Misleading nature of innovation indices

As innovation is the primary driver of economic growth, there have been several performance indices measuring the overall innovation capacity of a country. Among these indices, the Global Innovation Index prepared by World Intellectual Property Organization (WIPO) in partnership with INSEAD and Cornell University appears to be a notable one. This index measures the competence of 127 countries by taking into account 80 parameters under seven broad categories. Bloomberg is publishing the second important one based on reflection of capabilities in seven major groups. Innovation competence forms the 12th pillar in The Global Competitiveness report released by the World Economic Forum. Instead of focusing on the economic benefits obtained through innovation, the parameters used by these indices mostly concentrate on underlying capabilities. But often the same underlying capacity makes a varying contribution to economic growth in different countries. As a result, such indices often provide misleading barometer about the capability gap. Despite such discrepancies, decision-makers, particularly in developing countries, perceive these indices as leading references on innovation, and 'tools for action'. Moreover, international organizations like UNESCO have been measuring the progress of innovation competence in developing countries based on the indicators used in these indices, and are advising them accordingly.  

Among others, quality of scientific research institutions, publications, patents, R&D investments, industry-university collaborations, availability of science and technology graduates, and government procurement of advanced technology products are major areas of focus to assess the innovation ability in the Global Competitiveness report. These are supply-side components for driving innovation. But to drive economic growth, such supply-side inputs should be converted into new products and processes or used for improving existing ones. To do so, there should be demand in the local economy, and risks should be taken to nurture ideas around those inputs. In the absence of the ability to turn intellectual assets produced by the supply capacities to offer better products at lower cost, often investments made to strengthen those capacities lead to wastage of resources. Notably, in developing countries, the situation is quite unfavourable. To deal with the competitiveness of an economy, often governments prefer to provide incentives in the form of lowering taxes on imported technologies weakening the local innovation demand. Due to weak demand for local innovation, often S&T graduates find themselves unemployed or underemployed. As a result, a growing number of S&T graduates fail to contribute to economic growth through innovation.

Similarly, research outputs produced by following the mainstream research agenda pursued by American, European and Japanese universities and institutions often remain unused or underutilised by the local industry.  As a result, research and development (R&D) investment made to produce those outputs increases economic burden as opposed to stimulating growth. Often governments in developing countries prefer to buy proven technology solutions from advanced countries to ensure better value of public money. Such public procurement practice has a very low bearing on domestic economic growth through innovation. 

Parameters applied by Bloomberg also appear to be inappropriate in certain situations. In case of recently released index, Singapore has been ranked 3rd, far ahead of the USA and China. Due to suitable geographical location, many high-tech firms have established their representative offices as well as manufacturing facilities in Singapore. Generous funding provided by the government to universities and research institutions have enhanced the publications and patents portfolio of Singapore. But Singapore's capacity to translate those intellectual assets into economic output is questionable. For example, a recent study published by the National University of Singapore indicates that start-ups in Singapore are yet to produce major economic outputs from innovation. Despite having a high density of start-ups, as high as 5,111 high-tech start-ups in 2015, there have been no major innovation success stories. Moreover, there has been a perception that most of these very slow growth small start-ups, often termed as "Zombie", are barely surviving by relying on the government's generous subsidy. Due to significant capital-intensive manufacturing, particularly in semiconductor processing, Singapore is also highly rated in value added manufacturing. But such added value has made very little or no contribution to Singapore's innovation capacity. 

Very detailed indicators in seven major broad categories are being considered by the Global Innovation Index, prepared by WIPO. There is no denying that those indicators have a positive correlation with the ability to innovate, but country ratings based on those indicators are not free from disputes. Assessment of Singapore (7th place) as more innovative than South Korea (11th place) is quite difficult to comprehend. Ranking of Japan at 14th place behind Ireland, Iceland or Luxemburg is also quite difficult to accept. Although Japanese start-ups or existing firms are not at the forefront of innovation news, the successes of Japanese firms in incremental innovation are still quite remarkable. Firms like Toyota or Canon have been constantly improving their products by turning ideas into innovative features. Such innovation capability is at the core of most Japanese firms, who offer increasingly superior quality products at lower cost by increasing both consumer and producer surpluses---thereby creating new wealth. Such incremental innovation strategy of Japanese firms even led to scientific discovery resulting in winning Nobel Prize in Physics. Japan's success in the industrial economy is primarily rooted in its capacity of turning ideas into product and process features to offer better quality products at lower cost; this is a critical success factor for innovation leading to creation of new wealth for driving economic growth.

The fundamental purpose of innovation is to take ideas to market at a profit. Ideas could be to improve existing products and processes for producing them; or, ideas could be to bring entirely new products by taking advantage of emerging core technology, often disrupting existing products and associated industries. Often ideas around technology fusion or business process re-engineering may not be found to be worthy of publishing or patenting, but incorporating them in products and processes could be powerful enough to improve the quality and reduce the cost of production.

At the early stage of development of an industrial economy, developing countries should focus on capacities to apply those ideas for improving competitiveness, instead of joining a race with advanced countries to occupy a higher position in innovation ranking. For developing countries, such ranking-centric approach to increase innovation capacity runs the risk of weakening economic growth as opposed to strengthening it. Instead of participating in the race for higher positions in the global ranking often by making non-productive investments in order to push up popular indicators like publications, patents, and S&T graduates, developing countries should instead focus on developing own index. This should be applied for assessing prevailing as well as achievable innovation opportunities, and in taking measures to exploit them profitably.

M. Rokonuzzaman, PhD, is an Academic, Researcher and Activist: Technology, Innovation and Policy.

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