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Infographic of the Day: Does the U.S. Waste Money on Innovation?

This infographic by accounting firm Grant Thorton purports to show how efficient 30 different countries are at innovation. How? Simply by showing the ratio between patents granted in a country, and the total R&D expenditures there.

Thus, the bigger the box in each country, the more innovation (as measured by patents) it gets for every R&D dollar:


[Click for larger version]

So for the U.S. it looks really, really bad. Even though we grant more patents than any other country in the world, we also seem to simply throw money at the problem of innovation—and in the long run, that can't be good for our own economic competitiveness.

But hold on. Once you start thinking more deeply about the chart, you realize there are perhaps some more interesting things going on. And while the U.S. picture in innovation looks troubling, it's not for the reasons you might think.

Let's start with one thing that's probably not going on. The chart could simply be an indicator of how hard it is to get a patent in each country—if it's harder to get a patent in the U.S. than anywhere else, of course our expenditures look like they're less efficient. That's because we don't give out patents to every ridiculous new bike bell or boom box. But in actuality, the patent process for most of the countries on the list are roughly equivalent—the U.S., Western Europe, and Japan have comparable patent processes. And South Korea rejects about the same percentage of patents as we do.

Let's move on to something a bit more subtle. Note that South Korea pools its R&D into consumer electronics—and companies such as Samsung and LG are among the world's most frequent patent filers. The U.S., meanwhile, invents a decent amount of CE technology—but we also spend ridiculous amounts of money in biotech and pharmaceuticals. These are infamously expensive to research: Unlike say, cell phones, where $1 billion in research might yield literally hundreds of patents, $1 billion in pharma research might be just enough cash to bring a single drug to market (with just a handful of patents). And the U.S. is far and away the world leader in biotech and pharma research.

Is that a good thing? Absolutely not. U.S. biotech companies have long known that the lion's share of pharma profits lie in selling innovations back into our own bloated, wasteful, and irrational health care market. Indeed, inefficiency is one reason there are huge pharma profits to be had in the U.S.: Our system frequently spends hundreds of dollars on prescriptions for new, brand-name drugs that no more effective than older ones costing pennies on the pill.

Innovations raise a country's global competitiveness only if they ultimately lead to more exported products. Spending a ton of money on drugs we sell to ourselves isn't going to make our economy more dynamic.

It's indeed troubling that we spend so much money on research that can't readily be turned into world-beating products. So we should worry about the chart above—but just not for the obvious reasons.

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