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Technology and innovation are the cornerstones of the US economy. Besides maintaining its economic
supremacy, the nation has also guarded its status as a leader in the field of technological advancement.
Continued investment in technology is likely to see this superiority continue. The US spends 2.6% of its
GDP on R&D expenditure, demonstrating its commitment to innovation. However, this is less than that
of other developed nations such as Japan, which spends nearly 3.2% of its GDP. The main body for R&D
funding in the US is the National Science and Technology Council, which carries out and supports
research in wide areas.

In terms of industry and technology, the US made the greatest progress between the end of the 18th
century and the early 20th century. The years following the US civil war (186165), often termed as the
second industrialization and the late 19th century and the early 20th centuries witnessed new discoveries
and inventions: the discovery of oil, and the invention of the typewriter, the telephone, the phonograph
and electric light. Automobiles and airplanes also changed the way people commuted. With increasing
demand, new production techniques were devised to make the country more technology intensive, while
the manufacturing industry matured in the post-World-War II era. The next wave of advancements came
during the late 1980s and 1990s with the development of IT, contributing to the unprecedented economic
growth of this period. At the beginning of the 21st century, biotechnology was internationally recognized
for its potential in human and animal health, and related areas. In 2002, the Department of Commerces
Bureau of Industry and Security initiated the first comprehensive government assessment of the
development and adoption of biotechnology in the industry.

Research and development

R&D expenditure
There are a total of 477 research and academic institutions and 191 nonprofit biomedical research
institutions in the US as of 2005, according to the National Science Foundation. The US is among the
most technologically advanced nations and leads the world in most of the technological indicators. The
countrys investment in research and development fell by 3.9% in 2009, the first decline since 2002, but it
is expected to rebound slightly in 2010 as the economy gradually improves. After accounting for inflation,
spending on R&D is forecast to rise 1.7% to reach $395.9 billion in 2010 from $382.6 billion in 2009.
Expenditure on R&D grew at an average rate of 2.6% of GDP during 200006. The share of R&D within
the private sector and educational institutions has also been witnessing an upward trend, with their share
at 70.0% and 14.0% respectively. The census report states that R&D is one of the most significant factors
for an increase in economic growth and productivity. Almost two thirds of business sector expenditure has
gone into ICT and biotechnology-related industries. However, government R&D expenditure was mostly
directed towards defense. Moreover, funding for basic research increased by over 32.0% during 200107.
Nevertheless, there has been a decline in R&D expenditure as a percentage of GDP. To conclude, the US
leadership position is clear due to the fact that it is home to one third of the worlds scientists and
engineers, and accounts for one third of global R&D expenditure. R&D investment in new medicines and
vaccines by the US biopharmaceutical industry was around $65 billion in 2009, an increase of more
than $1.5 billion from the total R&D investment made in 2008. Pharmaceutical companies spent an
estimated $46 billion on R&D in 2009, while non-pharmaceutical research companies spent an estimated
$19 billion. Pharmaceutical research and biotechnology companies are devoted to inventing medicines
that allow patients to live longer, healthier, and more productive lives.

After accounting for inflation, expenditure on R&D is forecast to rise 1.7% to reach $395.9 billion in
2010 from $382.6 billion in 2009. For decades, the US has been able to maintain its leadership position
with respect to innovation and investment in R&D. Increasing R&D expenditure from the corporate
sector indicates the innovativeness of the private sector, but the government's declining share is a matter
of concern. R&D expenditure in educational institutes, though increasing, is comparatively less than that
of other technologically advanced nations. Moreover, the US has to prepare itself for the increasing
competition from emerging nations such as China, which are making successful forays in technology
intensive industries. However, the governments R&D expenditure is currently focused on defense
(58.3% of the governments R&D budget) and the trend may continue in the next few years.

The US legal system was originally derived from English law. The country follows a federal legal system,
with individual state laws alongside federal laws. The supreme law of the US is its constitution.
Regulatory reforms have been followed in a broad range of industries, resulting in increased competition
in the economy. Moreover, the regulatory reform that began in the 1970s accelerated over the course of
the 1980s, resulting in partial deregulation of many sectors. This led to an increased reliance on
competition to improve efficiency. Although open competition is followed in most sectors, there are a few
sectors of the economy from which competition policy and law are completely excluded due to their
sensitive nature.

Prior to the adoption of the constitution, the US was governed by the articles of confederation. Under the
articles, almost all functions of the national government were vested in a single-chamber legislature called
congress and there was no separation of executive and legislative powers. Following the ratification of the
constitution in 1788, the Judiciary Act of 1789 laid the foundation of the federal judicial system. The act
set up a judicial system composed of the following features: a Supreme Court, consisting of a chief justice
and five associate justices; three circuit courts, each comprising two justices of the Supreme Court and a
district judge; and 13 district courts, each presided over by one district judge. As provided by the act, the
congress created two sets of lower courts. In the initial years, federal-state relations dominated the
Supreme Court's rulings and the federal government was favored at the expense of state governments.
Moreover, economic regulations came to dominate the scene with the advent of capitalism as there were
an increasing number of national and state laws aimed at monitoring business activities. Since 1937, the
Supreme Court has focused on civil liberties, in particular the constitutional guarantees of freedom of
expression and freedom of religion.


