Management, Education and Competitiveness: Europe, Japan and the United States

The 11 best-educated countries in the world

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But unfortunately, like the United States, many large European nations have also languished in bolstering their innovation competitiveness over the past decade, with Germany and Sweden placing thirty-eighth and thirty-ninth respectively, and the EU countries scoring thirty-sixth. In contrast, Austria scores quite well, at fourteenth, in terms of improving its innovation capacity over the past decade.

However, the data show that Austria has made less progress than its peers in increasing its rates of venture capital which actually fell as a percentage of GDP over this period, as did its rates of new firm development and corporate investment in IT. On the change scores, the Baltic and Eastern European countries also score quite well, with seven of the 12 countries demonstrating the highest rates of improvement in innovation capacity coming from those two regions.

11. Iceland

While some might argue that these change scores largely reflect a catch-up process as countries that started from a lower base "catch up" on these measures, the reality is that several nations that had already scored quite high on these indicators in have continued to make strides in enhancing their innovation competitiveness over the past decade.

Notably, Korea had the second highest change score and Singapore the eighth highest. Considering that Singapore and Korea rank number one and number five, respectively, in current innovation capacity, the message is clear: These countries are fierce innovation competitors - and are getting stronger. In contrast, the findings for the developing nations included in this study are worrisome. It would be one thing if these countries were displaying above-average rates of improvement over the past decade, but by and large they are not.

How Companies Succeed in International Markets

South Africa ranks forty-second on change score, while Brazil, Argentina, and Mexico all score below average, placing twenty-fifth, twenty-sixth, and thirty-second, respectively. Russia lags as well, placing twenty-ninth overall and thirty-third on change score. On the bright side, India scores better, at thirteenth, on change score. Yet, again, the message is clear: Developing countries are not doing enough, not implementing enough good policies, to catch up to the world leaders in innovation. Latin America has also made much less progress than Southeast Asia.

Of the four South American countries studied, only Chile scores above average that is, better than twenty-second on its change score. This reflects the challenges faced by Latin American nations in general. Stuck between the rich and knowledge-intensive economies of Europe, Japan, and the United States and the rapidly modernizing Asian nations, including low-wage nations like China and India, most Latin American countries have not been able to develop and execute the policies that would enable them to get on the high-growth, innovation-based path.

So what lessons should policy makers draw from these findings? Three in particular stand out. The first is to recognize that countries that implement effective, well-constructed innovation strategies are successfully able to influence and to increase their innovation capacity and competitiveness. Second , because of this, policy makers must understand that the countries at the frontiers of innovation shift dynamically - and have, in fact, changed considerably over the past quarter century.

Certainly, two decades ago, no one would have expected countries such as Singapore or Finland to top such a list of the world's most innovative countries. Starting in , they classify countries as either " world-leading innovators " such as Germany, Japan, and the United States , " middle-tier innovators " like Austria , Britain, and France , "t hird-tier innovators " like Spain and Italy , or " emerging " innovators like Ireland and Taiwan , based on countries' patenting activity per capita a proxy for commercialized innovations.

Their analysis then correlates changes in countries' national innovation policies with their innovative productivity over the ensuing two-decade period. The authors found that, though a gap in innovative activity remains between the world's most innovative economies and other innovator countries, it has decreased substantially. Moreover, the set of countries that generate numerous new-to-the-world innovations has expanded significantly, as a number of formerly industrializing countries dramatically increased their levels of innovative productivity. A number of these " emerging innovators " - notably Denmark, Finland, Ireland, Korea, Singapore, and Taiwan - achieved remarkable increases in innovative output per capita, moving to the world's technological frontier and overtaking the innovative capacities of many mid- and third-tier countries - notably Britain, France, and Italy - whose economic conditions started off much more favorably in the early s.

These late-innovating countries accelerated their growth rates both by adopting technologies from leader countries and by leapfrogging them by developing institutions that dealt with emerging challenges more effectively than did the nations bogged down in an older economic order. Furman and Hayes conclude that innovation leadership among countries requires not only the development of innovation-enhancing policies and infrastructure including strong intellectual property protections, openness to trade, highly competitive markets, and strong industry clusters , but also a commitment to maintaining substantial financial and human capital investments in innovation.

They observe that these "once-follower" countries now lead the world in developing - and funding - integrated national innovation policies that seek to tip the global economic playing field in favor of their domestic industries and corporations. In other words, countries' innovation policies can and do have a significant impact on their standing in the race for global innovation advantage. But the third lesson for policy makers to recognize is that, despite their relatively high overall scores, their lagging change scores signal that both the United States and Europe continue to lose ground in the race for global innovation advantage.

Policy Implications If economic history teaches us anything, it's that regions and, indeed, entire nations can and do decline economically , at least relative to others. A century ago, one of the fastest-growing metropolitan areas in America was Buffalo , New York. Buffalo's growth had already been remarkable and its future seemed filled with promise. While the UK was losing its industrial advantage in the s and s, Italy was gaining, enjoying the Italian economic miracle - what many in Italy called "il boom.

Today, Buffalo is a shell of its former self. By the s, its population was half of what it was at mid-century; its once monumental steel mills are largely shuttered. Likewise, Italian economic vitality seems like a long-ago dream, so much so that "a fairly large amount of Italy's economic literature has recently focused on the country's stagnation. We have an enormous public debt with no room for maneuvering in the budget.

We have low productivity, and growth probably the lowest in Europe. And because of global competition, the system is only going to get worse.

