These are the most innovative countries in the world
Technological innovation is the key to a competitive and growing economy, unlocking major productivity gains and allowing companies to move towards higher value-added activities.
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The World Economic Forum’s annual Global Competitiveness Report evaluates 144 of the world’s economies on various measures of innovation – including the quality of scientific research institutions and spending on R&D – to produce an overall global ranking.
Finland emerges as the most innovative country in the world, with Switzerland coming a close second. Three other European nations are in the top 10 – Germany, Sweden and the Netherlands.
Asian nations are also prominent, with Japan, Singapore and Taiwan all taking top spots. Israel and the United States complete the top 10.
If you’d like to learn more, read next 10 ways countries can improve their competitiveness and What is government’s role in sparking innovation?
10 ways countries can improve their competitiveness
For more than 30 years the World Economic Forum has studied and benchmarked competitiveness, widely accepted as the key driver for sustaining prosperity and improving the well-being of a nation’s citizens.
Now the Forum is building a competitiveness repository to showcase examples of successful competitiveness programmes that rely on public-private collaboration. Here are 10 examples from around the world.
Austria: TheKPlus Competence Centre Programme, jointly funded by government and private enterprise, was created in the late 1990s in recognition of the increasing importance of science-based innovation for the Austrian economy. Its aim was to encourage pre-competitive research with a high potential for commercial application.
Annual funding of between €2.2 million and €4.4 million is awarded for four or more years to consortia composed of research institutions and a minimum of five industrial partners. Their research proposals must be of a high scientific and technological quality, they must be able to cluster scientific and economic competence into a critical mass, and their work must have the potential to bring an economic benefit to Austrian companies. There are currently 285 companies collaborating with research institutions in 18 KPlus centres.
The programme has been successful in bringing the private and public sectors closer to accelerate the creation of knowledge and in helping Austria to achieve its national R&D intensity target of 3%, surpassing many of its neighbours.
India: The Infrastructure Leasing & Financial Services Ltd (IL&FS Skills) was founded in 2007 by a major infrastructure company as a for-profit venture to address the national skills gap by training young people from rural areas in 16 strategic sectors. IL&FS Skills uses a public-private partnership model to work closely with 1,000 partner companies and the state-funded National Skill Development Corporation. It operates institutes in 24 of India’s 28 states.
The institutes follow an industry-recognized curriculum to ensure trainees are ready for employment, which in many cases is pre-guaranteed by partner firms. To date, 100,000 students have been trained in 18 “hub” skill schools and 355 “spoke” skill centres, with 85% successfully employed.
Netherlands:The Leading Technological Institutes programme was launched by the government in 1997 in recognition that innovation was being stifled by inadequate collaboration between academia and industry. The state funds up to 50% of the cost of the mainly virtual institutes, which bring together public research organizations with industrial partners who define the programmes, ensuring research is in line with the long-term needs of the private sector.
Outcomes have included 892 publications in peer-reviewed journals, 33 patent applications and six spin-offs. There are currently nine institutes and the government has now made the programme the model for its new innovation initiative, Topconsortia for Knowledge and Innovation (TKI). Nineteen TKIs are being formed, with a total budget of €500 million by 2015 and a minimum private share of 40%.
Sweden:The Agency for Higher Vocational Education was formed in 2009 after it was recognized that a lack of vocational programmes was starving employers of skilled workers and creating a major barrier to economic growth.
Public and private organizations apply to the agency once a year for approval and funding to provide vocational education. Grants are given to those whose programmes match existing demand for professional qualifications. Each year the agency spends approximately $275 million. In 2012, 40,000 students were enrolled in 1,000 HVE programmes.
The private sector contributes about $69 million in value a year, through contributions such as tutors, equipment and material, and by facilitating workplace training.
A recent survey showed that 9 out of 10 students were employed or self-employed one year after completing their studies, with 62% employed in work related to their programme.
