13 September 2010

Australasian Innovation, According to the World Economic Forum

On 9 September 2010, the World Economic Forum (WEF) launched The Global Competitiveness Report 2010-2011.  You can read the press release here, and download the full 515 page PDF document here (should you feel so inclined), or just get the 71 page highlights package.

By way of background, in the introductory comments to the first Chapter the report states:

For more than three decades, the World Economic Forum’s annual competitiveness reports have examined the many factors enabling national economies to achieve sustained economic growth and long-term prosperity.  ...
Since 2005, the World Economic Forum has based its competitiveness analysis on the Global Competitiveness Index (GCI), a highly comprehensive index for measuring national competitiveness, which captures the microeconomic and macroeconomic foundations of national competitiveness.
We define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country.
Some of the components making up the GCI comprise (relatively) objective statistical measures.  Many, however, are based on the results of an annual "Executive Opinion Survey", in which a random sample of companies from the 139 economies covered by the report are asked to respond on a scale of 1 to 7 to questions such as:

How would you rate the composition of public spending in your country? [1 = extremely wasteful; 7 = highly efficient in providing necessary goods and services]
No matter how unbiased the selection process, we cannot help feeling that there is an inherent bias in such questions.  One person's "waste" might be another's "essential service".

In any event, our objective here is not to assess the validity of the WEF's methods or conclusions.  We wish only to present a few highlights for Australia and New Zealand relevant to our own special interests of patents and innovation.

OVERALL RANKINGS

Both Australia and New Zealand are characterised as "Stage 3" or "innovation-driven" economies, defined simply as those having a per capita GPD in excess of US$17,000.

Australia ranks 16th overall (out of 139) with a GCI of 5.11, while New Zealand comes in at 23 with a GCI of 4.92 (compare with top-ranked Switzerland at 5.63, and the fourth-ranked US at 5.43).

INNOVATION PERFORMANCE

The overall GCI is made up of three sub-indices: "basic requirements" (eg social and economic infrastructure and primary education); "efficiency enhancers" (eg higher education and market factors); and "innovation and sophistication factors" (business sophistication and innovation).

Australia and New Zealand exhibit similar characteristics, performing best in providing the basic requirements for competition, less well in the area of enhancing efficiency, and relatively poorly in the innovation and sophistication factors.  On this last sub-index alone, Australian ranks 22nd, and New Zealand 28th, both being beaten by Iceland and Ireland (which rank 31st and 29th overall, due to inferior performance in the other sub-indices).

We would have to say that this result is consistent with our own observations and experience.

GENERAL COMMENTS IN THE REPORT

The report has the following to say about Australia generally (page 28):

Down by one position, Australia now ranks 16th, with a stable performance overall, ranking no lower than 29th in any of the 12 pillars.  The results confirm the continued dynamism and high level of development of Australia’s financial market.  While credit access conditions deteriorated during the financial crisis, the banking sector held out remarkably well.  Australia remains a prime location for doing business, with high efficiency in both the goods market (18th) and the labor market (11th), and excellent public (14th) and private (11th) institutions.  To progress even further, the country will need to increase the sophistication of its businesses (29th) and strengthen its innovation capacity (21st).

On New Zealand, the report states (page 29):

Despite losing three positions and a small worsening in its score, New Zealand (23rd) posts a performance largely in line with last year.  The country possesses some of the best-functioning institutions in the world, ranking 3rd, behind only Singapore and Hong Kong in this pillar.  Specifically, it ranks 4th for the quality of public institutions while it retains its leadership in the private institutions component.  Overall, the environment is extremely conducive to business, supported by efficient goods (7th) and labor markets (12th) and by one of the soundest banking systems in the world (2nd).  Notwithstanding the relatively small size of its domestic and export markets (60th), the area with the most room for improvement remains infrastructure (37th), in particular roads and railroads (45th in both dimensions).
PER CAPITA GDP

The per capita GDP figures for Australia are interesting.  According to the graph on page 84, Australia's GDP has tracked the "advanced economies" average since 1980, to the extent that the two traces are virtually indistinguishable.  Only during the GFC in 2009 does any significant deviation become apparent.  While the advanced economies average dropped for the first time since the first WEF report, Australia's economy continued to grow.

New Zealand, on the other hand, has consistently shown a lower rate of growth than the advanced economies average, and exhibited a proportionate downturn during the GFC (page 256).

Australia ranks 11th overall in per capita GDP, while New Zealand ranks 28th (page 362). 

PERCEIVED STRENGTH OF IP PROTECTION

The assessment of the strength of IP protection (including anti-counterfeiting measures) is based on survey responses, and thus can be expected to reflect perceptions.  At best, therefore, this provides an indirect comparison of actual strength of protection.

Both Australia and New Zealand rank in the top 20, along with most comparable economies including a number of European nations, Canada and the US (page 367).

New Zealand comes in at number 7, Australia at number 14.

JUDICIAL INDEPENDENCE AND EFFICIENCY OF LEGAL FRAMEWORK

Again on the basis of survey results, New Zealand is perceived to have the highest level of judicial independence in the world (ie ranked number 1, at page 371).

Australia ranks 9th, amidst the UK, Ireland and Canada.

We were somewhat surprised to see the US well down the list, in 35th place.  We wonder whether this reflects the perceived degree of politicisation of the US judicial appointment process?

When asked how effeicient the legal framework in their country is in resolving private disputes, survey respondents ranked New Zealand 5th and Australia 12th, with the US once again well down the list, in 33rd place.

