Global Trend

The Creativity Crisis

For a century, the United States had led the world in innovation. It is home to many of the world’s most forward-thinking companies. It produces many of the most innovative products and services on the planet. And yet, the American advantage in innovation is not some home-grown resource that can be found in the water or the air.

Instead, the openness of our businesses to new ideas has flourished in tandem with the openness of our borders to new immigrants. For example, many of the key entrepreneurs behind the high-tech boom were born in other countries and then moved to America:

Sergey Brin, who co-founded Google, was born in Moscow. Andy Grove, co-founder of Intel, arrived from Hungary. Vinod Khosla, co-founder of Sun Microsystems, came from India.

The impact of these and millions of other immigrants on the U.S. economy, the number the jobs they create, and the amount of wealth they create, is immeasurable.

But now imagine that instead of coming to the U.S., the entrepreneurs who started these firms, and millions of other bright innovators, stayed in their home countries, or instead emigrated somewhere else in the world.

This is a troubling scenario, and it is one that is rapidly becoming a reality. Economist Richard Florida makes a powerful case for this in a Harvard Business Review essay called “America’s Looming Creativity Crisis.”

He asserts that, “The United States of America ? for generations known around the world as the land of opportunity and innovation ? is on the verge of losing its competitive edge. . . . America’s growth miracle turns on one key factor: its openness to new ideas, which has allowed it to mobilize and harness the creative energies of its people.

“[T]he global talent pool and the high-end, high-margin creative industries that used to be the sole province of the U.S., and a crucial source of its prosperity, have begun to disperse around the globe. A host of countries ? Ireland, Finland, Canada, Australia, New Zealand, among them ? are investing in higher education, cultivating creative people, and churning out stellar products. . . .

“Many of these countries have learned from past U.S. successes and are shoring up efforts to attract foreign talent ? including Americans. If even a handful of these rising nations draws away just 2 percent to 5 percent of the creative workers from the U.S., the effect on its economy will be enormous. . . .

“To stay innovative, America must continue to attract the world’s sharpest minds. And to do that, it needs to invest in the further development of its creative sector. Because wherever creativity goes ? and, by extension, wherever talent goes ? innovation and economic growth are sure to follow.”

According to Florida, we can measure the strength of a country’s innovation capability by calculating the percentage of people in what he terms the “creative class.” The creative class includes scientists, engineers, architects, teachers, artists, entertainers, and others who create new ideas. It also includes all of the knowledge workers who engage in creative problem solving, such as the creative professions within business, finance, law, and health care.

Florida’s research shows that other countries have surpassed the U.S. in a key measure: the size of their creative class as a percentage of the workforce. Florida devised a new index, the “Global Creative-Class Index.” Starting with employment data for 25 countries, he calculated the number of people employed in creative job categories, divided by the total number of workers, for each nation.

Surprisingly, the U.S. ranks only 11th, with less than 24 percent of its workforce in the creative class. At the top of the list, at roughly 33 percent, are Ireland, Belgium, Australia, and the Netherlands, followed by New Zealand, Estonia, the United Kingdom, Canada, Finland, and Iceland at around 25 percent.

Many of those countries are also experiencing rapid growth in the creative class. For example, since 1991, Ireland’s has increased from 18.7 percent to 33.5 percent.

Florida’s research supports the disturbing conclusions of several other studies:

Michael Porter of Harvard Business School placed the U.S. at the top of his first Global Innovation Index, in 1995. But in 2005, Porter predicts that the U.S. will rank sixth, behind Japan, Finland, Switzerland, Denmark, and Sweden.

At the corporate level, U.S. companies are falling behind their overseas competitors. In 2004, BusinessWeek’s Information Technology 100 listed only six American firms among the world’s most competitive 25 high-tech companies. By contrast, 14 Asian companies made the list.

The U.S. lead in patents is also disappearing. Almost 50 percent of the patents issued in America go to foreign companies and inventors.

American scientists and other researchers are publishing fewer findings than foreigners. In physics, for example, Americans published 61 percent of scientific papers in 1983; by 2003, they accounted for only 29 percent, according to Physical Review.

Florida sees these as signs that America is “allowing its creativity infrastructure to decay.”