Chile: Start-Up Chile was founded in 2010 as part of a strategy to free Chile from its reliance on traditional industries such as mining, and to transform the country into the innovation and entrepreneurship hub of Latin America. Its goal is to attract the world’s best and brightest entrepreneurs and boost the number and quality of start-ups in the country.
With an average annual budget to fund start-ups of $11 million, Start-Up Chile offers 100 spots in the programme each year. It receives more than 1,500 global applications each time. Selected start-ups each receive one-year work visas, $40,000 and access to a community of more than 800 start-ups ready to work collaboratively. So far more than 750 companies and 1,500 entrepreneurs have come to the country under the scheme.
Funded by CORFO, the country’s main economic development agency, the programme is also supported by companies such as Telefonica, which offer work space, internet and other facilities.
The programme is succeeding in bringing about internal cultural change, creating more Chilean entrepreneurs – 40% of the most recent applications were from Chilean firms – and increasing collaboration between universities and entrepreneurs.
European Union: The European Innovation Partnerships (EIPs) is one of a series of European Commission initiatives launched in 2010 to improve conditions and finance for research and innovation, and ensure that innovative ideas can be turned into products and services that respond to major social challenges and create growth and jobs.
EIPs develop strategic plans, accelerate the process of innovation and bridge the gap between breakthroughs, such as R&D results and prototypes, and their commercialization and use. So far five have been launched, focusing on active and healthy ageing, agricultural sustainability and productivity, smart cities and communities, water and raw materials.
Private partners take part in governance and implementation. They contribute to the work of the partnership by employing their own resources, and benefit from the opportunity to influence future legislation, standards and procurements, and to gain access to larger markets.
Finland: VIGO, a venture accelerator programme, was launched in 2009 in response to “the Finnish paradox” – the fact that, despite strong innovation and institutional capacity, the country has had few high-growth start-ups.
The programme brings together innovative but inexperienced start-ups with seasoned entrepreneurs, who form accelerator teams of three or four experts to coach up to 10 companies in which they have invested their own money. Each start-up has access to €2 million in government grants to pay the accelerator team for its services. Since its launch, accelerator teams have attracted a total of €200 million in funding for their 60 target companies.
Morocco: EFE-Maroc is an affiliate of Education for Employment, a network of NGOs that creates economic opportunity for unemployed young people in Egypt, Jordan, Morocco, Palestine, Tunisia and Yemen, by working with overseas partners to provide world-class professional and technical training that leads directly to jobs and entrepreneurship support.
Paradoxically, the youth unemployment crisis in the Middle East and North Africa exists alongside an unmet demand for skilled labour. It is this skills mismatch that EFE-Maroc works to address through four key programmes – teaching young Moroccans crucial private-sector professional skills, equipping unemployed graduates with business-to-consumer sales techniques, providing ICT skills through Microsoft’s Digital Literacy Curriculum and delivering short-term work-readiness training for students.
EFE-Maroc has partnered with 200 businesses, providing them with the skilled entry-level employees they need to grow their operations, and with 25 education institutions, enhancing the employability of their graduates. By the end of 2013, 6,600 young people, half of them women, had graduated from EFE-Maroc’s job placement schemes, nearly 5,000 students had been trained in job search skills, and over 860 young people had been placed in jobs.
Philippines:The Educational Service Contracting Scheme (ESC) was launched as a pilot in 1977 and rolled out nationwide in 1989 to counter the congestion and poor quality of education in public schools. It does so by subsidizing students to take advantage of the excess capacity and superior standard of education in private high schools.
It is one of the largest public-private education partnerships in the world. In the 2011-2012 school year, 634,000 ESC students were enrolled in 2,860 accredited participating schools. The cost was PHP 3.1 billion, but a study by the World Bank concluded that the programme was highly cost-effective. Taking into account the cost of new buildings and teachers, accommodating the excess students in private schools costs 58% less than sending them to public schools.
United States: The Automotive Manufacturing Technical Education Collaborative (AMTEC) is a joint programme by community colleges and major car manufacturers designed to respond to a severe shortage of skilled labour by equipping students with the high-end skills they need to work in the car industry.
