Higher Education Strategy Associates

New Thoughts on Innovation Policy

A new book on innovation policy came out this summer from a guy by the name of Mark Zachary Taylor, who teaches at Georgia State.  The book is called The Politics of Innovation: Why Some Countries are Better Than Others at Science and Technology and to my mind it should be required reading for anyone interested in following Canada’s innovation debate.

First, things first: how does Taylor measure how “good” a country is at Science & Technology?  After all, there are lots of ways of measuring inputs to tech, but not many on the outputs side.  The measure Taylor selects is patents.  And yes, this is highly imperfect (though it does correlate reasonably well with other possible measures like multi-factor productivity), but Taylor doesn’t over-egg the data.  For most of the book, his interest is less in scoring countries and then using various types of regression analyses to come up with explanations for the scores; rather, he tends to group countries into fairly wide buckets (“Most innovative”, “mid-level innovative“, and “rapid innovators” showing rapid progress like Korea and Taiwan).  Canada – probably to the surprise of anyone who follows innovation policy in our country – comes up as one of the “most innovative” along with Japan, Germany, Sweden and Switzerland. This may either be a sign of us being too tough on ourselves, or Taylor being out to lunch (I’m a bit unsure which, to be honest).

But put that aside: what’s important about this book is that it provides a good, critical tour d’horizon of the kinds of institutions that support innovation (research universities, patent protection, etc.) and explicitly rejects the idea that “good institutions” are enough to drive innovation forward.  This seems to me to be quite important.  Much of the innovation commentariat loves playing the game of “look-at-that-institution-in-a-country-I-think-does-better-than-us-we-should-really-have-one-of-those” (think Israel’s government-sponsored venture capital funds, for instance).  The riposte to this is usually “yeah, but that’s sui generis, the product of a very special set of political/institutional factors and would never work here”.  And that’s true as it goes, but Taylor goes a bit further than that.

First, he focuses on how open a country is to both inward and outward flows of knowledge and human capital.  Obviously, higher education plays some role here, but on an economy-wide basis, the real question is: are firms sufficiently well-networked that they can effectively hire abroad or learn about market opportunities in other countries?  Taiwan and Israel have worked this angle very effectively, cultivating ties with targeted groups in the United States and elsewhere (my impression is that Canada does not do this in anything near the same level – one wonders why not).

Second, Taylor doesn’t just stop at asking the question of how nations innovate (answer: they design domestic institutions and policies to lower transaction & information costs, distribute and reduce risk, and reduce market failures in innovation).  He also tries to get at the much more interesting question of why countries innovate.  Why do Finns innovate like mad and Norwegians not?  Why Taiwan not Philippines?  Or, for that matter, why the US and not us?  Institutions play some role here, but it’s not the whole story.  Culture matters.

Or, in Taylor’s telling: perceptions of internal and external threat matter.  His argument is that everywhere, the urge to innovate is countered by the wailings of bereavement from those who lose from technological innovation.  In many countries, the political power of losers is sufficient to create a drag on innovation.  Only in places where the country feels an existential threat (e.g. Israel, Taiwan) do political cultures feel they have the necessary social license to ignore the losers and give the innovators free rein.   Taylor calls this “creative insecurity”.

I have to say I don’t find this last bit entirely persuasive.  The bit about losers having too much power is warmed-over Mancur Olson with a tech-specific focus (Taylor goes to some length to say it’s not, but really it is). and while the second part is a plausible explanation for  some places -Singapore, say – his attempt at formalization requires some serious torquing of the data (Finland cannot credibly be described as being under external threat) and/or some very odd historical interpretations (Taylor’s view that Israel was under greater external threat after 1967 than before it would probably not be accepted by many mid-east specialists).

That said, it arguably does explain Canada.  Our resource base gives us an undeniable cushion that other advanced countries lack.  We lack external threats (and since the late-90s we lack internal ones too).  Frankly, we’re just not hungry enough to be top-of-the-pack.  Even in parts of the country that should be hungry – Nova Scotia, for example – there’s simply not that much appetite to sacrifice dollars spent on social policy to make investments in innovation. See, for instance, the carping over Dalhousie’s participation in the MIT’s Regional Entrepreneurship Acceleration Program.

Say it softly: as a country, we might not be cut out for this innovation stuff.  Sure, we like spending money on gee-whizzy tech things and pretending we’re at the cutting edge of this, that or the other, but it’s a long way from that to actually being innovative.  Innovation is tough.  Innovation causes pain and requires sacrifice.  But Canadians prefer comfort to sacrifice:  we can’t get rid of harmful dairy monopolies, our national dress is fleece, etc.

Anyways, read the book.  And have a great weekend.

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