which Europeans are free-riders. America invents a lot of stuff. When was the last time you used a Portuguese electronic device? How often does Europe come out with a breakthrough drug? Not often, and when they do, it’s usually because companies like Novartis and GlaxoSmithKline increasingly conduct their research here. Indeed, the top five U.S. hospitals conduct more clinical trials than all the hospitals in any other single country combined. We nearly monopolize the Nobel Prize in medicine, and we create stuff at a rate Europe hasn’t seen since da Vinci was in his workshop.

If America truly Europeanized, where would the innovations come from?

Europhiles hate this sort of talk. They say there’s no reason to expect America to lose its edge just because we have a more “compassionate” government. Americans are an innovative, economically driven people. That’s true. But so were the Europeans — once. Then they adopted the policies they have today and that liberals want us to have tomorrow.
That Europeans free-ride off of the dynamism and innovation offered by the U.S. economy is an interesting argument which I am inclined to agree with. But is it true? I decided to dig a little deeper. Goldberg claims that the U.S. "nearly monopolizes" the Nobel Prize in physiology or medicine, and indeed since the prize was established in 1895 Americans have won an astonishing 93 awards (although this includes multiple recipients in many years). From 1990-2009 Americans failed to win the prize only four times (1991, 1996, 2005, 2008). Americans have also claimed 47 percent of the Nobel prizes in the sciences, medicine, and economics overall.

I also sought out lists of the world's most innovative companies and where they are based. I found three: from BusinessWeek (2010), Fast Company (2010) and Wired (2007). First, let me acknowledge the shortcomings of this approach, which is necessarily subjective and a bit insular, which favors U.S. companies. I was surprised, for example, that European companies such as Carrefour (an international rival to Wal-Mart), Ikea (great innovation in producing low cost furniture) or Zara (interesting distribution strategy) didn't make any of the lists.

Frankly, I also found some of the rankings from Wired and Fast Company rather questionable, such as Fast Company's decision to award Pacific Gas and Electric a high ranking essentially for breaking with the Chamber of Commerce over its climate change stance. Wired and Fast Company also seemed attracted to companies in more flashy or fashionable industries, giving less attention to traditional sectors such as retail.

With all those caveats in mind, the results are rather striking (note that I counted Switzerland as part of the EU):

On a gut level this seems right. The amount of European products and services I utilize on a daily basis seems be rather minimal, and where it exists is usually confined to non-high tech areas such as finance (ING, HSBC), clothing, furniture (Ikea) and food (e.g. Swiss chocolate, Spanish wine).

In the tech sector, however, European goods and services seem to be somewhat of an afterthought. I watch sports on a Sony television, use a Samsung blu-ray player and stream movies through Netflix. I'm typing on an Apple computer, using a Firefox (from San Francisco-based Mozilla) browser and searched for some of the info in this post using Google. The data for the graphs used in this post were compiled in Microsoft Excel. Earlier today I discovered my sister is stuck in Germany via Facebook. About the only European software I ever use is Skype. Nokia is certainly a good option in the cell phone market, but I have a Motorola and will likely switch to the iPhone this summer.

None of this should be interpreted as definitive proof of Europe's deficiencies, but it is certainly food for thought as the Obama Administration attempts to retrofit the ship of state with European-style rigging.

Related: A City Journal article about the number of European economists seeking greener pastures in the U.S.


billibaldi said...

When you follow the silicon cycle, you will find what the Europeans actually do. The machines that made the parts for your Apple computer, Motorola phone and Blu-ray player probably were all made in Europe. The silicon most probably came from Norway. The plastic in the blu-ray disk may have been made in Germany.

I would agree that the US does have the ability to innovate that was unmatched until the rise of China.

Colin said...

Thanks for the comment.