Earlier today, INSEAD and the World Intellectual Property Organization (WIPO) released the 2012 Global Innovation Index. The report shows Switzerland as the most innovative country, followed by Sweden, Singapore, Finland, the UK, the Netherlands, Denmark, Hong Kong and Ireland. The U.S. was 10th, tied with Luxembourg.
While the rankings make good news headlines, the value of the report is in the details. The rankings are based on an innovation input sub-index and innovation output sub-index. The inputs include institutions (both public and private), human capital and research, infrastructure, market sophistication, and business sophistication. Outputs are divided into knowledge and technological outputs and creative outputs. Each of these areas is broken down into subcategories and then into specific metrics. For example, creative outputs include creative intangibles, which contains four metrics - one being the level of trademark registrations. Creative outputs also contains the subcategory of creative goods and services with five metrics including the level of recreation and culture consumption. One the input side, the subcategories and metrics attempt to go beyond the standard R&D and higher education measures to included broader business metrics such as ease of starting a business and the availability of credit.
Having said that, however, the index is still a technology based formulation of innovation. Even the creative outputs metrics have a technological bent, such as the use of information and communications technologies (ICT) and the creation of on-line content, and a narrow definition of entertainment and cultural products. And knowledge outputs are patent and high-tech oriented -- although it was good to see metrics on new business formation and quality certifications (ISO 9001) included. Thus, the index misses the broader measures of innovation, such as level of creation of new products (both goods and services) as an output and importance of non-technological intangibles as inputs.
And of course, no metrics are without their anomalies. One of the most interesting is the fact that Guyana and Paraguay rank 1st and 2nd respectively in receipts of royalty and license fees as a portion of GDP. Guyana is also ranking 1st (tied with 3 other nations) in royalty and license fee payments as a portion of GDP.
Looking specifically at the U.S., the report highlights some of the strengths and weaknesses. Understandably, the report mentions weaknesses in human capital and research, including lower levels of graduates in science and engineering and the increasing difficulty of students coming to the U.S. to study. In this category, however, the U.S. is penalized for its low level of students who study abroad. The U.S. is also penalized by its relatively low levels of imports and exports relative to GDP (i.e. for having a large domestic market) and for its relatively low levels of inward foreign direct investment. Also interesting is the relatively low ranking for political stability (52nd) and for press freedom (41st). One the other side, the U.S. ranks 3rd (only slightly behind Switzerland and the UK) in university/industry collaboration.
From a policy perspective, there are a couple of indicators where the U.S. does poorly that could use attention. First is the category of ecological sustainability. The report explicitly recognizes the importance of "green growth" and innovation. In this area, the U.S. is 48th in environmental performance, 71st in energy efficiency and 93rd in ISO 14001 environmental certificates. Policy policies could make a difference in each of these areas. The second is under infrastructure. The U.S. ranks only middling in ICT access (22nd) and ICT use (17th) -- while ranking 1st in government on-line service. However, the U.S. ranks 129th in gross capital formation. Finally, the U.S. ranks 96th in ISO 9001 quality certifications. This falloff of interesting in quality mirrors the lower business interest in the Baldrige Award. Quality is the entry point for global competitiveness and innovation. If American businesses lose sight of that fact, winning the innovation race will become that much more difficult.