Three Views (and Methodologies) on Global Innovation

Kevin Stahler (PIIE) and Jan Zilinsky (PIIE)
February 19, 2015 7:00 AM

According to the 2015 edition of Bloomberg’s “Global Innovation Index” released this month, South Korea took the title as most innovative country in the world out of over 200 nations evaluated (no indication whether the authors even tried to evaluate North Korea, but we doubt it!). This recognition is not new: South Korea has held the crown for two years running. It also ranked in the top echelons of many of the index’s six subcategories, including in research and development (1st), postsecondary education (also number one), patents (again, number one), and high tech companies (fourth place).

Most innovative countries 2015

There are many good reasons to treat rankings such as this skeptically (we promise not to rank the reasons). First, Bloomberg’s definition of “innovation” is “the creation of products and services that make life better”, which implies the authors have focused on tangible results rather than the environmental components that breed innovation. (To be fair, the report does acknowledge that it is missing metrics which capture, for example, government regulation like the World Bank’s Doing Business Index does.) Second, even if one can decide on the broad strokes that make up innovation, it is enormously difficult to find uncontroversial metrics which proxy for each component. According to 2015’s methodology (which differs from methods in both 2014 and 2013) “high-tech companies”, one of six equally weighted metrics, is simply the global share of public tech companies that are domiciled in that particular country. It does not capture each company’s relative size. The “patents” category poses similar issues. South Korea ranks first in the number of utility patents per capita, which is frequently used to measure innovation. But patenting systems vary across countries – the hurdle to getting a patent is lower in Japan than the United States, for example. It is hard not only to measure the relative value of designs, but even whether the patents will produce anything at all. Samsung’s IP war chest is frequently used for no other reason than ammunition in litigation battles with other tech giants.

Finally, even in education – an area where other sources tell us to view South Korea as a leader – the sub-category includes variables like “annual science and engineering graduates as a percentage of the labor force and as a percentage of total tertiary graduates”. Many designers would be surprised to learn that their training does not contribute to innovation, and degrees can not be tallied as commodities produced equally well in all countries and in all colleges. This is especially complex considering that millions of professionals and current students have foreign educations.

The 2014 Global Innovation Index released last year from researchers at Cornell, INSEAD, and the World Intellectual Property Organization (WIPO) provides a different take on what makes an innovative country. We have placed their results next to the 2015 and 2014 Bloomberg Indexes. Methodologically, the Cornell index is more comprehensive: it is divided into two broad categories (innovation inputs and outputs), seven components (institutions, human capital and research, infrastructure, market sophistication, business sophistication, knowledge and technology outputs, and creative outputs), each of which contains three sub-components. Switzerland and South Korea have now swapped 1st and 16th place, but the general makeup of the list is otherwise not radically different.

We appreciate that all of the authors compiling these lists are upfront about the inherent problems with measurement, and are actively seeking to improve their approach with each edition (though this makes it hard to compare over time!). However, rankings can create the illusion of precision that tempt users to draw ordinal inferences. Indeed, is it really accurate to read the Bloomberg results and conclude “Korea is slightly better than Japan” or to read the Cornell survey and say “Korea is a bit worse than Israel and a lot worse than Finland”?

Nevertheless, these three views on innovation appear useful to identify a rough grouping of the world’s “innovative” economies, in which South Korea certainly deserves a place. The real question is the relationship between innovation, productivity and growth, especially in the context of South Korea and President Park’s vision of a “creative economy.” One can conceptualize the process of productivity advancement as encouraging innovation in emerging sectors or activities, while at the same time terminating practices that discourage productivity increases in existing activities. Where South Korea falls badly behind is in the heavily regulated service sector, and it is here that the greatest opportunities for productivity increases lie. In short, Korea has all the components of an “innovative” economy, but to translate this into growth the country must allow the lagging sectors of the economy to shrink to free up resources for the innovative parts.

Comments

Liars N. Fools

Korea does have an innovative economy of global dimensions. What it also has are huge asymmetries in the structure of that economy. So, Samsung and LG do do wonderful and wonder-inspiring things, BUT product, process, and design only gets them so far. There is no iTunes business model disruption/innovation, and one is not likely. The internet search and business platforms (Daum or Naver and so forth) are quite nice, but the customer base is large but limited. They are not going to give Amazon or Alibaba a run at a global marketplace but can get into partnerships and tie-ups.The big potential area is high end services. The Park government policies can only addressing peripherally because bureaucrats cannot see very far or wide. Deregulation is a key factor, but it is hard for the Korean government to essentially creatively destroy itself.

Roland

Great phrase, LnF : "the Korean government...creatively destroys itself"
80 % of South Korean residents actually regarding its economy beeing in recession.
Deregulation not necessarily leads to growth - but almost to more inequality.
Time bomb.

William Westbrook

Meanwhile, North Korea has miraculously managed to create a society of extreme inequality despite a regulatory regime that might best be described as oppressive. Also feckless.

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