Governments are generally the largest purchaser within a country, often spending tens of billions of dollars. Not all this spending is paper clips and copy paper. In fact, it represents a great opportunity to stoke innovation. In this analysis, ITIF argues that government policymakers should think strategically about procurement, taking innovation into account when buying goods and services. Innovation policy is often articulated from a supply-side perspective (R&D and corporate tax credits, worker training programs, public-private partnership grants, etc.), but public procurement contracts are a key mechanism for boosting domestic demand for innovation.
The Good, the Bad, and the Ugly of Innovation Policy
Innovation has become the central driver of economic growth and thus a key focal point of countries’ economic development strategies as they seek to gain competitive advantage. Accordingly, countries are increasingly designing national innovation strategies that seek to coordinate their policies toward skills, scientific research, information and communications technologies (ICTs), tax, trade, intellectual property, government procurement, standards, and regulations in an integrated approach designed to drive economic growth through innovation. While a focus on innovation is positive, countries can implement policies that are either,
- “Good,” benefiting the country and the world simultaneously;
- “Ugly,” benefiting the country at the expense of other nations;
- “Bad” failing to benefit either the country or the world; or
- “Self-destructive,” actually hurting the country while benefiting others.
Notwithstanding the fact that countries can readily implement a range of “Good” innovation policies, there remain far too “Ugly” and “Bad” (and occasionally “Self-destructive”) mercantilist strategies that are neither sustainable nor productive. Moreover, these Ugly, Bad, and Self-destructive mercantilist strategies suffer from three other failures. They: 1) undermine confidence in the international trading system, while reducing global GDP growth; 2) fail to recognize that neither the United States nor Europe—nor even both combined—can indefinitely absorb imports if Brazil, China, India, Japan, Russia, and others continue to promote exports while limiting imports as their primary path to prosperity; and 3) ignore that raising the productivity across-the-board of all sectors, traded and non-traded, is the surer path to lasting economic growth.
The world must move beyond perceiving the pursuit of economic growth through innovation among nations as a zero-sum game to embracing a perspective that views mutual global prosperity as the goal. The report also provides policymakers a concrete guide to promoting constructive innovation policies while avoiding the ruinous ones. Among those steps are the following:
- Urging institutions such as the World Bank, the IMF, U.S. AID and others to steer nations away from export-led growth strategies and other mercantilist policies.
- National leaders should promote win-win innovation policies and avoid zero-sum strategies.
- The World Trade Organization should publish annually all new trade barriers (including non-tariff barriers), whether they are allowed by the rules or not.
- Establish trade zones of nations that exclude nations that persist in pursuing mercantilist policies that violate the principle of free and fair trade.
- Educate policy makers that export-led growth, often abetted by mercantilist practices, is unnecessary, counterproductive, and unsustainable. It misses the far greater opportunity to achieve economic growth through raising domestic productivity levels.
Innovation Policy on a Budget: Driving Innovation in a Time of Fiscal Constraint
After record-setting spending to keep the economy from the brink of collapse, the public has grown wary, even hostile, to the idea of more government pump priming. Even those who advocate additional public investment face daunting budget constraints. Does this mean that government is hamstrung when it comes to spurring innovation? Not at all. In this report, ITIF lays out a nine key ways to keep innovation going even if funds are limited. They include regulations to encourage rather than inhibit innovation, smarter tax policies, procurement reform, better use of technology to drive innovation and more.
Is America Really #1 in Innovation?
According to the World Economic Forum 2010-2011 Global Competitiveness Report released last month, the U.S. is still regarded as highly competitive by global business elites. But is our sterling reputation deserved? Among the 131 countries analyzed, the United States ranks fourth overall for global competitiveness (down from ranking second in 2009 and first in 2008) but ranks number one for innovation. However, in a new blogpost ITIF points out that the rankings are based too much on anecdotal impressions and not enough on hard data. According to ITIF’s own analysis of global competitiveness and innovation, the United States is actually lagging in many key criteria.