A new report from Silicon Valley nonprofit groups Joint Venture: Silicon Valley Network and Silicon Valley Community Foundation casts doubt on the future prosperity of the region and mentions that the valley’s innovation engine is at risk.

From a news report:

“Silicon Valley’s innovation engine has driven the region’s prosperity for 60 years, but at the moment we’re stalled,” said Russell Hancock, CEO of Joint Venture, in a statement. “What’s hard to say is whether we’re stuck in neutral, which has happened before, or whether it’s time now for a complete overhaul.”

Like the rest of California, the region has taken a serious hit during the recession. According to the “2010 Silicon Valley Index,” Silicon Valley lost more than 90,000 jobs since 2008, commercial vacancy rates jumped 33 percent, and more than 14,000 homes were foreclosed on.

Moreover, the region’s companies aren’t able to attract the same numbers of talented foreign workers, which it called Silicon Valley’s “lifeblood,” according to the report. And the number of foreign students receiving degrees stateside in science and engineering has been steadily declining since 2003.”

While the Silicon Valley and other regions of high tech innovation in the U.S. are struggling, start-ups are  flourishing in Israel. In the past few decades Israel has become a leader in the hi-tech field. According to some estimates, Israel has a higher density of start-ups than any other country in the world. One of the main reason for this high rate of success is the amount spent on R&D by Israel.

Source: High-Tech Israel, OECD

Israel spends about 5% of its GDP on R&D, the highest among OECD countries and  more than double the OECD average of 2.3%. It is interesting to note that the U.S. lags Israel, Sweden and Japan in R&D spending.

An interesting chart from a presentation by Richard C. Koo, Chief Economist, Nomura Research Institute, Tokyo:

Click to Enlarge

Source: The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005 by Richard C. Koo, Nomura Research Institute

In this post lets take a look at some of the differences between China and USA. The chart below shows the comparison of government finances between the two countries.

Click to enlarge

Source: Der Speigel

China has the world’s largest foreign currency reserves. Though the chart says it is $1.9T, the more recent figure was $2.4 Trilllion at the end of December 2009.

The public debt as a percentage of GDP for the U.S.  is more than double that of China at about 38%.

China’s total external debt is just $400B. China is the creditor nation while the U.S. is the debtor nation. Currently the gross external debt of the U.S. is a whopping $13.75 Trillion. According to the U.S. Office of the Treasury the majority of this debt is in the form of long-term bonds and notes.

Clearly the U.S. has long ways to go before it can eliminate the public debts to low levels and be become a creditor nation again.

The services sector forms about 80% major part of the U.S. economy whereas in China it is just 40%. Since the majority of the U.S. manufacturing was off-shored to developing countries, this sector accounts for just 19% of the U.S. economy. In China manufacturing accounts for 49% of the economy. A significant portion of the service sector economy in the U.S. was based in the FIRE (Finance, Insurance and Real Estate) industries.Since the credit crisis, the financial and real estate sector have laid off thousands of workers and the industries are still in shaky grounds. For example, it may many years before a meaningful recovery takes place in the real estate industry.

One way for the U.S. to accelerate the economic recovery would be to invest heavily in the manufacturing sector and increase exports.

Related:

China vs. India: Economy and Government Finances

USA vs. UK: Government Finances and Size of Economy