bridges, vol. 32, December 2011 / Feature Articles
By Stephen Ezell
The last decade has seen an increasing realization by economists and policy makers alike that it is not so much the accumulation of more savings or capital but rather it is innovation - the improvement of existing or the creation of entirely new products, processes, services, and business or organizational models - that drives countries' long-run economic growth and improvements in standards of living. As a result, a fierce race for global innovation advantage has emerged, as countries compete intensely to realize the highest levels of innovation-based economic growth. To advance their competitiveness in this race, many countries have implemented thoughtful and constructive national innovation policies aimed at boosting the ability of companies and organizations in their economy to become more productive and innovative. Other countries are trying to win the race by deploying innovation mercantilist practices that distort global trade by trying to redirect the location of innovation (e.g., research and development) and production (e.g., manufacturing) activity to their shores at the expense of other countries. Many countries deploy a mix of both these "good" and "ugly" innovation policies, as the Information Technology and Innovation Foundation (ITIF) explained in The Good, Bad, and Ugly of Innovation Policy article for the December 2010 issue of bridges. But in light of this increased global focus on innovation, how are nations actually faring in the race for innovation advantage? In July 2011, ITIF, in conjunction with the European-American Business Council, released a report, The Atlantic Century II: Benchmarking EU & U.S. Innovation and Competitiveness, which provides a scorecard.
The report benchmarks 40 countries and four regions on 16 key indicators of innovation competitiveness. The countries assessed include all 27 European Union (EU) nations; the North American Free Trade Area (NAFTA) countries of Canada, Mexico, and the United States; Australia, China, Indonesia, Japan, Korea, Malaysia, and Singapore from East Asia; and leading developing countries including Argentina, Brazil, Chile, India, Russia, and South Africa. The 16 indicators are grouped into six categories: human capital, innovation capacity, entrepreneurship, information technology (IT) infrastructure, economic policy factors, and economic performance. Among the indicators evaluated (using primarily 2009 data) are core innovation inputs such as levels of higher education attainment, science and technology researchers per capita, government and corporate investments in R&D, new firm creation, venture capital as a share of GDP, corporate tax rates, and deployment and use of key information technologies such as broadband Internet and e-government. However, in addition to considering just inputs to the innovation process, the report measures four indicators of innovation output, including changes in countries' levels of: per capita GDP growth, foreign direct investment (FDI), labor productivity, and trade balances. Countries receive a score for their performance on each indicator, based on the standard deviation of their data point from the mean value of each indicator. Countries' scores on each indicator are then multiplied by a weighted value for the relative importance of each of the 16 indicators to produce a normalized, comparable, overall score.
So what has the Atlantic Century II study found? It reveals that a coterie of hard-charging East Asian and Northern European countries, along with the United States, are leading the world in the race for global innovation advantage. Singapore places first, followed by Finland in second place, and Sweden in third, trailed by the United States in fourth, and Korea in fifth. Rounding out the top ten countries are the United Kingdom, Canada, Denmark, the Netherlands, and Japan. Austria places sixteenth, one spot behind Germany at fifteenth and one ahead of the Czech Republic. In terms of its performance on individual indicators, Austria ranks first overall for government R&D investment as a share of GDP, seventh in GDP per adult, eighth in labor productivity, ninth in science and technology researchers per capita, and tenth in business R&D investment. Austria's weakest performances are in new firm creation (the number of new firms per 1,000 employed workers), where it ranked thirty-eighth, followed by higher education attainment (thirty-third), levels of inbound foreign direct investment (twenty-ninth), and venture capital as a share of GDP and e-government deployment (both ranking twenty-seventh).
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