"Innovation and the economy: The good, the bad and the ugly" (How Britain rates as a knowledge-based powerhouse), The Economist, August 2nd 2007.
Excerpt:Since June innovation has been enshrined, along with universities and skills, in the formal title of a ministerial department. In 2000 Europe's leaders committed the region to becoming “the most competitive and dynamic knowledge-based economy in the world” by 2010.Comment: This last paragraph shows a misunderstanding of the terms "innovation" and "invention" as I believe they are usually used. When a developing nation invests in a new plant and equipment, it is often importing technology that it did not have before. That is innovation in the context of the developing nation. Developing nations often innovate in this way, combining low cost labor and other locally available factors with imported technology (and often imported capital) to create a comparative advantage in a new product.
Governments have good reason to foster innovation, for it is the mainspring of economic growth. Developing countries can grow quickly by investing heavily in new plant and equipment. But rich nations have already built up big capital stocks. If they are to sustain growth in the years ahead, they must be economic pioneers, pushing out the technological frontier through advances in knowledge.
If you think about it, almost all technology for almost all nations is invented in other nations. The United States was the exception for a few decades after World War II because the R&D systems of more war torn nations were unable to function well. It makes sense, however, that with a couple of hundred countries, each must find most new knowledge discovered outside its own borders, and this is true for technological knowledge as well as scientific knowledge.
There is an advantage in inventing new products and processes within a nation's own borders, but there is probably even a greater advantage in being able first to commercialize such inventions wherever they come from. Market size helps, but so do institutions that foster innovation.
There is also the issue of "technological deepening". I tend to agree with others who have suggested that a great deal of economic benefit comes not from innovation in the sense of "adopting a technology that one has not used before", but from learning how better to utilize and how to improve a technology that one has been using. JAD
Excerpt:
Britain, which has dismantled its old manufacturing industries faster and further than most, has made an especially big bet on its ability to thrive as a knowledge-based economy. So how innovative is it?"GDP redefined: Intangible measures" (Counting investments in knowledge reveals a new picture) The Economist, August 2, 2007.
There is no black and white answer, because performance varies according to the gauge that is used. There is a host of plausible measures, ranging from basic scientific work to patents and business research and development, from use of computer software to spending on broader types of knowledge-based activities such as instilling best managerial practice.
Excerpt:
ONE of the main snags in assessing innovation's impact on the economy is that official statistics trail behind the pioneers. The national accounts are good at measuring capital spending on things such as plant and equipment that matter in an industrial economy. They are not up to speed in incorporating investment in intangible activities such as R&D. How far would the existing view of the British economy alter if these were fully included?
“Fairly drastically”, says Jonathan Haskel, an economist at Queen Mary, University of London. A recent paper that he wrote with Mauro Giorgio Marrano and Gavin Wallis estimates the value of three broad categories of intangible investment in the business sector of the economy.*
With some minor exceptions, only the first, computer software, is already counted as investment in the national accounts. The second includes both scientific R&D—the traditional kind—and non-scientific research developing, for instance, new designs and financial products. The third is a broader category intended to capture the investments firms make to support their brands and organisational skills. The researchers count some of the money spent on advertising and market research, as well as the budget to train staff and expenditure designed to improve managerial expertise.
Comment: Lets think a bit about what kinds of investments are likely to result in economic benefits to a country. Research and development as a category is I think deceptive. It combines scientific activities which primarily add to the world's stock of knowledge (giving relatively little boost to the economy of the nation where those activities take place) and technological activities which lead to new or improved products and processes which may indeed by of commercial value. What, however, do we make of applied research and development that is done in a developing nation, such as that on contract from a multinational firm, which is specifically intended to be and will be commercialized in another (rich) country?
This blog has pointed out many times that knowledge is institutionalized in organizational structures and processes, and in other institutions such as markets for intermediate goods. We know that investments have been made in reengineeering organizations and restructuring productive sectors in response to opportunities to achieve economic gains made possible by new technologies, such as the technologies of the Information Revolution. (It is probably also the case that such investments are needed to take advantage of new opportunities created by improved human capital, or by discovery and exploitation of new natural resources.)
It may be useful to distinguish between the "invention" of new structures and processes and "innovation" that is through the adoption of models used elsewhere. It may also be the case, as with "deepening of technology", that there is a process of deepening of organizational engineering or deepening of industrial structure, achieved by perfecting reforms that have been made in the past rather than in innovating in structure or process.
I think that reengineering and restructuring are both typical of investments made in intangibles, as the article in The Economist would suggest. On the other hand, I think that there are aspects of the processes of improving social capital that are analogous to research and development, but are not included in the normal R&D accounting. The guys who figured out franchising fast food outlets could be said to have invented a new institution that had huge economic benefits. So too, the guys who restructured markets by creating e-commerce in the forms of Amazon.com and e.Bay.com made inventions that dramatically changed institutions and commercial efficiency. Their key inventions, however, were not the result of what we would count as R&D.
I suspect that comparable advances are available in social services -- education, health, police -- that would be greatly beneficial to the development of the "knowledge economy" but that would not be seen as either investment in intangibles (in the for profit sectors) nor as research and development. Indeed, I suspect that there will be a shift as countries embrace the knowledge economy to lifelong learning, with people teaching themselves by reading and using the media, away from schooling; learning outside of schools doesn't tend to appear on national accounts. Similarly, it would be great if major efforts were made to encourage people to live healthier lives -- eating better, exercising, and avoiding unhealthy food and drink for example; the improvements would not appear in national accounts, except perhaps as reductions in the GDP for health services. Inventions that would encourage such changes in behavior would seldom come from the activities contributing to R&D accounts, and indeed might not be seen is investments in intangibles.
How about creative activities -- writing books, making movies, making television programs, making musical recordings? In the knowledge society, I would expect more time to be spent on such inputs. Is the invention of new narratives or of new products such as books or recordings not comparable to the invention of new products? Should these not be seen as investments leading to increased commercial activity? J.K. Rowling, inventing the Harry Potter franchise, surely created an economic engine which has produced billions of dollars of revenues. Of course, the pay she forewent as she created the first of those novels was essentially negligible, and had little relation to the commercial value that would come from the fruits of her labor. JAD
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