National Innovation Policies: What Countries Do Best and How They Can Improve
The Global Trade and Innovation Policy Alliance (GTIPA) is a global network of 34 independent, like-minded think tanks from 25 nations throughout the world that believe trade, globalization, and innovation—conducted on market-led, rules-based terms—maximize welfare for the world’s citizens. The Alliance exists to collectively amplify each member’s voice and enhance their impact on trade, globalization, and innovation policy issues while bringing new scholarship into the world on these subjects. This volume provides GTIPA members’ perspectives on what their nations are doing best when it comes to national innovation policy, and where there is the greatest opportunity for improvement. The goal of this report is to provide a profile of member countries’ national innovation policies, and a comparative analysis of where the greatest strengths and opportunities for improvement lie. It also provides examples of specific innovation policies that have proven successful and other nations may therefore wish to adopt.
The classic definition of innovation is the improvement of existing, or the creation of entirely new, products, processes, services, and business or organizational models. Put simply, innovation is about the creation of new value for the world. Or, as the innovation evangelist John Kao frames it more aspirationally, innovation refers to the transformation of existing conditions into preferred ones.
Innovation matters because it’s the foundational source of long-term global economic growth and improvements in quality of life and standards of living. For instance, the U.S. Department of Commerce reported in 2010 that technological innovation can be linked to three-quarters of the U.S. growth rate since the end of World War II. A different study attributes approximately 50 percent of U.S. annual gross domestic product (GDP) growth increases to innovation. Similarly, two-thirds of United Kingdom private-sector productivity growth between 2000 and 2007 resulted from innovation. And differing innovation rates explain differing levels of per-capita income across nations. When Klenow and Rodriguez-Clare decomposed the cross-country differences in income per worker into shares that could be attributed to physical capital, human capital, and total factor productivity, they found that more than 90 percent of the variation in the growth of income per worker depends on how effectively capital is used (that is, innovation), with differences in the actual amounts of human and financial capital accounting for just 9 percent. And while the private rates of return from innovation (technically, from research and development (R&D) investments) have been estimated at 25 to 30 percent, the social returns from innovation are typically two to three times larger than the private returns. In other words, the benefits from innovation spill over to society at large.