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Research Report


Franklin D. Kramer
James A. Wrightson
Copyright Date: Apr. 1, 2016
Published by: Atlantic Council
Pages: 35
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Table of Contents

  1. (pp. 3-3)

    Innovation will be a crucial requirement for US leadership and national security in the twenty-first century. The United States faces an era of global competition across all elements of national power. In the economic arena, American domination has necessarily been comparatively receding as the world continues to develop. Militarily, challenges have expanded geographically and qualitatively as multi-polarity and diffusion of power increases the number of capable state and nonstate actors. Diplomacy has become more complex as information capabilities are available throughout the world, populaces are more engaged, and there are strong ideological challenges to the Western, liberal rules-based model. The...

  2. (pp. 4-7)

    The United States has long been the world’s most innovative society, and that innovation has been a key element undergirding America’s international leadership and strength. The national security strategy states that “Scientific discovery and technological innovation empower American leadership with a competitive edge that secures our military advantage, propels our economy, and improves the human condition.”¹ This requirement for innovation has become increasingly critical as America’s overwhelming dominance in other arenas—a key factor in the twentieth century—has been comparatively reduced.

    Economically: While the United States remains the world’s largest economy, there are expectations that it will be overtaken...

  3. (pp. 7-11)

    Innovation arises in multiple fashions. The past 150 years have seen the creation of very large and complex systems such as aircraft and the development of very small systems, such as semiconductor circuitry. Innovative physical processes have been developed such as the chemical processes that stimulated the steel industry and production line processes that enabled affordable cars. Service process innovation, such as the container revolution and “just-in-time” inventories revolutionized logistics and the goods transportation industry. Information innovation processes, such as the Internet, have entirely changed our ways of interacting.

    As these examples suggest, innovation can be defined as the “application...

  4. (pp. 11-13)

    Innovation requires finance. Broadly speaking, such finance comes from six sources: internal to companies; banks and similar lending institutions; private finance, such as venture capital, angel investors and private equity; stock and bond markets; government; and philanthropy and other nonprofit entities including universities. Each of these sources raises different considerations, including challenges, for innovation, and there is often a contest—and even a contradiction—between the challenges of finance and the value of innovation.

    The challenges are straightforward and well-known. Innovation entails risk. The longer the time from R & D to market, the higher the risk. Thus, negative incentives...

  5. (pp. 13-17)

    Government has played multiple critical roles for innovation in the United States. In addition to finance, discussed above, the three most obvious are project direction, regulation, and, more recently, “cluster creation,” including the development of public-private-nonprofit partnerships.

    In the project arena, government policy plays two overlapping roles: focusing research and development toward an objective, and generating public-private interface for innovation related to that objective. In terms of the former, among many other examples, it was government research and development that laid the foundation for the computer, the Internet, and the shale revolution. Sometimes this is military led; in addition to...

  6. (pp. 17-30)

    Generating innovation is necessarily an uncertain process since, by definition, innovation is something new—not necessarily a black swan but often different enough to be less than obvious at the outset. As the United States is, in fact, a highly innovative society, perhaps the first rule should be “do no harm.” Particularly as policies are adopted for reasons where there is not a focus on innovation, there should be some regard to the potentially negative impact that they could have on innovation. Government budget cutting and market or regulatory constraints on corporate risk-taking are examples that can have important consequences...