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Previous: China and India: Taking it to the next level

Next: Building an innovation nation

The creativity agenda

By Robert D. Atkinson and Stephen J. Ezell

26 February 2009

The most innovative countries—which will also be the highest earning in the future—will be those that embrace a model of “innovation economics,” which places technology, innovation, and entrepreneurship at the center of economic policymaking. Successful nations will not be content to wait for innovation to happen or expect it to occur as a byproduct of other activities, such as defense spending or space exploration. On the contrary: the new leaders will search out innovation and actively create an environment that nurtures it.

Since this is already happening around the globe, the case for such an assumption is compelling. In a study recently published in Research Policy magazine,¹ Jeffrey Furman and Richard Hayes identified a number of emerging innovators, including Denmark, Finland, Ireland, Singapore, South Korea, and Taiwan. These countries have achieved remarkable increases in innovative output per capita, with some of them leapfrogging the innovative capacities of such midtier innovator countries as Britain, France, and Italy. The keys to their success have been developing, funding, and implementing integrated national innovation policies and combining strong institutional support for innovation with highly competitive free-market environments.

The emerging global innovation model embraces a broad set of values: generous R&D tax credits, strong levels of government and private-sector R&D investment, recognition and protection of intellectual property rights, highly skilled workforces, openness toward international trade and talent flows, and limited restrictions on innovation and risk taking. Achieving these values requires a great deal of collaboration among industry, academia, and government entities. The current emerging innovators have succeeded in almost all of these areas.

Looking at the other competitors in this field, all of them have experienced difficulties in meeting one or more of the values mentioned above. Rising Asian powers like China and India have innovation hotspots in locales including Bangalore, Beijing, Chennai, Guangzhou, Shanghai, and Shenzhen that combine the high skills and low wages that are very attractive to multinationals. But at a national level, they still have a long way to go to catch up with the first world in innovation. Currency fluctuations will be an unpredictable wild card for nations that are trying to advance in the innovation marketplace. Japanese firms, for example, are suffering as the appreciating yen crimps margins on exports; these margins have traditionally subsidized industrial innovative capacity.

As for Europe, many of its countries have aggressive, well-conceived national innovation strategies, as well as corporate tax rates that are lower than those in the United States. But on the whole, the continent still has not realized that to achieve a successful innovation economy, it must embrace at least a modest amount of “creative destruction”—a term, ironically, coined by a European, Joseph Schumpeter. Some “neo-Luddite” attitudes also dampen Europe’s innovation prospects. For example, European resistance to genetically modified foods has hurt the development of its biotech industries. It is hard to imagine any ambitious Asian country regulating bioengineering research on the basis that plants have “feelings,” as Switzerland recently did.

Compared to Europe, the United States has the opposite set of strengths and weaknesses. Caught between supply-siders and neo-Keynesian wealth distributors, the United States is not well placed to make the kind of broad-based strategic policy moves required of a successful innovation economy. As a recent report from the Information Technology and Innovation Foundation (ITIF) documents, US science, technology, and innovation leadership is weakening because it is not keeping up in the policy competition. Its R&D tax credit is the 17th least generous among Organisation for Economic Co-operation and Development (OECD) nations; its immigration policies exclude many of the world’s most talented individuals; and its federal support for research is barely growing.

However, the United States has one big advantage in the innovation arena: its ability to convert innovations into fast-growing, high-potential corporations. This ability is due to its flexible regulatory environment and highly entrepreneurial culture. While Australia, Canada, Europe, Singapore, and South Korea have superior innovation policy environments, the United States has a superior market environment.

So where is the world economy taking us, and who will lead the way? The most promising economic sectors for the next few decades appear to be nanotechnology, biotechnology, robotics, and clean/renewable energy. The United States looks well positioned to maintain its IT and biotechnology leadership. Japan, with its global leadership in batteries and hybrid cars, could take the lead in clean energy technologies. Europe is also in a good position in this sector because it has already been operating for some time in a system that has market restraints on carbon gas emissions in place. Germany and Japan are poised to lead the world in robotics. And leadership in the field of nanotechnology is still up for grabs.

The United States is still the global innovation leader. But as the forthcoming ITIF report The Atlantic Century? Benchmarking International Innovation Capacity and Performance will show, the evidence clearly points to the fact that the rest of the world is catching up fast by doing the right things. Policies matter. The Obama administration has a choice. It can make technology, innovation, and national competitiveness a priority. Or it can watch US innovation leadership migrate to more welcoming locations.

