The Good, the Bad, and the Ugly of Innovation Policy
Not all innovation policies are created equal. In a ground-breaking report, ITIF surveys how countries’ innovation policies affect them individually and the global economy as a whole and recommends ways for healthy competition that benefits all.
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Innovation has become the central driver of economic growth and thus a key focal point of countries’ economic development strategies as they seek to gain competitive advantage. Accordingly, countries are increasingly designing national innovation strategies that seek to coordinate their policies toward skills, scientific research, information and communications technologies (ICTs), tax, trade, intellectual property, government procurement, standards, and regulations in an integrated approach designed to drive economic growth through innovation. While a focus on innovation is positive, countries can implement policies that are either,
- “Good,” benefiting the country and the world simultaneously;
- “Ugly,” benefiting the country at the expense of other nations;
- “Bad” failing to benefit either the country or the world; or
- “Self-destructive,” actually hurting the country while benefiting others.
Notwithstanding the fact that countries can readily implement a range of “Good” innovation policies, there remain far too “Ugly” and “Bad” (and occasionally “Self-destructive”) mercantilist strategies that are neither sustainable nor productive. Moreover, these Ugly, Bad, and Self-destructive mercantilist strategies suffer from three other failures. They: 1) undermine confidence in the international trading system, while reducing global GDP growth; 2) fail to recognize that neither the United States nor Europe—nor even both combined—can indefinitely absorb imports if Brazil, China, India, Japan, Russia, and others continue to promote exports while limiting imports as their primary path to prosperity; and 3) ignore that raising the productivity across-the-board of all sectors, traded and non-traded, is the surer path to lasting economic growth.
The world must move beyond perceiving the pursuit of economic growth through innovation among nations as a zero-sum game to embracing a perspective that views mutual global prosperity as the goal. The report also provides policymakers a concrete guide to promoting constructive innovation policies while avoiding the ruinous ones. Among those steps are the following:
- Urging institutions such as the World Bank, the IMF, U.S. AID and others to steer nations away from export-led growth strategies and other mercantilist policies.
- National leaders should promote win-win innovation policies and avoid zero-sum strategies.
- The World Trade Organization should publish annually all new trade barriers (including non-tariff barriers), whether they are allowed by the rules or not.
- Establish trade zones of nations that exclude nations that persist in pursuing mercantilist policies that violate the principle of free and fair trade.
- Educate policy makers that export-led growth, often abetted by mercantilist practices, is unnecessary, counterproductive, and unsustainable. It misses the far greater opportunity to achieve economic growth through raising domestic productivity levels.
