CREATING AND fostering an environment conducive to innovation can seem like alchemy – with just the right mix of tax incentives and business-friendly policies and access to seed capital you might, just might, create an innovation economy. But even when it has been created, it needs constant nurturing, as the US is discovering.
Considerable effort has been put in to diagnosing the problems and offering prescriptions, but a recent ebook by the prominent Canadian-American economist Alex Tabarrok does both. Launching the Innovation Renaissance: A New Path to Bring Smart Ideas to Market Fast is a compelling attempt to codify the areas to focus on in order to encourage greater innovation. As a template, Tabarrok refers to Renaissance Florence, a cauldron of innovation, in which “we see five factors propelling that city’s innovation: patents, prizes, education, global markets, and cosmopolitanism, an openness to ideas from around the world”. The question Launching the Innovation Renaissance seeks to answer is whether these principles are applicable today.
“A lot of what we think of as innovation is due to culture, is due to what’s in the air and is a collaborative effort of building on past ideas,” says Tabarrok. “I think it’s not just giving room for creativity and the individual genius. That’s important, but also you want to make sure that there’s a skilled enough workforce for the genius to take advantage of that, or vice versa – workers taking advantage of the genius.”
Tabarrok is a prominent blogger at the libertarian-leaning economics blog marginalrevolution.com, where he writes alongside colleague Tyler Cowen, and Launching the Innovation Renaissance builds on many of the issues they write about there. He points out that the reasons for the decline of US innovation – seventh in the latest Insead Global Index of Innovation, down from first a few year ago – can be attributed to a number of factors, including an unwieldy, counterproductive patent system, a steadily declining education system, not enough high-skill immigration and poorly targeted regulations.
How applicable are these factors to the global situation? “More than ever before,” he says. “Let’s discuss IP law first. As late as 1990, just seven nations accounted for 92 per cent of world research and development, with the US being in the forefront of that group. The US, however, is no longer the only game in town as far as innovation is concerned. The EU and Japan remain important, of course, but today so is China, and in the future India will be a big player. One worry I have is that, through agreements like Trips, the US approach of stronger, broader rights is being foisted on the world. As I argue in Launching, however, that approach is good for neither consumers nor innovators. I want to encourage more experimentation with IP law.
“Second, education is important everywhere. Consider that most workers will go through a country’s educational system, so no other policy has as much potential as education to influence workers, not just today but over 30-40 years of working life. The new findings on teacher quality from the US have important lessons for how to recruit and reward teachers everywhere.”
Launching is particularly convincing on the need for urgent education reform in the US – about a quarter of men do not graduate from high school in the US.
Tabarrok is blunt about how the second- level situation can be improved: tackle the powerful US teacher unions. “So many people are dissatisfied with the current system that the unions, I think, recognise that they need to make some changes themselves before change is thrust upon them. I think the unions are becoming less intransigent, and I think there is some possibility of a grand bargain.
“One thing I mention in the book is that in the 1970s a beginning teacher and a beginning lawyer had about the same salary – today the lawyer begins at three times the rate and continues to grow from there. We give lip service and say teaching the next generation is the most important, and yet the teachers come from the lower third of college students, they’re not paid that well, so I think there’s room for a bargain, where we say there’s going to be more independence, we’re going to have higher salaries, but that goes with greater accountability.”
At third level, the US college dropout rate is even more alarming – about 40 per cent – the highest in the industrialised world, leading Tabarrok to suggest that the benefits of college are oversold. “I worry that we in the US have paved just one road to knowledge and success: the road through college. Yet the large number of high-school and then college dropouts indicates that this is not working. Many European countries, including Germany, Finland, Denmark, Switzerland and others, have far fewer young people in college and far more in high-skill apprenticeships.”
Not enough people are enrolling in science and engineering courses, he says, with the numbers of people graduating in psychology, journalism or communications courses doubling in 25 years – these are areas with low innovation benefits. Of course, the popularity of certain courses is partially a corollary of the pressure on colleges and universities to adopt a market-oriented approach, leading them to facilitate and market popular courses over more useful ones – many more 18-year-olds want to be in the media than in laboratories.
Tabarrok feels globalisation will provide the incentive required to overhaul those systems that aren’t optimally effective and provide the next great spur to global innovation. “There’s no question that the new normal is the old normal,” he says, explaining his optimism. “What I mean by the old normal is that you go back hundreds of years, and you look around the world and you see the Taj Mahal and the Great Wall of China – the East, that’s where civilisation is; these are the huge powerhouse economies and cultures.
“The new normal is that we’re going to go back to where China and India are going to be playing huge roles. That definitely means that our relative status is going to fall. We’re not going to be, either the US or Europe, the powerhouse we once were. We’re not going to be the giant in the land of the Lilliputians. But, in an absolute sense, we can continue to do well and even better than before. I like to say that if you invent a cure for cancer, that’s great, that’s fantastic. If your neighbour invents a cure for cancer, that’s almost as great.
“I think there’s going to be competition in the sense of looking around the world. We can see how other countries are doing things, and we can see when other countries are rising, and we have a lot to learn, and also a lot that can kick us in the butt to see what we need to do to reform our institutions.”
* Launching the Innovation Renaissance, published by Ted, is available as an ebook from Amazon.com, $3.41