This is a problem we’ve been warning you about for some time. For example, in the May 2003 issue of Trends, we called your attention to “the explosion of college graduates in low-wage nations. The Philippines, a country of 75 million, turns out 380,000 college graduates a year. India already has a staggering 520,000 IT engineers, with starting salaries of around $5,000. U.S. schools produce only 35,000 mechanical engineers per year, while China produces over 70,000.”

We also told you that, “Based on projections from theU.S. Department of Labor’s Bureau of Labor Statistics, our economy will create a demand for 10 million more workers in 2010 than the labor force will be able to provide.” Many of these jobs will be in the creative class ? and many of them will go unfilled if we rely only on young American workers to replace older workers when they retire.

The Baby Boom generation accounts for three of every five workers between the ages of 25 and 54, when most people are at the peak of their careers. As they retire over next few decades, they potentially will leave behind millions of vacant jobs because the next generation is too small to replenish the workforce.

As we’ve suggested in the past, the solution is to fill those vacancies with immigrants. But now, the competition for highly skilled foreign-born workers is intensifying. In March 2004, the Council of Graduate Schools announced that 90 percent of U.S. graduate schools surveyed had seen a steep drop in the number of student applications from overseas.

Admissions applications from Chinese students fell by 76 percent; from Indian students, by 58 percent; and overall, by 32 percent.

There are three reasons for the decline in foreign-born students in the U.S.:

The U.S. war on terror has increased the scrutiny on foreigners applying for admission to U.S. schools. And those that are granted visas feel they are regarded with suspicion by their fellow students and other Americans they encounter.

Other countries are wooing foreign students to their own universities. France, the United Kingdom, Germany, Japan, and Australia admitted 650,000 foreign students in 2003, 11 percent more than the U.S., according to the Institute of International Education, which is responsible for awarding the Fulbright scholarships.

China and India are competing to keep their own citizens from going to U.S. schools. They are improving their own educational systems to the point that they rival America’s best universities, and they have improved their economies enough to create attractive jobs to keep people from going overseas to work.

Whether they receive their degrees in the U.S. or overseas, foreign students are less likely than in the past to see America as the land of opportunity. Since September 2001, applications for visas have dropped by 40 percent annually. And the rejection rate for H-1B visas has nearly doubled since then, from 9.5 percent to 17.8 percent.

This trend will continue to develop into a crisis unless something is done to stop it. As it becomes more visible, we predict that companies will act on Florida’s three recommendations:

First, companies will need to increase their spending on research. In 2002, corporate R&D investments fell by $8 billion, according to the National Science Foundation. America can’t maintain its lead in global innovation while corporations are cutting budgets to develop new technologies, new products, and new ideas.

Second, U.S. executives must lobby the government to open the borders to highly-skilled immigrants and college students. As Florida points out, “Over time, terrorism is less a threat to the United States than the possibility that creative and talented people will stop wanting to live within its borders.” He urges companies to create a Global Creativity Commission to devise strategies for allowing talented people to come to the U.S.

Third, the U.S. must increase the size of its creative class. This means more than just encouraging more high-school students to pursue college degrees in science or engineering. It also demands that businesses find ways to increase the creativity of every worker, from the cashier to the CEO. Today, only 30 percent of U.S. workers fit into the creative class; companies must harness the creativity of the other 70 percent so that the U.S. can maintain its competitive edge in innovation.

References List :
1. Harvard Business Review, October 2004, "America’s Looming Creativity Crisis," by Richard Florida. ⓒ Copyright 2004 by the President and Fellows of Harvard College. All rights reserved. o The complete article is available from Harvard Business Review. Ask for reprint #R0410H. 2. BusinessWeek, June 21, 2004, "The Info Tech 100." ⓒ Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.3. Impending Crisis: Too Many Jobs, Too Few People by Roger E. Herman, Tom Olivo, and Joyce Gioia is published by Oakhill Press. ⓒ Copyright 2002 by Roger E. Herman, Tom Olivo, and Joyce Gioia. All rights reserved.4. To access the Council of Graduate Schools survey regarding international graduate student enrollment, visit their website www.cgsnet.org/pdf/Sept04FinalIntlAdmissionsSurveyReport.pdf