Published in Foresight 10 No. 5, August 2008, p3. DOI 10.1108/14636680810918469

US Innovation is secure

Dr Richard Whaley

Dr Richard Whaley is a Director of Planning & Control Investments Ltd, and of the Business Trends Library, 2 Rotherwick Court, Farnborough, Hants GU14 6DD. Email.

Purpose - This is a short comment on the current US Innovation concerns, and the recent paper by Tom Abeles (2008).
Methodology - Extracts are given from the Business Trends Library showing the relationship of the Advanced (Post Industrial) Countries with the rest of the World. Insights are given into the rising importance of the Multi-National Corporations.
Findings - The Post Industrial Counties have overwhelming advantage over the rest of the world, with very different world development roles played by both sides. The Multi-National Corporations act as the organs of transfer of technology to the less developed world.
Value - The importance of how innovation and business development arises in the Post Industrials and how it is defused.
Keywords - Innovation, Post Industrials, World Development, New World Trading Patterns, Technology, Multi-National Corporations
Paper type - Short article and comment on topical issue.

There has been concerns in US Congress that rising education in countries like India and China may take away US competitiveness. There are thoughts that a national response may be needed similar to the NASA moon mission - to boost US research to meet such threats. Now it is thought knowledge can migrate out side country boundaries faster than in previous times via the internet, hiring people, and buying companies. Less Developed Countries (LDC's) now have their own Multi-National Corporations (MRCs). These issues were discussed by Abeles (2008) in this Journal.

There are a number of trends which have to be borne in mind to understand these issues. Some relevant trends from the Business Trends Library are summarised.


The operation of the Trends through out the Business Trends Library assumes Economic Growth. For most of man's history this growth has been very slow - and does not cause society to change significantly during a human life.

There have been occasions when large economic contractions have occurred (when the Trends tend to operate backwards). For most of history economic growth has not altered significantly the lot of the bulk of the people.

Thus conditions of sizeable economic growth are relatively rare in the historical time scale. This makes it a little easier to deal with what is otherwise a very complex issue. Each Sector of the Business Trends Library is subjected to historical analysis from the lowest economic level (Whaley 1984). Taking the Conditions of Economic Growth as a Sector, the results of this historical analysis are set out in the diagram below.

There appear to be four factors which are common to societies which have significant economic growth (shown on the left of the diagram):

  1. Surplus Wealth available to some members of society

  2. Robbery has been an important feature (from the Agricultural Revolution onwards); it is not conceptually possible to distinguish it from Tribute (where a stronger group takes the production from weaker groups), nor later forms of this, Taxation. We lump them all together, and call them RTT - and measure the Proportion of Wealth Retained by producers after RTT.

  3. Degrees of Freedom, especially freedom of movement and freedom to trade (Low freedoms tend to produce restricted freedoms of thought, and therefore of the growth of knowledge and invention).

  4. Safety within society, ordered conditions, etc. One will not send a pack-horse train if it is unlikely to reach its destination.

Great accuracy in scaling these factors cannot be expected - one can do little better than scale a society High, Medium or Low. But areas of the diagram associated with different growth rates from the History are indicated.

It is generally necessary to divide up society into number of different groups. The following diagram shows this done for the UK at present. The arrows show the forecast movement in the future.

The reader may be inclined to give higher scores than those given (which result from more detailed analysis). This does not matter, since it is the direction of movement in the future which is important (i.e. the general drift to the left of the diagram suggests lower economic growth in the future) - and there is likely to be more agreement on this.

It can be seen there is a general drift to the dangerous Low area. If it were not for the Underground Economy and MNCs moving generally in the other direction, we would have doubts about western economic growth being sustained.

This should sustain Post Industrial growth at the moderate rate, perhaps around that witnessed by the UK since 1750s. (But this may not be reflected in economic statistics because of the Underground Economy). The US is likely to score somewhat higher, with lower taxation and higher wealth levels than the UK. These issues and other related ones were formed into a Delphi for major areas of the World (Whaley 1979). These show that North America scored higher than UK, and were far higher than the lower level countries being discussed today. Whether a country or region continues to grow economically is not affected by other regions growing - indeed greater wealth levels elsewhere form business opportunities to exploit.


New World Trading Patterns

Within a Post Industrial Country increasing efficiencies and automation will release people from current activities; but the growth of surplus wealth will result in additional goods and services being consumed - which will absorb people in their manufacture and distribution. But this development cannot be viewed in isolation, for the Post Industrial Country has to interact with the rest of the world.