With increasing enrolment rates, driven by early recruitment in secondary schools, AMTEC has grown from a single vocational programme pioneered in Kentucky by Toyota in the mid-2000s to encompass 30 colleges and 34 plants across a dozen states.
The fee-paying programme gives students two days a week in the classroom and three days of hands-on training, provided by Ford, General Motors, Toyota and BMW, who are also involved in the design of the curriculum.
Read the Global Competitiveness Report 2014-15.
What is government’s role in sparking innovation?
The conventional view in mainstream economics today is that governments have little capacity to spark innovation. The state should play as limited a role in the economy as possible, the thinking goes, intervening only in cases of “market failure.” This is far from the truth.
In fact, governments can and do play a critical role in spurring innovation – actively creating new markets, instead of just fixing them. To be sure, advocates of a limited economic role for government believe that market failure justifies some funding of infrastructure and basic science. But such limited intervention can hardly explain the billions of public-sector dollars that have flowed toward downstream applied research, even providing early-stage financing for companies. Indeed, in some of the world’s most famous innovation hubs, the state has played a key “entrepreneurial” role, envisioning and financing the creation of entire new fields, from information technology to biotech, nanotech, and green tech.
In Silicon Valley, for example, the government has acted as a strategic investor through a decentralized network of public institutions: The Defense Advanced Research Projects Agency, NASA, the Small Business Innovation Research program (SBIR), and the National Science Foundation.
The sums involved can be staggering, and not just in IT; large amounts of funding have also been channeled to energy and life sciences. In 2011, for instance, the US National Institutes of Health (NIH) invested $31 billion in biomedical research. Marcia Angell, a professor at Harvard Medical School, has shown that this financing played a crucial role in the development of some of the most revolutionary new drugs in recent decades. Similarly, for some of the most innovative American companies, financing from the SBIR has proved to be more important than private venture capital.
Examples outside the US include Israel, where the public venture-capital fund Yozma has provided early-stage funding to some of the country’s most dynamic companies, and Finland, where Sitra, the public innovation fund, supplied early financing for Nokia. In China, the state-owned development bank is offering billions of dollars in loans to some of the country’s most innovative companies, including Huawei and Yingli Solar.
These types of public investments are critical in creating and shaping new markets. Indeed, government investment played a central role in developing nearly all of the technologies that make the iPhone a smart phone: the Internet, GPS, touchscreens, and the advances in voice recognition underlying Siri. Similarly, in many countries, it is the public sector that is leading the way in making green technology possible.
Recognizing the importance of government investment in promoting innovation and growth implies the need to rethink the conventional wisdom about state intervention. Instead of focusing on picking individual technologies or firms, public organizations should act like investors, betting on a diversified “portfolio” of choices.
Like any other investor, the state will not always succeed. In fact, failure is more likely, because government agencies often invest in the areas of highest uncertainty, where private capital is reluctant to enter. This means that public organizations must be capable of taking chances and learning from trial and error.
If failure is an unavoidable part of the innovation game, and if government is crucial for innovation, society must be more tolerant of “government failure.” But the reality is that when government fails, there is public outcry – and silence when it succeeds.
For example, the bankruptcy of the US solar energy firm Solyndra, which received a $500 million government-guaranteed loan, triggered partisan protests. Yet few have paused to consider that the government provided nearly the same amount to Tesla to help it develop the Tesla S car, a product that is considered an archetype of Silicon Valley innovation.
What, then, might make the public more accepting of government failure?
Private venture capitalists cover their losses from failed investments with their profits from those that succeed; but government programs are rarely set up to generate significant returns. While some argue that the government’s return comes through taxes, the current tax system is not working, owing not only to loopholes, but also to rate reductions. When NASA was founded, the top marginal tax rate was over 90%. And capital gains tax has fallen by more than 50% since the 1980s.
