Gross Domestic Innovation
By Balkrishna Rao | January 19, 2007
Humankind has been plying its creative abilities since time immemorial. Thanks to human creativity, we have witnessed the industrial and information revolutions, resulting in a modern society with advanced amenities. The current dynamics of globalization make innovation all the more important for member countries of the Organization for Economic Cooperation and Development (OECD). This is in view of explosive growth rates experienced by several developing countries. Three factors account for these fantastic rates.
First, a group of countries comprising the East Asian tigers (i.e., Singapore, South Korea, Taiwan, and Hong Kong) is at the forefront of the technological race, possessing a knowledge-based workforce that performs high-technology tasks on a par with the developed world .
Second, a huge workforce has been unleashed in emerging economies, which has led to the outsourcing of many routine tasks from OECD countries. According to Harvard economist Richard Freeman, the global workforce doubled between 1985 and 2000 due to an influx of labor from China, India, the former Soviet Union, and other emerging economies .
China and India account for the bulk of this new workforce, and China has become the shop floor for the developed world by providing the infrastructure and cheap manufacturing labor. These new entrants to the global economy also possess a growing population of knowledge workers, which will play an important role when emerging markets start catering to domestic demand in addition to taking on larger proportions of knowledge-based tasks from OECD countries.
Third, advancements in information and communications technologies have made remote execution of numerous tasks possible. All in all, a new global economy has arrived with a village of workers fulfilling the service and technological needs of OECD countries. The corporate sector in OECD countries has benefited immensely from outsourcing, although globalization has had a negative influence, to some extent, on their domestic workforces.
In the near future, rich economies will have to innovate more in order to adapt to a new reality in which a growing number of emerging economies will also become technology savvy. Against this backdrop, a new economic measure is needed to track innovation for the OECD.
The new economic measure may be termed gross domestic innovation (GDI). It is defined as the total number of innovations generated by a country for a given period of time. The GDI for a rich economy will quantify innovations in all fields of human endeavor, scientific and non-scientific.
The GDI figure would be obtained from patents, publications, copyrights, and other areas, with each contributing to the aggregate GDI. Patents are the best means of documenting unique ideas and the most important source of data for GDI. They avoid redundancy associated with counting creative ideas and are earned even by non-scientific entrepreneurs through agencies such as the United States Patent and Trademark Office.
The figure would also include ideas that are documented but not patented. Publications in prestigious journals, which showcase pioneering research work from industry and academia in both scientific and non-scientific disciplines, are an important source of non-patented ideas. Copyrights registered for intellectual property should also be plumbed for data on non-patented creative products. Trade secrets could constitute a data source for GDI, but their inclusion should be handled delicately.
The collective GDI number should be resolvable so as to track the innovative progress in different elements of a vibrant economy—i.e., companies and other organizations, within each sector, and in academia.
The happiness and well-being of citizenry are central to the field of economics. A burgeoning economy characterized by increasing GDP is frequently correlated to the well-being of a republic. GDP should therefore be analyzed in relation to GDI to reveal important trends, assuming significant contributions to GDP come from a developed country’s innovative efforts.
An apt measure would be the GDP quotient to obtain the monetary value created in terms of products and services generated per unit innovation. Suitable values of this quotient can establish a positive correlation between innovation and total monetary value of goods and services produced in a developed economy. Similar quotients, or other measures of correlation, should be obtained for employment numbers and productivity.
A suitable trend and optimum values of these quotients will signify a proper mix of employment, productivity, and GDP due to large-scale innovations. Such measures will be critical to protectionist members of the European Union that look upon globalization as a quandary. Corrective action based on monitoring these quotients would put the broad workforce on an innovative track and allow outsourcing of run-of-the-mill work to emerging economies.
Inflation is influenced by a diverse range of factors such as wages, productivity, and commodity prices. Globalization has helped to reign in inflation in OECD countries. The entrance of low-cost products, manufactured in China and other emerging economies, into OECD markets has alleviated inflationary pressures because of the relatively lower wages prevailing in China for the productivity offered by its workforce. But inevitable wage hikes and an aging population in China are causes for concern.
The rapacious appetite of booming Chinese and Indian economies for energy and commodities will accelerate inflation in rich economies. Globalization is not a complete remedy for tackling inflation in the long term.
But large-scale innovations can aid in the effective use of new technologies, manpower, and natural and alternative energy resources to keep consumer prices under control over the long haul. This makes GDI an effective measure in the fight against inflation.
GDI could be used to identify sectors that invest a substantial portion of their earnings in research and development. Individual companies in poorly ranked sectors could be encouraged to prepare for risk. In contrast, many sectors in developed economies currently focus on short-term earnings and this has left them unprepared for the future.
A case in point is the U.S. energy sector. Major oil companies have not invested significantly in alternative fuel technologies and exploration. Yet, small business enterprises contribute significantly to GDP. These entities thrive through innovation, and GDI figures could be used to help them gain a firm footing in the economy.
Adopting GDI measurement will lend credence to innovation. Across the workforce this will create an impetus to gain special skills. Beyond an emphasis on aptitude, this could foster an environment for improved higher education. The economic recognition of innovation is an inevitable step, as innovation defines humankind.
1. "Emerging Economies Climbing Back," The Economist, January 19, 2006.
2. Freeman, R., "What Really Ails Europe (and America): The Doubling of the Global Workforce," The Globalist, June 3, 2005. blog comments powered by Disqus