The bean counting approach to measuring a nation's innovation performance - just adding up the amount said to be spent on R&D - has its problems. "Investment in innovation may in fact include activities that are not necessarily recorded as formal R&D spending, such as acquisition of high-tech equipment, training and product testing."
That's the line in the latest edition of "Economic Policy Reforms: Going for Growth 2006" from the OECD. The relevant chapter goes on to say: "According to some estimates the share of such activities in overall innovation effort is more than half in the case of services, where changes in process, organisation and marketing account for a larger proportion of innovation." The bottom line is that "looking at the amount of resources devoted to R&D is not sufficient to assess a country’s innovation outcome".
Patents are another yardstick used to judge innovativeness. Hold on. There are difficulties here too. Many languish once granted, and a lot are there simply for litigation purposes, some inventions don't even get patented. (Backed up your BlackBerry lately?) So to sort out some of the confounding factors the OECD has looked at "triadic patents" which are "those that have been applied for at the European Patent Office and the Japan Patent Office, and granted by the United States Patent and Trademark Office to protect the same invention".
"Not surprisingly," the report says, "the countries that invest the most in R&D are generally the ones generating the largest number of triadic patents relative to the size of the working-age population, i.e. Switzerland, Sweden and Japan".
Another measure of innovation is the state of education in a country. You can't do R&D if there isn't a skilled workforce to do it. "Despite generally rising trends in the share of such workers in the overall workforce, concerns about the availability of suitably trained engineers and researchers have been expressed, in particular in countries with low or declining enrolments in scientific and engineering fields or whose youth rank low in international mathematics and science tests."
The report points to a growing internationalisation of R&D. The statistics "indicate that the share of R&D performed in foreign affiliates increased in many OECD countries between 1995 and 2001, but that considerable variation remains, even after controlling for the overall degree of openness of the economy to inward foreign investment".
There is also evidence that "that foreign-performed R&D has a significant effect on domestic multifactor productivity growth". This means that a country's restrictions on the foreign ownership of businesses will influence the influx of R&D knowledge.
Employment policies also influence innovation. "Stringent job protection raises the cost of such changes, reducing the profitability of new innovations." Bringing the message closer to home, the report says that "All in all, the particularly stringent stance of employment protection legislation
observed in several continental European countries could weaken the incentives to innovate in these countries."
observed in several continental European countries could weaken the incentives to innovate in these countries."
There are other effects of strict of employment protection. While it has "no significant impact on R&D spending," it is "associated with lower patenting for a given level of R&D".
Other gems:
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"The effectiveness of public R&D in fostering private R&D and overall innovation performance depends on a number of factors including the strength of industryscience linkages and the governance of public research organisations."
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"Improving the governance of science systems is critical to strengthening industry-science linkages and to improving the economic and social returns from investments in public research."
If you are looking for an international league table of R&D, you'll have to do with a few generalisations:
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Leading countries include the Nordic countries, the United States, Japan, Korea and Switzerland.
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At the other end, countries with weak innovation outcomes are mostly found in southern and eastern Europe (Mexico being the exception).
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The innovation outcome of English-speaking countries other than the United States lies near or below OECD average.
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The remaining countries (Austria, Belgium, France, Germany and the Netherlands) are generally above OECD average in terms of R&D or patent intensities.
What to do about it? The OECD has suggestions. For example, the "remaining countries" need to strengthen tertiary education and contribution of universities to research, says the press notes they put out with the report. Most of these countries, can also improve cost-effectiveness of financial measures supporting private sector R&D.
The Non-US English-speaking countries - the UK, Australia, Ireland and so on - need to strengthen links between public research and industry. Australia and UK should also reduce the high rate of early school leavers.
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