"BRAIN DRAIN"

It seems to be said quite often in Australia that we have a problem with the so-called "brain drain", ie talented people leaving the country to pursue better opportunities overseas.

It was therefore a little surprising to see that Australia ranked 22nd in the survey, in providing local opportunities for talented people, rather than losing them overseas (page 451).

New Zealand, on the other hand, ranked well down the list, at number 86.  Our experience would suggest that quite a few of these may be lost to Australia, which is perhaps not surprising given that the range of job opportunities is no doubt greater in Australia, and that there are virtually no barriers to free movement and employment between the two countries.

AVAILABILITY OF VENTURE CAPITAL

Another surprising result from the Executive Opinion Survey is the relative perception of availability of venture capital funding for innovative, but risky, ventures (page 458).

Australia ranked 12th on this survey question, just above the US in 13th spot.  In general, this result is not consistent with anecdotal evidence from Australian entrepreneurs.  We are aware of a number of instances in which new ventures have felt compelled to seek offshore venture capital, particularly from the US, due to a lack of suitable funds in Australia.

However, we note that responses were pessimistic across all economies.  The mean score overall was only 2.7 (out of 7).  The highest response was from Hong Kong, at 4.4.  Both Australia and the US returned scores of 3.8.  This suggests that almost all respondents have, at best, a lukewarm opinion of the availability of venture capital funding in their own countries.  We suspect that if respondents were also asked to compare with other countries, a comparatively rose-tinted view might emerge.

It is also possible that the results for the most recent survey were partly due to the effects of the GFC.

New Zealand ranks 26th, with a score of 3.3.  This is still above the overall average, but nonetheless a "fail" on a scale of 1 to 7.

BROADBAND

Regular readers will know that broadband is one of our pet topics here at Patentology!

Australia ranks 18th in broadband internet subscriptions, with 25.4 per 100 population (page 468).  New Zealand comes in 24th with 23 per 100 population.  Sweden tops the list with 41.1.

We are not sure what this means in real terms.  We would have preferred to see the figures normalised to households, or total premises, rather than population.  We note, however, that both Australia and New Zealand have around 42 active fixed telephone lines per 100 population (page 395), which may provide a useful point of reference.

Page 469 of the report shows international internet bandwidth per 10,000 population.  Australian and New Zealand rank relevantively poorly, at 40 and 43 respectively.  We are again not sure, however, that these figures tell us anything meaningful.  Many of the top-ranked countries are in Europe, where "international" bandwidth is provided at a cost comparable to intercity bandwidth in Australia.  Due to the costs involved, international bandwidth in Australia and New Zealand is no doubt provisioned carefully to meet demand.  This does not mean that the available bandwidth cannot, or will not, be increased if demand grows.

INNOVATION, R&D AND PATENTING ACTIVITY

Australia and New Zealand rank 23rd and 28th, respectively, in "capacity for innovation" (page 488).  This is based on a survey question asking whether companies in the respondent's country rely more on adoption of foreign-developed technology, or upon their own innovative ideas and local research and development.

Despite this, the perceived quality of scientific research institutions is high, with Australia ranking 10th and New Zealand 14th (page 489).  Contrast this with perceptions of R&D spending, where Australia ranks 23rd and New Zealand 38th (page 490).

Both countries perform well in the perception of university/industry R&D collaboration, with Australia ranked 13th and New Zealand 21st (page 491).

Finally, on page 494 there is a table listing the number of utility patents granted in 2009, per million population.  Australia ranks 17th, with 57.3 (which would correspond with a total of 1238 patents granted), while New Zealand appears at 24th place, with 29.5.

We were initially not sure what to make of these last figures.  The source is identified as the USPTO, which seemed like a strange place to obtain statistics for non-US patent grants.  Furthermore, the Annual Report of IP Australia for the 2008/09 financial year indicated that 19,336 Australian patent examinations were conducted during that period.  There is only a brief explanation of the "utility patents" data, on page 498 of the report. 

We have reached the conclusion that the figure in each case is the number of US utility patents granted in 2009, for which the first-named inventor is a national of the specified country.  So this figure is all about the number of US patents that a country's citizens are obtaining.

CONCLUSION

There is a wealth of other interesting data in the WEF report, albeit of varying degrees of utility.

While the methods used may be imperfect, that would no doubt be a criticism applicable to almost any attempt at such an all-encompassing task!

Overall, it is pleasing to see Australia and New Zealand ranking reasonably well overall, and it would be even more pleasing to see a few of those "innovation" indicators rise in future surveys.


2 comments:

Walter Adamson said...

I suppose since factors change slowly, and even though some seem out of context with the on-the-ground reality e.g. availability of venture capital, it would be interesting if TRENDS were shown through these longitudinal studies and perhaps matched to policy initiatives to see what might and might not be working. For example we've been spending a lot of taxpayers' money on "commercialisation" for well more than a decade and yet that part of our performance still seems the weakest and trending? which way?

Walter Adamson @g2m
http://xeesm.com/walter

Dr Mark Summerfield said...

Thanks for your comment, Walter.

I do not see much of a trend. As the report states in its general comments on each country, both Australia and New Zealand are fairly stable in their rankings.

It seems that the mining industry is re-entering boomtimes, and that Australia will once again be prospering on the back of primary industry. I would argue that we must invest some of this windfall in innovation, particularly in service and "knowledge" industries, so that we will remain relevant and competitive into the further future.

And I would agree with you completely, that we need to know what works and what does not, to ensure that the money is invested wisely.

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