Throughout history, many countries have acquired technological leadership, from German engineering and Japanese electronics to Indian software and Israeli cybersecurity. Patterns in the rise and fall of technological leadership show that such dominance should be understood from traditional factors that signal industrial power, geography and national ambition, and the complexity of emerging technologies.

Our oberservations

  • In the late 19th century, chemical engineering began to play a central role in technological innovation. Germany took the forefront as German companies set up chemical R&D facilities. The U.S. did not catch up until well after the First World War.
  • In contrast with chemistry, the U.S. was as quick as Germany to explore electrical engineering. General Electric and AT&T were among the first to establish R&D facilities. In the early 20th century, the S. achieved technological leadership through mass-production technology.
  • After the U.S. won the war, science and technology were seen as “the endless frontier”. American dominance in computer and semiconductor technologies is attributed to massive government support from the Department of Defense and NASA and major increases in corporate R&D funding at the time.
  • Postwar Japanese governments imported technology from abroad to reenergize development. Gradually, Japan’s ratio of expenditure on R&D to GDP came to exceed that of the U.S. and Germany. By the 1990s, Japan had become a leader in production technologies underlying the information revolution, which it still is today.
  • In response to sustained threats from hostile neighbors and the arid desert, Israel has become a leader in military, cyber and water technologies.
  • China, which has become a leader in technologies like solar energy and batteries, is now determined to become a leader of the technologies of the future (e.g. AI, quantum computing).

Connecting the dots

Countries like Japan and China were able to become leaders in consumer electronics, solar energy and batteries, partly through licensing of foreign technologies. But barriers to entry are greater for consumer electronics (Japanese brands had to appeal to global consumers) than solar energy. To be a global technology leader means market dominance, such as the global market share of domestic firms within the industry and the country’s ability to attract foreign firms and research centers to its territory. Such market dominance depends on the success of National Innovation Systems, which consist of traditional metrics of innovation like R&D systems and national patenting, but also the organization of private firms, labor markets, education, regulations and culture. Moreover, while technology and trade cross borders more freely than in the past, human capital is still tied to location. Hence, Regional Innovation Systems (e.g. Silicon Valley, Detroit, Shenzhen) increasingly determine technological leadership.
How then should we understand the rise and fall of technological leadership across industries? The aforementioned examples from Germany, the U.S. and Japan show that emerging countries have an opportunity to become leaders in emerging technologies. However, barriers to entry are far greater in some industries compared to others. In industries where network-effects contribute to technological

leadership (e.g. internet platforms, pharmaceuticals), barriers are even greater. Interestingly, another explanation of technological leadership is a sense of ‘national urgency’ towards exploring a specific technology. Such urgency becomes rooted in a nation’s culture, and hence the ambitions of government and corporations, laying the foundations for technological leadership.
Future technological leadership in emerging technologies should be understood from the strength of National Innovation Systems, the ambitions of emerging countries, and the barriers to entry in emerging industries. When a country has a sense of urgency to explore emerging technologies, and National and Regional Innovation Systems are strong (such as China and AI currently, with rising R&D, patenting and acquisitions), the potential for technological leadership is high, especially because Chinese tech firms are also positioned to generate data necessary to build AI systems (lowering the barrier to entry compared to European firms).

Implications

  • To remain or become a new technology leader, classic indicators of innovative capacity remain crucial and require both public and private investment. For example, in the case of the S., in industries where U.S. patenting held up high, export shares also held up, while exports declined in industries where U.S. patenting declined relative to other countries.
  • Geographical and other cultural characteristics, shaping government and corporate ambition, are also integral to technological leadership. For example, Israel and the Netherlands have become dominant in water-related technologies, since the former struggles with drought and the latter with rising sea levels, contributing to public and private ambitions.