The World Development which satisfies these Trends is

  1. Basic manufacturing will concentrate in areas of the world relative to the raw materials. (It is clearly more efficient to work on and add value to materials near their source of extraction, rather than move the low grade materials halfway round the world to mass production societies, and then move the manufactured products all the way back again. It is also more efficient to undertake what are now elementary industrial processes using low-educated labour, than trying to do the same processes using highly educated Post Industrial labour.) Producing their own added value is the only real way the Less Developed Countries (LDCs) can develop.
  2. The LDCs will not have the capability of developing their own manufacturing facilities, and this will be supplied by the Post Industrials.
  3. Under conditions of high communications facilities, and especially where marketing problems occur, business firms tend to form large integrated-controlled structures (the move from Wholesalers - Retailers to Super Markets). We thus expect these developments to be carried out by Multi National Corporations (MNCs) founding subsidiaries in LDCs. Thus the MNC will serve as the medium of technology transfer, and also provide the facilities to market the output onto world markets (which generally LDCs lack).

Under this scenario, much of the basic industrial activity will migrate, out of the Post Industrials, to appropriate areas of the world - largely via MNCs - although with quite a lot of independent development in LDCs. This now includes most simple assembly, but the technological level subject to migration will rise with time.

The Post Industrials will provide much of the technology, skills, productive machinery, and market outlets. In return they receive much of their manufactured consumer products, and semi-manufactured components. Some consumer manufacturing will remain, but this is likely to be confined to the high priced prestige end of the market, and high technology products - but where the next generation of products and production methods will evolve.

Some LDCs can be expected to react against the apparent "exploitation" by MNCs. But to consider this problem it is necessary to appreciate a finer structure to world ranking of countries. In the first place there is a large block of countries, whose economic level hardly exceeds Simple Technology, who may have gone backwards since colonial days. These we will call Under Developed Countries (UDCs). Then there are quite a number of nominally European Countries who are hardly out of the Industrial Revolution - although they tend to be classified with the Developed World. These we will call Middle Ranking Countries (MRCs) - typified by those round the Mediterranean.

Countries which reject MNCs may find they so not develop, but remain UDCs. By a process of natural selection those who encourage the MNCs are likely to be seen to flourish - with more of these LDCs becoming MRCs. This may go in fits and starts.

Present Evidence

The evidence that these developments are occurring is large. There are over 1000 MNCs who are larger in economic terms than the smaller nation states. There are only a dozen nation states larger than any MNC. Clearly the active deployment of Western technology occurs through these bodies.

The growth of MNC networks will produce distinctive patterns of overseas investment for the home countries of MNCs, with probably a growing proportion of their investment going overseas.

The following Diagram shows the growth of overseas investment made by the UK. Analysis of these flows shows

  1. The investment is made predominantly through subsidiaries of UK companies, thus indicating a growing MNC network as on the above scenario
  2. There has been a large increase in recent decades in the volume of the investment
  3. There has been a fall-off in the proportion going to developing countries (UDCs especially), a large increase going to advanced countries, and a strong proportion going to MRCs.

At first sight, (3) might be regarded as contrary to the scenario deduced above. There are however a number of trends operating

  1. Much of the increase in overseas investment has been interpreted by commentators as a response to rising government interference in business. So organisations attempt to get themselves beyond the control of any one nation state. There are also desires to reduce undesirable effects of certain economies - especially cyclic nature - and to take advantage of opportunities in other advanced economies. Thus a growing web of MNCs is spreading across the advanced world.
  2. A drop in investment in UDCs, at least as a proportion of the whole, can be expected from the above scenario, since they are the countries likely to react against MNCs - especially after the break up of Empires after the War. Hostile and unstable environments in many of these countries since colonial days will discourage MNCs.
  3. It is probable that a big gap is opening up between the Post Industrial technology and the UDCs, and this gap will continue to widen. This technology may have little place in simple societies. A probable development is for the Post Industrials to invest in other advanced countries, in MRCs, and to some extent in LDCs... This does not mean that there will be no Post Industrial/MNC investment in UDCs, but the emphasis will switch elsewhere.

The evidence suggests the trends are more complex than those (at first sight) deduced from the scenario, but are consistent with it. Trade will increasingly be in the means of production, provided through MNC networks. These will produce increasingly complex international web of business structures, spanning the Post Industrials and MRCs, and spinning off into LDCs. Secondary MNC networks will build up and span the MRCs and LDCs, and spin off into UDCs.

US and UK appear to have the highest overseas investment rates, the UK for its size being the largest. These are the countries whoes basic industries are under pressure; and are being subjected to cheap consumer manufacturers trying to enter their markets. These are all features of a Post Industrial scenario, and these trends are likely to continue, and spread to other advanced countries in NW Europe and N America.

The US & UK appear to be the countries which have crossed the boundary between the Mass Production and the Post Industrial Country.

A majority of the outward investments was in manufacturing. There is also an inward direct investment into the UK, almost all of which comes from other developed countries. It too has been growing rapidly, but is at a lower level than UK's outward direct investment. The overwhelming majority of inward direct investment was in non-manufacturing.

Overseas profit does not include profit on goods and services produced in the UK.

