Wednesday, March 25, 2009

Invention, Innovation and Beyond

Invention is the creation of something new to the world. It's earmark is the novelty that is a basis for patent protection. Innovation is the introduction of something new, but not necessarily an invention. Thus a technology imported from abroad can be an innovation for a country that does not already use that technology. We talk about the diffusion of innovations, reflecting the fact that even though an innovation has reached a country, its adoption by new enterprises within the country can still be innovations within the adopting enterprises.

Economic progress is associated with increased productivity, especially the increase in labor productivity, which underlies improvements in per capita income. Labor productivity can be improved by capital accumulation, either in the form of physical capital or human capital. I have noticed however that increases in capital per worker are often associated with innovations.

Capital accumulation is limited, and it has long been observed that the rate of economic growth can be as much as doubled by high rates of innovation. It has seemed to me in fact that a high rate of productive innovation in an economy should lead to more rapid investment, since there are new things in which to invest offering future profits.

In the United States there has been a tendency to promote invention fueled innovation. Perhaps this is not surprising in a country that early in my career funded more than half of global research and development.

Certainly there are advantages in invention led innovation, especially under the monopoly rights granted by intellectual property rights protection. Not only does the inventor have control of the market for a significant period, but also enjoys an early innovator advantage.

With economic development, countries increase the portion of their domestic product devoted to research and development, and the economic growth of European and Asian nations has resulted in an increase in their R&D and a decrease in the relative importance of U.S. R&D. With five percent of the world's population it is more surprising that we still fund one-third of global R&D than that the percentage of R&D funded by the rest of the world is increasing.

I strongly suggest that as a result of this long term trend, the United States should increasingly emphasize the adoption of inventions from abroad within our domestic innovation strategy. We need to continuously scan the globe for inventions that we can impor and we need to provide an environment in which enterprises have the resources they need to adopt foreign innovations and profit from them. Indeed, we need to encourage government and civil society similarly to adopt appropriate foreign innovations as well as to invent new ones.

All this seems to be more or less commonly accepted. What seems not to be recognized it is not doing something new that is important, but doing it well. The innovations must lead to efficient efforts of high quality. If not, in an evolving global knowledge society, others in other nations will appropriate the advantages from the innovation -- they will eat our lunch.

Americans have historically worked long and hard, and have innovated not only in what they produced by in how it was produced, seeking to organize ever better and work ever smarter. The challenge is to continue to do so faced with the challenges of workers from other nations who are increasingly enabled by better systems to put energy to work in innovating well.

We have done well be expanding educational opportunities since the Great Depression, integrating women into the workforce, and reducing the barriers to productivity imposed by racism and prejudice. Still much more needs to be done. It seems especially that the geographic spread of innovation and excellence must increased.

Source: "Benchmarking Economic Transformation in USA," Panagiotis Tsarchopoulos
Five states—Massachusetts, Washington, Maryland, Delaware and New Jersey—are leading the United States’ transformation into a global, entrepreneurial and knowledge- and innovation-based New Economy, according to The 2008 State New Economy Index, released by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation (ITIF).

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