How is it broken? Let me count the ways.
1) The decay of the structures powering the appropriability end of the engine, intellectual property. Investors want to see it, and the patent office readily gives asinine patents, like this one for P2P spoofing. The point is that patents like this are good for no one in the end - socially, they retard real
innovation, and at the firm level, the opportunity cost of using them is really high
. Sure, you can lock up competitors in litigation battles - but for a new venture, the lost opportunities are usually the big ones.
2) The decay of the structures that power the political end of the engine.
3) The decay of the structures powering the financial end of the engine:
"..."Much of America's technological preeminence in the 1990s was attributable to R&D investments made by the federal government in the 1960s, 1970s and 1980s. Past technology advancements stimulated by federal R&D include integrated circuits, the Internet, personal computers, jet aircrafts and supercomputers," the American Electronics Association said in a recent report on offshoring and related issues. "University-based R&D in the physical sciences MUST be increased. Many U.S. trading partners and developing countries have more generous and permanent R&D tax incentives than the United States."
Related to this is the point about offshoring R&D. From the country's point of view, this is possibly the next worst thing to, say, Silicon Valley being flooded by a madman named Zorin. That's because R&D has massive spillover effects which create agglomeration economies and innovation clusters - like the valley. In effect, right now, those clusters are being built (by you, if you're reading this and you're American) for people who are going to compete with you.
Of course, I'm the same guy that thinks that there is a deep truth that the iconic figures of the next few years are eerily like something out of the world's Jerry Springer, Fox News and Al Jazeera crammed subconscious: a girl from a trailer park in West Virginia, leashes, blanked out genitals, hoods, and brown skin.
4) It's not mentioned by people like you and me, but there's a moral dimension to it as well. Without sounding hopelessly naive, the truth is that what's been arbitraged away in the last twenty years during the race to the bottom is as much inefficiency as labor standards. We in the West seem to be, for the most part, comfortable with that - the economic benefit clearly outweighs the moral cost. If we really cared about helping others countries develop (at our own expense, no less), we would do a lot more to ensure the history of capital vs labour didnt repeat itself there - which it already is.