Countries making the most impact on tech innovation

Innovation, the propelling force of the technology sector, is often considered outside the realm of public policy. And when government officials do turn their attention to issues like STEM education and high-tech skills training, they typically focus on domestic concerns, envisioning pro-innovation policies as a vehicle for spurring a regional or national economy.

But a new report from a think tank that works on high-tech issues encourages leaders to think bigger, to consider innovation policies in a global context. To that end, the Information Technology and Innovation Foundation (ITIF) has produced a ranking of 56 nations comprising nearly 90 percent of worldwide economic activity based on the impact their economic and trade policies have on global innovation.

The ITIF authors define innovation as the development of new products, services and business models or the improvement of existing ones, calling it the “creation of new value for the world” that fuels long-term growth in a global economy and demands the attention of policymakers.

“We need a new framework, we need a new recognition, a new discussion that says that we’re all in this together, and that all of our policies in each of our countries need to be advancing global innovation and not detracting from it,” says ITIF President Robert Atkinson.

The authors of the report evaluated countries on 27 specific factors to arrive at an assessment of each nation’s net impact on global innovation, weighing policies that spur global innovation such as tax incentives for scientific research against those that “actively detract from the global innovation system,” like mandatory localization rules that disadvantage foreign cloud-computing against domestic competitors.

And the winner is …

Finland topped the list for contributing to global innovation, winning high praise from the authors of the report for a low corporate tax rate and a research focus that puts it near the top in government spending on research and development per capita, government funding of university research, and for its high number of researchers per capita. The authors also recognized the Scandinavian nation for low trade barriers, and lauded it and other top-ranked countries that “play by the rules of the international system … ensure strong protections for intellectual property, and do not overtly favor domestic enterprises at the expense of foreign competitors.”

First runner-up Sweden shares with its Scandinavian neighbor what the authors of the report have termed the “Helsinki Consensus,” that “governments have an active role to play in bolstering the innovation capabilities of their societies’ enterprises, industries and institutions,” a position that translates into national policy strategies to promote research and development and other ingredients of innovation such as a low effective corporate tax rate.

No. 3 on the list, the United Kingdom has acknowledged the value of innovation to its domestic economy, reporting that that factor was the spark for two-thirds of its private-sector growth from 2000 to 2007.

The authors of the report credit Britain’s current conservative government and the two preceding liberal regimes for taking a “pragmatic approach” to emerge as a “global innovation player” and advance an industrial strategy marked by stronger-than-average R&D tax incentives and high scores on criteria to cultivate “human capital” such as education funding and the number of graduates in scientific fields.

The United States, ranked No. 10 overall, scores highly in policies that contribute to global innovation in absolute terms, but when the authors consider the size of the economy the ranking drops well down the list. The report calls for the United States to slash its corporate tax rate, increase tax breaks and government funding for research and development spending, and boost the number of graduates in the STEM fields of science, technology, mathematics and engineering.

The report is especially critical of U.S. tax policies, ranking the nation 49th in that category and concluding that conditions such as the high corporate tax rate and the stingy R&D tax credit run counter to global innovation.

Ranked No. 44 overall, China was second to last in ITIF’s rankings of policies that detract from global innovation. The authors take aim at the world’s second-largest economy for localization requirements, currency manipulation and heavy industrial subsidies. In particular, they criticize China as the worst offender for policies requiring foreign companies looking to operate in the country to form joint ventures with domestic companies and transfer technology and intellectual property to the local firm as a condition of doing business.

India ranked third from the bottom of the innovation index. Like other nations low on the list, India was cited for making “the most extensive use of trade barriers and other distortions while providing weaker environments for intellectual property protection.”

India was included in the group of nations that the authors branded as “innovation mercantilists,” countries that pursue “policies such as localization barriers to trade, export subsidization or failing to adequately protect foreign intellectual property rights.” The authors of the report also dinged India for a high effective rate of corporate tax and a low number of researchers per capita.

Described as a “traditional mercantilist,” Indonesia ranked second to last in the ITIF report, scoring low marks both for policies that encourage global innovation and detract from it. The authors cite Indonesia’s high corporate tax rate (28.1 percent, four-tenths of a percent higher than the United States) and weak tax incentives for R&D. Indonesia also ranked poorly on efforts to field a highly skilled technical workforce, falling third to last in education spending on a per-student basis and at the very back of the pack in its proportion of science graduates and the number of quality universities.

At No. 56, Argentina ranks dead last in ITIF’s evaluation of non-tariff trade barriers, and the authors of the report also cite the country’s use of local content and local production requirements that create a hostile environment for foreign businesses. Additionally, Argentina was lumped in with the group of countries that “tend to under-invest in scientific research” and, predictably, produce low numbers of graduates in the STEM fields.