Innovation still a unique mark of US economy

The United States once again boasts the world’s most competitive economy, thanks to its vibrant entrepreneurial culture and capacity to innovate in ways that spur growth and opportunities. That’s the judgment of the World Economic Forum, a Swiss nonprofit organisation that has been ranking economies’ competitiveness for 40 years. The United States moved ahead of last year’s Number 1, Switzerland, and into first place for the first time since 2008. The Swiss dipped to fourth on the competitiveness index, behind Singapore and Germany and ahead of Japan.

The forum, which convenes a gathering of world business and political leaders in Davos, Switzerland, each winter, rated 140 economies on 12 factors, among them institutions, market size, health, workers’ skills, infrastructure, business dynamism and innovation capability. “Innovation has become an imperative for all advanced economies and a priority for a growing number of emerging countries,” the report says. The vast majority “are struggling to make innovation a meaningful engine of growth,” according to the report.

There “are only a few innovation powerhouses in the world, including Germany, the United States and Switzerland,” the report adds. The forum altered the formula to place more emphasis this year on innovation, which it calls a critical driver of productivity and growth. “Governments are struggling to understand what makes a country innovative,” the report says. Scores on the 0-to-100 competitiveness scale ranged from Chad’s 35.5 to the United States’ 85.6. The United States and Europe are home to seven of the 10 most competitive economies; the three others are in Asia. Seventeen of the 20 countries at the bottom are in sub-Saharan Africa. That region’s best performer was 49th-ranked Mauritius.

High-income countries dominated the rankings. The only non-high-income economies in the Top 40 were those of Malaysia (25th), China (28th) and Thailand (38th). Some countries with similar income levels were nonetheless far apart on the competitiveness of their economies. Chile ranked 33rd, while oil-rich Venezuela was 127th. The innovation in the US history began with the golden age, which is associated with some of America’s leading technology pioneers, such as Thomas Edison and Nikola Tesla in electrical illumination and Alexander Graham Bell and Elisha Gray in telephony.

The context for technological development was very different a century ago. For instance, in 1880 most inventive activity was the result of inventors operating outside the boundaries of firms. Research laboratories, such as the famous one opened, in 1876, by Thomas Edison in Menlo Park, New Jersey, were rare. From the middle of the 20th century, however, the modern corporation started to dominate patenting. By 2000 almost 80 per cent of patents were assigned to inventors associated with firms. Nevertheless, the impact of innovation on economic growth was typically large. The chart below illustrates a strong relationship between patenting activity and GDP per capita at the state level.

It predicts that an innovative state like Massachusetts, which from 1900 to 2000 had four times as many patents as a less innovative state, like Wyoming, would become 30pc richer in terms of GDP per capita by 2000. Inventors in the golden age were overwhelmingly white and male. They were less likely to marry and they had fewer children, perhaps because of the time commitments associated with making technological discoveries. Inventors in US history have tended to be highly educated, in contrast to the common portrait of the uneducated amateur.

They typically invented in pursuit of profit, and the financial returns to innovation were large. The innovation sector was highly competitive. The best inventors survived. The worst exited quickly. The family backgrounds of inventors were distinctive. Having a father who was an inventor increased the likelihood of becoming one, perhaps because fathers passed along their aspirations, or perhaps because it facilitated access to the right types of social networks.

Fathers’ incomes were positively correlated with the probability of becoming an inventor. This means that talented individuals from low-income families were more likely to be excluded. Much of the link between family income and invention appears to have been due to education. High-income families invested in the education of their children, and, in turn, educated inventors were more productive. Studies and analysis say that US and the Western countries will lead innovation while it will take some time for Asian and African countries to catch up.