In the conventional view, innovation is something that just takes place idiosyncratically in “Silicon Valley garages” and research and development (R&D) laboratories. But in fact, innovation in any nation is best understood as being embedded in a national innovation system (NIS). Just as innovation is more than science and technology, an innovation system is more than those elements directly related to the promotion of science and technology. Rather, it also includes all economic, political, and other social institutions affecting innovation (e.g., a nation’s financial system; organization of private firms; the pre-university educational system; labor markets; culture, regulatory policies and institutions, etc.).

Indeed, as Christopher Freeman defined it, a national innovation system is “the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies.”1 Innovation systems matter because a nation’s innovation success depends on its national innovation system working effectively and synergistically.

Better understanding of the origins, development and operation of a nation’s innovation system can help policymakers identify key strengths and weaknesses and policy changes needed to enhance a nation’s innovation performance. Because of a variety of factors, no nation’s innovation system is exactly the same as others. Each system is unique and each needs to be understood in this context.

This report first briefly describes the historical evolution of the U.S. national innovation system. It then describes the broad elements of the national innovation system organized around what is termed the “innovation success triangle”: the business environment, regulatory environment, and innovation environment. In addition, for each element it provides a subjective and informal ranking of the U.S. strengths relative to other nations.