According to World Banks Doing Business report, the US is ranked in third position with respect to ease
of doing business. A high ranking indicates a favorable legal environment for business, and the ease with
which a business can be formed and operated in the country. The country has followed the rule of law in
all matters including business for many years now. US economic policies are generally pro-business and
it has a very well developed financial regulatory system, with financial markets which are open to
competition. The country has an independent, effective and efficient judicial system. Foreign investment
is subject to the same rules as domestic capital. No prior approval is needed from the federal government
although a few states have specific investment regulations. However, foreign investment in banking,
mining, defense contracting, certain energy-related industries, fishing, shipping, communications, and
aviation is restricted. The government also restricts foreign acquisitions which may impair national
security. The purchase of real estate is unrestricted, but the purchase of agricultural land by foreign
nationals or companies must be reported to the government. The US governments investment in R&D
also provides a suitable environment for such practices, and the country sustains a strong regime of
intellectual property rights protection and enforcement. Of the 173,000 patents granted by the US Patent
Office in 2006, almost 50% of the applications originated from a foreign country. Labor market
regulations are also flexible, which enhances overall productivity growth and employment opportunities.
The non-salary cost of employing a worker is low, and dismissing a redundant employee is not
cumbersome. Although businesses in the US can be operated with ease due to minimal government
intervention, one of the major dampeners for the business is the high tax rates and the differential federal
rates of taxes.
Effective legal and regulatory frameworks are crucial to the creation of a successful business environment
in any country. The US has a sound legal framework for business entities and an independent judiciary,
which makes the investment climate positive. In view of the slowdown in the economy, it is felt that the
country needs to have some structural reforms in place to raise productivity levels and increase
employment. Furthermore, the country also has comparatively higher corporate and personal taxes, and
the prevalence of high rates will continue to adversely affect business enterprises. Thus, the US is likely
to lose out to other countries such as Canada and the EU nations which are vying for a larger share of

The Environment Protection Agency (EPA) is the leading federal government agency, with a mandate to
protect human health and the environment. Each state also has its own regulating agency. Since the 1960s,
the US government has recognized protection of the environment as an important agenda, first drafting
the Clean Air Act in 1963. Although the performance of the country has improved in terms of toxic and
greenhouse gas (GHG) emissions, it has remained an underperformer compared to leading industrial

Prior to the 1960s, environmental issues did not attract major attention either from the public or the
government. The Clean Air Act of 1963 was the first significant government policy that linked air
pollution with public health. The act was subsequently amended in 1970, 1977, and 1990, to improve its
scope. Under the Clean Air Act, the EPA has focused on key air pollutants that have a significant impact
on public health and the environment: ozone, carbon monoxide, nitrogen dioxide, sulfur dioxide, and
lead. Besides the Clean Air Act, other environmental programs which have had substantial impact on
public health are:
The removal of lead from gasoline (adopted by EPA in the late 1970s).
The acid rain program (enacted in 1990 to reduce sulfur dioxide emission from power plants).
The Clean Air Interstate Rule, adopted by EPA in 2005, to further reduce pollutants.
The Non-Road Diesel Rule (adopted by EPA in 2004 to reduce particulate matter and nitrogen oxide
waste from construction, farming, and other non-road equipment).
The heavy-duty highway vehicle and diesel sulfur rule (adopted by EPA in 2000 to reduce particulate
matter and nitrogen oxide waste from diesel trucks, buses and other on-road vehicles).

President Obamas 2011 budget proposals include various measures for the reduction of greenhouse gas
emissions. The budget contains an increase of $39 billion in taxes on fossil fuel producers over a period
of 10 years, as well as an end to tax breaks and other incentives for the domestic production of oil, natural
gas and coal. Furthermore the budget proposes to triple federal support for nuclear energy, by adding $36
billion in new loan authority for a Department of Energy program aimed at accelerating the construction
of new reactors. An estimated $1.4 billion will be set aside to help developing countries address the
impact of climate change, reduce deforestation and shift to low-carbon energy sources. The EPA has
declared carbon dioxide and other greenhouse gases to be a health risk, acknowledging that this will
aggravate climate change, worsen air quality and generate heat waves. This marks a significant change in
the position of the US in terms of environmental policy, suggesting that a new approach might soon be
taken which could impact climate change regulation. President Obama too asserted in April 2009 that the
US was ready to lead the world on climate change. Congress is exploring a draft bill for clean energy
development which aims to cut carbon emissions by 20% from their 2005 levels by 2020, boosting
reliance on renewable sources of energy. In 2009 the EPA proposed the first mandatory national system
to report the emissions of carbon dioxide and other gases. The proposal covers around 13,000 facilities,
which account for 8590% of greenhouse gas emissions in the US. This system includes producers of
crude petroleum, coal and oil refineries, ethanol production facilities, natural gas, or any facility with
GHG emissions surpassing 25,000 ton/yr. The EPA believes that the companies will incur an
expenditure of $160m for the first year in order to comply with the reporting requirements, while in
subsequent years the cost is likely to be $127m annually. The EPA is formulating this rule under the
Clean Air Act, which will give environment planners an accurate idea as to the extent of emissions; this
will determine the future course of actions to reduce GHG emissions.