¹ See Jeffrey L. Furman and Richard Hayes, “Catching up or standing still? National innovative productivity among ‘follower’ countries, 1978–1999,” Research Policy, 2004, Volume 33, Number 9, pp. 1329–54.

Comment [9]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

Bangalore
19.09.09

As the world strives to emerge out of the current global meltdown and recession, it would be prudent to cast a glance at the evolution of life on planet earth, spanning nearly 4.0 billion years of time witnessing events and strategies which dictated as to what life should perish and what survive with dramatic innovation to flourish during periods of severe crisis or mass extinctions. Nothing is big or small in Life or business except by comparison. While researching on the pattern of fossil Life at two out of five known mass extinction boundaries (when Life was threatened to be completely wiped out) about 364 Million years and 65 Million years ago, a certain pattern was discovered by me, which could be directly applied to business innovative models. By comparison of size or magnitude, relatively three entities could be picked up viz. Large or Giant, Medium and Small which respectively, correspond to group of Large, Medium and Small-margin business: 1. Relatively Large, Medium and Small group of entities whether life or business become extinct before or at major economic meltdown or mass extinction boundary, whereas some highly competitive group in each of these entities still manage to survive and grow, but Large entities represent dead-end and invariably fail to innovate or produce offspring. 2. Medium and Small group of business entities or Life, unlike Large entities, survive the onslaught of recession or mass extinction, with Medium entities exhibiting minor or no innovation. 3. Relatively, Small group of entities or Small-margin business, displayed the most dramatic innovation in terms of variety and rapidity to compensate for the losses suffered by larger entities. Low-income markets of India and China, should take cue from this relative magnitude model to produce services and goods to ensure quick recovery and generate wealth. Multinationals need to keep a watch on these lucrative developments.

Posted 19 September 2009, 01:30 by Dr. Syed A. Jafar
I am sorry to have to disagree on a few counts.

- Centralized national innovation systems have not necessarily worked marvels as they are often credited to.

- The list of countries Jeffrey Furman and Richard Hayes find as emerging innovators, namely Denmark, Finland, Ireland, Singapore, South Korea, and Taiwan, may each/all tell separate stories, and not one common story. Qualifyied detailed analyses by field of innovation may lead to different conclusions about different countries… For one example, Denmark and Finland are both sector specific innovative, which does not necesarily transfer across the entire economy.

- UK is a highly developed innovator in biotechnology, in spite of the article suggesting the contrary for a sort of “lumped in Europe”. This paragraph here

“For example, European resistance to genetically modified foods has hurt the development of its biotech industries. It is hard to imagine any ambitious Asian country regulating bioengineering research on the basis that plants have “feelings,” as Switzerland recently did.”

shows a slight lack of understanding of Europe. Europe from the resistance sentence refers to the European Union, of which Switzerland is not a member… At the same time, biotech science/research in countries such as the UK or Ireland is best in the world…

Otherwise, a very interesting resource. Thank you,
Adrian

Posted 14 July 2009, 13:37 by Adrian S. Petrescu
I think I have to agree with you. The entrepreneurial spirit we have in the US just can’t be matched. Entrepreneurship is very much a cultural thing that most Americans admire and many dream of. In fact if you look at most of the better business schools in US, you will see that they all have Entrepreneurship departments dedicated to helping young Entrpreneuers succeed. If you look at European schools you will have a tough time finding an Entrepreneurship department. Trust me google it if you don’t believe me.

Just some food for thought!

Posted 14 July 2009, 12:15 by Cedric J
I believe that this article overestimate the role of proactive govermental policy in innovation.

I have personally lived and worked in so called innovative industries in US, Europe and Canada and the reasons why non US countries have more “aggresive” innovation policies is precisely because they try to compensate for the market driven advantages native to the US. Namely: amazing universities, entrepreneurial culture, still a very welcoming immigration policy for new comers,forgiving culture towards risk taking,english language, large single market,pro-business legal environment, californian sun and life style (where most innovation happens in the US) etc…

How many countries can boost some many billion dollar companies that have been started just a couple of years ago?

