Pessimists believe that the United States has peaked as a superpower and is falling behind in education, research and development, and economic growth. They say the country’s best days are behind it.

They are wrong. Not only is the United States leading a technology revolution that will help solve the grand challenges of humanity — problems such as disease, hunger and shortages of energy and clean water — it is increasing its lead on the rest of the world. By combining its entrepreneurial strengths with creativity, it is reinventing itself once again.

A new report from the Council on Foreign Relations, Keeping the Edge (2015), is one in a series that analyses where the US stands in key dimensions of economic competitiveness. It concludes that on innovation, which drives rising living standards in the advanced economies, no other country is even close. For instance:

• Of the Top 20 universities in the world that produce the highest-impact scientific research, 16 are in the United States.

• Total US research & development spending — most of it by corporates — is higher as a share of GDP than at any other time since the early 1960s when the space programme was starting. In absolute terms, no other country invests nearly as much in R&D as the United States, and in relative terms only Japan is close. And in a recent survey, the average US corporation said it planned to boost research spending this year by nearly twice the rate of its international competitors.

• The share of the US economy that comes from knowledge-intensive industries has risen sharply over the past decade, reaching nearly 40 percent; no other large economy has even hit 30 percent.

Most of this is a private sector story. The United States has an entrepreneurial culture that rewards risk; a highly developed venture-capital industry, and a large market of consumers eager to embrace new commercial innovations. But one of the more interesting findings of the report is that — unlike on so many other policies, from immigration to tax reform — the US government has mostly got it right on innovation.

The Small Business Innovation Research (SBIR) programme was established by Congress in 1982, during the Reagan administration, and has been reauthorised multiple times with little controversy. The SBIR requires that all federal agencies with big R&D programs set aside 3 percent of their research budgets for small businesses.

The result is a $2.5 billion (Rs.16,750 crore) fund that helps to bridge the so-called “valley of death” that new start-ups face between good ideas and commercial products that are attractive to investors. Apple, Compaq and Intel all received SBIR funds in the 1980s; today, about 6,500 small companies are beneficiaries. In several surveys, 97 percent of these companies said the grants had been vital to their later success. Other countries have taken note, with Germany, the UK, Israel and China all launching similar schemes.

American policy in support of innovation has got some other things right as well. Washington relies mostly on direct subsidies, which generally favour new and smaller companies rather than R&D tax breaks that primarily help established firms. The government has sponsored cheap but galvanising competitions, such as the defence department’s 2004 Grand Challenge, offering a million-dollar prize for a driverless car that could navigate a desert course. No one took away the award, but it pushed forward research that is now coming to fruition.

The US university system, with its mixture of public and private support, autonomous administrations, and competition-based funding for research, is also uniquely successful at generating commercially relevant research breakthroughs. The system can be improved significantly, but it has fueled world-changing innovations. Other countries are trying to find the American secret sauce, but without much success.

The Keeping the Edge report does raise some red flags. Funding for public universities, such as the vaunted University of California system, for example, is under enormous pressure. So too is funding for basic scientific research. Massive research undertakings, such as the quarter-century-long Human Genome Project, which has paved the way for breakthrough drug therapies, are impossible without generous taxpayer support for basic science. Entrepreneurs can work hand in hand with universities in commercialising scientific breakthroughs, but they can’t invest the time and money to create them.

Innovation also arises from the talents and ingenuity of those residing in this country, and immigrants have long brought a disproportionate share of that precious resource to the United States. The decade-long failure to reform immigration laws to welcome the best and brightest remains a deep, self-inflicted wound.

But amid so much hand-wringing in Washington, the report tells a remarkably positive story. When it comes to scientific breakthroughs and commercial innovations needed to build the economy of the future, the United States really is #1 — and no competitor is in sight.

(Vivek Wadhwa is a fellow at Rock Center for Corporate Governance at Stanford University and Edward Alden is a senior fellow and director of the Council on Foreign Relations)