Innovation—the improvement of existing or the creation of entirely new products, processes, services, and business or organizational models—is the central driver of modern economic growth. For example, technological innovation has been linked directly to three-quarters of the United States’ post-World War II economic growth rate. Innovation is key because it drives productivity growth—increased output per unit of work—as reflected by the fact that two-thirds of United Kingdom (UK) private-sector productivity growth between 2000 and 2007 was a result of innovation. And this drives increasing incomes; in fact, 90 percent of the variation in the growth of income per worker across countries is attributable to innovation.
Given innovation’s central importance to modern economies, a fierce race for global innovation leadership has emerged, as nations try to incubate, grow, and attract the highest-value-added economic activity they can: the high-wage, knowledge-intensive manufacturing, research, information technology (IT), and services industries (and jobs) that power today’s global, innovation-based economy, as the Information Technology and Innovation Foundation (ITIF) writes in its new book Innovation Economics: The Race for Global Advantage. Indeed, countries around the world are establishing national innovation agencies and strategies, restructuring their tax and regulatory systems to become more competitive, expanding support for science and technology, improving their education systems, spurring investments in broadband and other IT platforms, and taking a myriad of other steps to bolster their innovation capacity. This article examines three key steps many nations have taken to turbocharge innovation—developing national innovation agencies and strategies, investing in research and innovation, and redesigning their tax systems to incentivize innovation—and reflects on the implications of the race for innovation advantage on the global economy.
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