So,I am not American and have no pro or cons American biases, but for now the US has nothing to worry about when it comes to innovation because it will be a long time before any country can match all its “native” advantages…

Posted 14 July 2009, 07:27 by vargha moayed
I pick up on your comments “However, the United States has one big advantage in the innovation arena: its ability to convert innovations into fast-growing, high-potential corporations. This ability is due to its flexible regulatory environment and highly entrepreneurial culture. While Australia, Canada, Europe, Singapore, and South Korea have superior innovation policy environments, the United States has a superior market environment.”

I really think it has been the ability to find capital in the United States along with the flair of the entrepreneur. Will this still be the case? Will the markets be superior in the future? I’d question those assumptions.

The United States is at the cross roads for innovation and how can the United States be the global leader when it trails in nearly every innovation assessment? You are continuing to reaffirm a position that is in the PAST tense. No different from the US is the Auto Maker leader!

Please take those blinkers off and tell it as it actually is, both for Europe & the United States- playing catch up of old leadership positions will get tougher the longer we stay in denial

Posted 14 July 2009, 06:51 by Paul Hobcraft
The ranking actually shows that Singapore is in first place. Really? A superior innovation policy environment in a top-down place is unlikely to yield any real outcomes.

US innovation is not about to migrate anywhere anytime soon. And spending more money on R&D is not necessarily the solution. Policy competition is a bad idea – what determines the firm’s location decision when policies are pretty much the same? It has got to be something other than R&D tax credits. Would we all have been better off if Einstein had got an R&D tax credit?

Most of the returns to innovation are captured downstream and what happens downstream cannot be blue-printed – it does not travel as well across national boundaries as high-end knowledge. And there are are other barriers – How many people in Singapore are using the Kindle or ‘the cloud’?

Read Amar Bhide’s new book: The Venturesome Economy.

Posted 18 June 2009, 11:19 by A Lall
I think there are different standpoints to innovation, and all are not neccessarily connected to science and economics. However, if the bases of this article is that the innovative premise rests on an aggressive economics, and a free market play then of course the richer countries are at a vantage point. The innovative spirit of a nation also hinges on how it circumvents poverty, or attempts to do so by radicalising community life, improving basic education, and using technology as a developmental tool by making it as accessible as possible. This is a broad context and a theoretical edifice . Into it empirical realities have to be worked and reworked. The academia industry alliance which has been mentioned is a potent developmental tool, not only for research but also for a salutary economic conditioning, where the maxim of earning and learning is at interplay with societal needs. This can lead to CSR or be a causality in this regard. Many corporate houses turning to education, or promoting it in the form of professional or vocational training is a case in point. CSR being a catchword today is in many ways an exemplification of a much needed benevolence that the industry can show, albeit at times there are strings attached to it. Notwithstanding some ulterior motive CSR is today an attributive factor to a kind of humanism that the corporate world is professing. This a creative standpoint in a sharply divided world caught between the pangs of isolationism, on one hand and distressful poverty on the other. Added to is is the cliche: digital divide.
Creativity can flourish not only in a secure atmosphere of economic solidity but also in moments of absolute neccessity impelled by a mal economics so to say, that is poverty and undernourishment. In such situations even education can flourish creating an intelligentsia of a high order as for example in India.

Posted 9 June 2009, 13:23 by Ananya S Guha
Firstly, patent filings are not an actual measure of innovation but they are an indicator. The question is whether it is a leading or trailing indicator because it could be argued that the national need for entrepreneurism is greatest when recession looms and the sources of wealth creation need diversification. In any case the normal rush for public “innovation” dollars by the big teaching and research institutions squeezes out the concept that the most immediate wealth creation mechanism is the boldness and belly fire of the true entrepreneurs bringing to market the creativity of this planet’s 6 billion creators. I’d suggest that Governments should facilitate an investment environment which encourages the availability of affordable private venture capital for business startups which can demonstrate the required passion, expertise, risk management and potential for both profit and growth.

Posted 29 May 2009, 05:11 by Ken Oaten
Great article – although I am biased towards this type of conclusion, it, from an objective standpoint makes the most sense.
Nurturing innovation, offering incentive, creating networks of support from the government level on down surely is the best policy.
I’m currently working from within an innovation centre attached to the university of technology in Auckland, New Zealand – I can say from my own personal stand point that a small country like this that has traditionally relied on agriculture for a major portion of it’s growth should be positioning itself as a nation that embraces and encourages innovation at all levels. Small popualtion, educated, often well traveled, innovative by nature with good support I’d hope to see NZ gather momentum.

Posted 20 March 2009, 18:40 by grier govorko

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