The US is losing its cutting edge

The United States is widely perceived as a better environment for innovation
than the UK. But could this be an oversimplification?

The first-ever survey designed to compare and contrast UK and US innovation
activity and performance shows that, in the opinion of those running a business,
the US environment for innovation is just as challenging, if not more so, than
in the UK.

The International Innovation Benchmarking research quizzed 3,660 firms of all
sizes from Britain and America, in a project sponsored by the Cambridge-MIT

The American companies were even more concerned about red tape on taxation,
legislation and regulation, and how it affects their ability to innovate, than
their British counterparts. They were also more worried than their British peers
about a lack of management skills.

Meanwhile, more US businesses were worried about accessing finance, with
about a third of US businesses saying it was a significant barrier to
innovation, compared with less than a quarter of UK businesses.

Perhaps US business folk are more sensitive to the constraints they face, or
feel more frustrated by them, even though objectively they are better off than
in the UK. If this was the case, however, we would expect it to affect all areas
and companies equally – but it doesn’t.

The study highlighted significant variations in the perceived constraints by
sector: in both countries, the finance constraint was greater for high-tech
businesses than for nearly all other sectors.

Similarly, whereas large organisations in both countries felt the finance
constraint equally, it was felt relatively more severely by the smallest
companies in the US.

Such findings suggest that, whatever the merits of arguments about financial
market failure in the UK compared to the US, they can hardly be used as an
explanation for low levels of SME innovation.

The relative lack of finance constraints in the UK may reflect the impact of
extensive tax and grant-based support for UK SMEs compared with the US. For
instance, a much higher proportion of UK companies received some financial
support than was the case in the US, even though the amount of support they got
was relatively small.

This may reflect a more dispersed, but less focused, level of support in the
UK with a corresponding greater fringe of unsupported organisations in the US.

The findings don’t suggest that life is easy for UK businesses who want to
innovate: around a quarter of all UK firms find innovation costs too high, and
the pay-off period too long.

But in both cases, the barrier was perceived as being slightly higher in the
US – raising a challenge to the popular view that the US offers a superior
climate for innovation.

Professor Alan Hughes is director of the Centre for Business Research at
the University of Cambridge

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