Measuring Success: In Crafting Innovation Policies We Should Be Aiming Not Merely to Increase Gross Domestic Product but Also to Enhance the Overall Quality of Life in Measurable Ways

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In his keynote speech to the National Academy of Sciences on April 28, 2009, President Obama said that "science is more essential to our prosperity, our security, our health, our environment and our quality of life than it has ever been before." He went on to announce massive increases in public support for a range of agencies and activities and to commit the United States to an annual investment in R&D of more than 3% of gross domestic product (GDP). His initiative has its parallels around the world. For the European Union, the 3% goal was set in the Lisbon agenda of 2000. Finland, Israel, Korea, Japan, and Sweden have already surpassed this target, and for the 30 countries of the Organization for Economic Cooperation and Development (OECD), this indicator has risen from 2.06 to 2.29% of GDP during the past decade. The commitment to science as a driver of economic growth and competitiveness has now become commonplace.

Things were not always so. Throughout human history, wealth was first achieved by the exploitation of natural resources, then by the husbanding and better management of natural resources, followed by conquest and the acquisition of the wealth and natural resources of others, and finally by the application of knowledge to the creation of wealth by increasing what the French call the technicite of society.

Adam Smith's partitioning of wealth in society into land, labor, and capital was appropriate to its time and place. Two centuries of innovation have shown that knowledge is now the principal source and component of wealth. Unlike other resources, it has the advantage that it is inexhaustible, constantly expanding, and for the most part free.

This new partitioning of wealth began in the 1990s as an attempt to account for the value of a company's intangible assets. It has since been applied at the level of national economies. The essential novelty of this approach is to distinguish among natural capital (such as oil in the ground), produced capital (such as buildings and railways), and intellectual capital (all the rest). Intellectual capital includes the knowledge and skills of individuals as well as the collective knowledge, competence, experience, and memory contained in our institutions.

A World Bank team calculated these three components of wealth for all the countries of the world. It estimated that high-income OECD countries have per capita wealth of $439,000, whereas the poorest countries have a per capital wealth of $7,216. The first notable feature of the analysis is the scale of the disparity between the rich and poor. The top 10 countries (Japan, the United States, and eight European countries), with a population of 959 million, had an average per capita wealth of $502,000. The 10 poorest countries (nine African countries plus Nepal), with 278 million people, had an average per capita wealth of $3,000.

The second notable feature is the sources of wealth in each case. Among high-income OECD countries, 2% of wealth is natural wealth, 17% is created wealth, and 80% is intellectual capital. Among low-income countries, the natural and created wealth are respectively 29% and 16% of the total, leaving the intellectual capital at 55%. Thus, whereas the wealth ratio of rich to poor in overall wealth is 62:1, for natural capital it is 5:1 and for intellectual capital 89:1. This comparison of the extremes is reflected also in comparisons among developed nations; the wealthier countries have a higher proportion of their total value in their intangible or intellectual capital.

It is clear that increases in wealth, and therefore in social progress and prosperity, now flow mainly from the creation and use of new knowledge. Should wealth creation therefore be the main objective of investment in knowledge creation? By what metrics should the investment and the returns be measured? With what models should the investment be planned?

Is GDP enough? …