There is a simple (and simplistic) mental model of the intangible economy that many carry around with them -- including economists who should know better and journalists and politicians who probably don't. That model is based on an industrial age concept of the division of labor between thinkers and doers (mental work and physical work). In this model, the US (and other "advanced" nations) are moving up the development ladder while others will take our place. So, the US will think and design things; other like China will make things.
The reality is much more complex. Making and designing are all mixed up. Countries that are supposed to be in one area of the value chain pop up in another. Here are two great examples.
Example #1. The US is supposed to be the world leader in aviation technology. Yet, as reported in this recent Wall Street Journal story Boeing is licensing an Italian helicopter design in order to compete for the next generation of Presidential helicopters which will be manufactured in the US.
Example #2. The US is supposed to be the leader in R&D -- the place where American (and other) companies do their work on high end of the value chain. Yet according to NSF's recent survey of global R&D expenses by US companies, American companies do about 20% of their research elsewhere.
By the way, this off shoring of R&D has been going on for some time -- see earlier postings and recent comments on the data by Michael Mandel and Richard Florida.
In the intangible economy, knowledge and intangible assets flow in a global network. There is no hard and fast international division of labor. It is just as important to be able to absorb knowledge as it is to create it. If fact, the two are often necessary compliments. As the Boeing case illustrates, your ability to be near the cutting edge makes it easier to incorporate others knowledge into your own system. This is one of the hallmarks of the open innovation process.
Because of these flows, it is important for public policy to continue to focus on all parts of the production process. To simply narrow our gaze at one area -- such as design or R&D -- is economic myopia.
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