For several reasons government statistics overstate the size of the UK profits. Inflation in particular generates paper profits which are not real and applies when UK inflation is higher than other countries - which it quite often has been over this period. The latest data (shown below) includes partnerships: here the pay of partners is included - while it is not for similar businesses operating through registered companies. The trend can however be seen to be similar.

A majority of UK trading profit is occurring from overseas, and the proportion is expected to continue to grow, though at a slower rate.

In relation to the US Congress's Innovation concerns, the US MNC network is considerably larger than the UK's in total, and we can see the part it plays moving appropriate technology and business know how around the world. There are concerns that some service functions are now migrating from Post Industrials to MRCs - as low technology manufacturing as been doing for several decades. This is to be expected - and MNCs will be driving the trend by siting all their activities in the most appropriate parts of the World. Post Industrial shareholders and pensioners gain. All advanced countries are concerned that the rest of the world develops - and gives substantial aid. What has to be understood is how the rest of the World can earn their livings.

This scenario relies on the Post Industrials remaining the most advanced countries on all dimensions. The next section considers this.


The capabilities of a country can be represented by a Pyramid

On the face of the Pyramid are all the activities concerned with making things.

On the left side of the Pyramid are the activities mainly or largely concerned with information flow. On a side not visible can be depicted activities of the Service Economy.

For a country to advance technologically it generally needs a sound base of lower technologies. If its Pyramid is "moth eaten", it soon finds it has not got the capabilities that it needs to move ahead (e.g. the Russian moon programme).

There are very few countries with the full range of capabilities. Depending on how one defines the high technologies, there are between two and four (including the US & UK).

Post Industrial Changes

As a country moves into the Post Industrial age the form of it's Pyramid changes. The Industrial activities on the lower part of the Pyramid will decline (migrate to MRCs, LDCs, UDCs).

The activities higher up will increase, especially in manufacturing machinery and systems, electronics, computers and networks. New activities will arise, including new high technologies.

There will also be a considerable increase in the left side of the Pyramid.

All advanced technologies have associated with them considerable information, involving on-going research. The Post Industrial Country will increasingly look like an "information society" - its main exports being information via its MNC network (whether it be technology, know-how, market contact, etc.).

The bulk of the people used to earn their living in the lower part of the Pyramid. There is a movement of people up, and to the left of the Pyramid. These movements require substantial education and retraining requirements in many specialist fields.

The US is dominant in having a full range of capabilities known to man. A recent report from the RAND Corporation (2008), commenting on the US Innovation concerns, points to impressive statistics that the US is still the World's science and technology power house. It shares this position with a tiny number of countries. The weak signals to look for is if it is falling out of being involved with all new advances - as was thought to be the case when the Soviets stole a march in space. Then a national response similar to NASA in selected fields could be mounted.


On the dimensions considered important: the Conditions of Economic Growth, the New World Trading Patterns through MNCs, and the range of capabilities available to a country - the US and a very few other countries are far ahead of the MRCs & LDCs which are cited as threats. Policy makers, with their additional concern to see the rest of the world develop, may be wise to consider how these lower level countries are to earn their livings. Just because they may take on roles currently being done by the Post Industrials does not necessarily mean it is bad. In any event the MNCs will see to it that it does happen if it is profitable to them. These bodies increasingly have minds of their own, and are likely to grow in size and overtake some of the smaller future Post Industrial Countries - the US however should be spared this fate.

The tightly guarded bundles of capabilities which form the competitiveness of a business firm cannot be regarded as in danger of leaking through country boundaries - which anyway are becoming less relevant. There is nothing new about hiring people, while buying firms is notoriously difficult to reap synergy benefits. The internet is overblown - the main problem is if one can trust the information from it.


Abeles, Tom P Is Massive Mobilisation a viable Government response for the Future?, Foresight 10 No.3 May 2008

Whaley, Richard Data Bank on the Future Business Environment, Long Range Planning 17, No. 4, p 83, 1984

Whaley, R H G International Growth Rates in The Business Environment over the next two Decades (Ed R Whaley), Society for Long Range Planning (now the Strategic Planning Society, London) 1979

US Competitiveness in Science and Technology, National Research Defence Institute, RAND Corporation, 2008

About the author

Dr Richard Whaley is Director of the Business Trends Library. He was formerly Head of Business Research for McCorquodale & Company Ltd, responsible for opportunity seeking and Long Range Planning. While in Management Development with the International Publishing Corporation, he was involved in the introduction of Corporate Planning, and developing scenarios for Communications. After gaining a Ph.D. in Physics in 1967 he went into scientific publishing. Here he was responsible for the conception and development of the international journal Futures. Since then he has been involved with the analysis and forecasting of the business environment, and its use in business development.

He served as Chairman of the Business Environment Study Group of the Strategic Planning Society, London, and on the Society's Executive.