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In contrast, other parts of America and Europe have been able to transform, restructure , and thrive. Take Boston, for example. Boston looked like it was on the same path to decline as Buffalo, but it subsequently reinvented its economy and today boasts a diverse innovation-based economy with thriving biotechnology , IT , and financial services sectors. As noted, if Massachusetts were a country, it would be the most innovative in the world. In Europe, Finland was likewise able to transform itself. When the Soviet Union broke up in , the collapse sent Finland, its largest trading partner, into an economic tailspin.

The History of Quality

GDP plummeted 9 percent, unemployment rocketed to 20 percent, and exports fell by 13 percent by comparison, in the most recent recession, the US GDP shrank by 2. In response, Finland made a massive bet on competitiveness , innovation , and productivity , while at the same time cutting spending that did not contribute to that goal. The Finnish government significantly expanded its support for technological innovation through direct funding and innovation-based tax incentives and slashed its corporate income tax rate from 33 percent to 19 percent.

Those bets paid off, and today Finland is an innovation leader.

These examples show that some places have been able to rebound from competitiveness challenges and transform themselves. But others have not.

The key question, therefore, is whether over the course of the next decade or two the United States and Europe will be like Buffalo and Italy, or like Boston and Finland, rising again through innovation and economic transformation. The answer is not preordained or dependent on serendipity.

Success will be the result of hard work and bold policy choices. And the work gets harder as global competition intensifies, for the struggle for innovation advantage is being fought with all the tools at nations' disposal. Nations around the world are establishing national innovation strategies, restructuring their tax and regulatory systems to become more competitive, expanding support for science and technology, improving their education systems, spurring investments in broadband and other IT areas, and taking a myriad of other pro-innovation steps.

And unlike the old competition between US states, where all states generally played by certain national rules, " cheating " is a core part of many nations' game plan in the new global competition.

So where does that leave the United States and Europe? Taking a page from the Boston and Finnish playbooks, the path forward is actually quite clear.

Becoming "Boston" or "Finland" means moving aggressively into next-generation industries , including advanced IT , robotics , nanotechnology , biotechnology , and high-level business services , while at the same time maintaining output in highly efficient and competitive traditional industries, and continually raising productivity in local non-traded sectors such as retail and health care, particularly through the widespread application of IT. Becoming Buffalo or Italy implies losing out in the competition for new, globally traded industries, continuing to lose output in existing manufacturing industries, and accepting slow productivity growth in non-traded sectors.

There are two key steps that Europe and the United States must take to increase the chances of a "Boston" or "Finland" outcome. First, they need to join together in a robust free trade alliance - in part to increase commercial linkages, but also to put real pressure on innovation mercantilists, particularly in Asia. Mercantilism refers to a systematic approach on the part of certain nations to manipulate globalization and trade to their unilateral advantage, often by using practices such as currency and standards manipulation, intellectual property theft, extensive erection of NTBs, abuse of antitrust, regulatory, and competition policies, or many others that violate the letter or the spirit of the World Trade Organization WTO , in an effort to unfairly grow high-wage, innovation-based jobs and industries.

Unless the practice of innovation mercantilism is significantly constrained, the result will be continued loss of US and European competitiveness. Moreover, too many policy makers and pundits in Europe largely turn a blind eye to innovation mercantilism, particularly from China, in part because they mistakenly believe that the United States, and not Europe, will suffer most from it.

Once the US loses its innovation leadership, this line of thinking goes, Europe gets to be the " top innovation dog. Thus, the United States and Europe must engage in a strategic partnership to push back against innovation mercantilism.

Demographic Lessons from Japan for Europe

While Europe and the United States certainly engage in occasional disputes over trade, by and large they both respect intellectual property rights, the rule of law, the primacy of markets in setting currency prices, the primacy of private investors in determining the location and nature of their investments, and other free trade practices.

Over 60 years ago when the first General Agreement on Tariffs and Trade GATT was signed, most of the 23 original signatories were either European or Commonwealth nations that more or less played by these kinds of rules. But as the GATT expanded and evolved into the WTO, it encompassed a wider range of nations, including many who design their trade policies not to maximize allocative efficiency from trade e. As a result, the United States and Europe need once again to take the lead in designing a new gold-standard trade agreement , but this time for the Ricardians , not for the mercantilists.

While pushing back against innovation mercantilism will be an important step, it will not be enough.

European industry is being tested by increased global competition, weaknesses in industrial structures and problems accessing raw materials. Threats also arise from changing consumer demand, an ageing population, climate change, and on a short-term tension in the world trade system. Europe seems desperate to create European Silicon Valleys with the potential to build European champions as powerful as Google or Apple.

Rather than following US examples, or living in fear of Asian competition, European industrial policy should find its own way, based on European values, and write its own destiny. In this new edition of the technopolitan, our Technopolis experts call for bold policy actions to tackle some of the biggest European industry competitiveness challenges.

Fixing the European companies digital mentality gap; investing harder in new technology drivers and their up-take such as automation, AI, connectivity, blockchain, cloud computing and big data, advanced technologies that reshape the economy and the industry business models; developing digital and human skills to ease the access to an appropriately skilled workforce; gaining more independence from foreign suppliers by deploying at a larger scale a truly circular economy; strengthening the single market for digital and service companies.

I do really hope you will enjoy your reading of this edition that gives a flavour of the work we have done on this topic in the past year and reflects our personal views. Technopolis Group Baltics recently completed evaluation of three Business Finland programmes Witty city, Smart procurement, Built environment focusing on co-creation and innovative procurement. Evaluation provided information on what results each of the programmes have created, how well have the objectives set for the programmes been achieved, what impacts they have had, and how relevant, efficient….

This week the Dutch Secretary of State for economic affairs and climate has sent our report on public investments in key enabling technologies KETs to Parliament. The report was requested for the development of a renewed mission-oriented innovation policy in the Netherlands that will put more emphasis on KETs.

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