Fighting Innovation Mercantilism: A Growing Number of Countries Have Adopted Beggar-Thy-Neighbor Innovation Policies in an Effort to Attract or Grow High-Wage Industries and Jobs, Making the Global Economy Less Prosperous in the Process

By Ezell, Stephen | Issues in Science and Technology, Winter 2011 | Go to article overview

Fighting Innovation Mercantilism: A Growing Number of Countries Have Adopted Beggar-Thy-Neighbor Innovation Policies in an Effort to Attract or Grow High-Wage Industries and Jobs, Making the Global Economy Less Prosperous in the Process


Ezell, Stephen, Issues in Science and Technology


Despite the global economic downturn, indicators of global innovative activity have remained strong during the past two years. The total global output of scientific journal papers in all research fields for the United States, the European Union (EU), and Asia-Pacific nations reached historic highs in 2009. The World Intellectual Property Organizations 2010 World Intellectual Property Indicators index found that in 2008, the most recent year for which information is available, both the total number of global patent applications received and patent awards granted topped any previous year. And global trading volume in 2010 is on pace to rebound 9.5% over 2009 levels. Yet notwithstanding these indicators of strength, all is far from well with innovation and trade in the global economy.

To be sure, during the past decade, countries worldwide have increasingly come to the realization that innovation drives long-term economic growth and quality of life improvement and have therefore made innovation a central component of their economic development strategies. In fact, no fewer than three dozen countries have now created national innovation agencies and strategies designed specifically to link science, technology, and innovation with economic growth. These nations' innovation strategies comprehensively address a wide range of individual policy areas, including education, immigration, trade, intellectual property (IP), government procurement, standards, taxes, and investments in R&D and information and communications technology (ICT). Consequently, competition for innovation leadership among nations has become fiercely intense, as they seek to compete and win in the highest-value-added sectors of economic activity, to attract R&D and capital expenditure investment from multinational corporations, to field their own globally competitive and innovative firms and industries, and to generate the greatest number of high-value-added, high-paying employment opportunities possible for their citizens.

However, countries' focus on innovation as the route to economic growth creates both global opportunities and threats, because countries can implement their innovation strategies in either constructive or destructive ways. Specifically, as Figure 1 shows, countries can implement their innovation policies in ways that are either; "good" benefitting the country and the world simultaneously; "ugly," benefitting the country at the expense of other nations; "bad," appearing to be good for the country, but actually failing to benefit either the country or the world; or "self-destructive," failing to benefit the country but benefitting the rest of the world.

FIGURE 1

The good, the bad, the ugly, and the self-destructive of innovation
policy

COUNTRY              WORLD

              Wins         Loses

Wins           Good        Ugly

Loses    Self-destructive   Bad

Ideally, countries would implement their innovation policies in a positive-sum fashion that is consistent with the established rules of the international trading system and that simultaneously spurs domestic innovation, creates spillover effects that benefit all countries, and encourages others to implement similar win-win policies. But another path countries are unfortunately all too often taking seeks to realize innovation-based growth through a zero- or negative-sum, beggar-thy-neighbor, export-led approach. At the heart of this strategy lies a misguided economic philosophy that many nations have mistakenly bought into: a mercantilism that sees exports in general, and high-value-added technology exports in particular, as the Holy Grail to success. This approach is designed around the view that achieving growth through exports is preferable to generating growth by raising domestic productivity levels through genuine innovation. Indeed, there is disturbing evidence that the global economic system has become increasingly distorted as a growing number of countries have embraced what might be called innovation or technology mercantilism, adopting beggar-thy-neighbor innovation policies in an effort to attract or grow high-wage industries and jobs, making the global economy less prosperous in the process. …

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