In order to build support for public investment in higher-risk innovation, perhaps taxpayers should receive a more direct return, by channeling profits into a public innovation fund to finance the next wave of technologies. When investments are in upstream basic research, the spillover effect across industries and sectors is sometimes enough of a social reward. But other cases might require creating alternative incentives.
For example, some of the profits from the government’s investment in Tesla could have been recovered through shares (or royalties), and used to cover the losses from its investment in Solyndra. Repayment of public loans to business could be made contingent on income, as student loans often are. And the prices of drugs that are developed largely with NIH funding could be capped, so that the taxpayer does not pay twice.
One thing is clear: the current approach suffers from serious shortcomings, largely because it socializes the risks and privatizes the rewards. This is hurting not only future innovation opportunities, but also the government’s ability to communicate its role to the public. Acknowledging the role that the state has played – and should continue to play – in shaping innovation enables us to begin debating the most important question: What are the new visionary public investments needed to drive future economic growth?#
This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum.
Comments:
Ptolomaeus: “The conventional view in mainstream economics today is that governments have little capacity to spark innovation. The state should play as limited a role in the economy as possible, the thinking goes, intervening only in cases of “market failure.” This is far from the truth….One thing is clear: the current approach suffers from serious shortcomings, largely because it socializes the risks and privatizes the rewards. This is hurting not only future innovation opportunities, but also the government’s ability to communicate its role to the public.”
Says it all really, and convention is often behind the times because it is based on doing what is generally done or believed and consequently does not move forward in a rapidly expanding global economy. Governments have a ‘duty of care’ for various areas of national policy especially economic stability but also include primary areas of responsibility such as the safety, security and defence of its borders and peoples and that also means law and order and policing, the provision of essential public services to cover state education and training that encourage learning and innovation maybe even entrepreneurship and, the need to invest in the public infrastructure to enable companies and organizations to function more efficiently and effectively and be not only productive but also competitive.
Without investment in research and development, especially in the areas like the pharmaceuticals industry, countries and economies stagnate; and, without investment by companies for the longer-term in people, products and plant to encourage innovation they disappear or are taken over through mergers or acquisitions by more innovative companies. Companies that establish a system or framework for bringing through innovative ideas, including new products or services, are those most likely to sustain the rigours of the growing global economy; and, those that are content to rest on their laurels and sit back safe in the belief their product or service is the best available in the market place will, eventually, fail. As the US management consultant and lecturer Peter F Drucker suggested in ‘Innovation and Entrepreneurship’ in 1985, "Innovation
is the specific instrument of entrepreneurship...the act that endows resources
with a new capacity to create wealth."
is the specific instrument of entrepreneurship...the act that endows resources
with a new capacity to create wealth."
There are, apparently, many common sense reasons for making innovation an imperative for governments and for business, industry and commerce and particularly small and medium sized enterprises (SMEs) and include, among others, to:
- survive adverse changes in operating circumstances in a global economy;
- encourage customers to purchase goods to sustain investment;
- make life easier for customers by helping them improve their business;
- protect market share through product, price, promotion and place;
- raise margins and profitability through productivity and competitiveness;
- comply with legislation including meeting the demands for taxation;
- encourage those with ideas to approach the company, example, reputation;
- provide stability and advancement for the workforce through appropriate training programmes;
- stimulate employees through challenging work that also offers opportunity to advance."
- encourage customers to purchase goods to sustain investment;
- make life easier for customers by helping them improve their business;
- protect market share through product, price, promotion and place;
- raise margins and profitability through productivity and competitiveness;
- comply with legislation including meeting the demands for taxation;
- encourage those with ideas to approach the company, example, reputation;
- provide stability and advancement for the workforce through appropriate training programmes;
- stimulate employees through challenging work that also offers opportunity to advance."
Author: Paul Muggeridge is Head of Content at Formative Content.
Image: A labourer cleans solar cells placed on a window of a newly constructed solar housing complex in the eastern Indian city of Kolkata. REUTERS/Parth Sanyal
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