The next time that you are at an electronics store, pick up an iPhone. Open the box and you will find that the device was designed by Apple Inc. in California. Next look at the back of the iPhone and you will see that it was assembled in China. In the past, the United States has seen numerous industries disappear from its shores and locate in other countries. Industries ranging from smart phones to wind turbines, from solar panel technology to highly advanced computer circuitry born in the United States, now exist elsewhere. Moreover, when abandoning an industry, the United States may also lose technologies that would foster the development of future industries.
Consider the case of the Amazon Kindle.
In 2007, in a Silicon Valley research facility, Amazon engineers and designers developed the Kindle electronic reader, a device that enables users to download and read newspapers, magazines, textbooks, and other digital media on a portable computer screen. Amazon first released the Kindle in November 2007 for $399, and it sold out in 5.5 hours; the device remained out of stock for five months, until late April 2008. By 2011, the Kindle  sold for less than $140 as competition from other manufacturers intensified.
To produce the electronic ink for the Kindle, Amazon initially partnered with E-Ink Co., a U.S.-based firm. Because E-Ink did not have the technology to produce the computer screen for the Kindle, Amazon had to look for another partner. The search initially began in the United States, but it was not successful since American firms lacked the expertise and capability to produce the Kindle screen. Eventually, Amazon turned to Prime View, a Taiwanese manufacturer, to produce the screen. Soon thereafter, Prime View purchased E-Ink and moved its production operations from the United States to Taiwan.
Even though the Kindle's key innovation, its electronic ink, was invented in the United States, most of the value added in producing the Kindle wound up being captured by the Taiwanese. Some economists maintain that the United States has been losing its innovation edge as American manufacturers locate abroad. They note that manufacturing is a key driver of research and development that generates inventions that fuel economic growth. The United States cannot sustain the level of economic growth it needs without a strong manufacturing sector. According to these economists, to promote a stronger manufacturing sector, the United States needs investment-friendly public policies.
Other economists disagree. They contend that from the perspective of America's competitiveness, all of the key technologies and high-value-added activities are still captured on American soil and that the United States leads the world in scientific and technological development. They also note that trade and comparative advantage foster an evolution in a country's industries over time. In the television market, the manufacturing of televisions initially began in the United States. As technologies became standardized, television production moved offshore to countries with much lower wages and manufacturing costs, and prices continued to fall, to the benefit of consumers. The global economy is dynamic, and the firms that have survived have been the ones able to transform their business models to match their competitors. U.S. firms will continue to face strong competition as other countries master next generation production techniques and accrue expertise in innovation. In Chapter 2, we will learn more about the outsourcing of production and jobs to other countries.

What do you think? Is the United States losing its innovation edge?