The IPL newsletter: Volume 20, Issue 400

Is China Catching up to the United States in Innovation? 

Robert D. Atkinson and Caleb Foote, ITIF
One of the most important economic questions facing advanced nations is, how innovative is the Chinese economy? For those in the “China cannot innovate, they can only copy” camp, Europe, Japan, and the United States should stop worrying about issues such as intellectual property theft, forced technology transfer, and massive subsidies to Chinese technology companies because China is not an innovation challenger. For those in the “China is rapidly following the path nations such as Japan and South Korea took to become global innovation leaders” camp, advanced economies need to raise their game, including stepping up efforts to roll back Chinese innovation mercantilism. This report briefly highlights Chinese government goals and policies to become a world innovation leader. It then reviews the claims skeptics make about China’s ability to innovate—arguing that, for the most part, their definition of the term “innovation” is too narrow—and reviews arguments and evidence supporting the claim that China is successfully innovating. Finally, the report presents the 36 indicators.

The Future of Work in Government: Navigating a Shifting Talent Landscape

William D. Eggers, John O’Leary, and Amrita Datar, Deloitte
One hundred years ago, employees were largely viewed as interchangeable cogs in a machine. One assembly line worker was about as productive as the next. The difference between an outstanding toll collector and a mediocre one wasn’t terribly consequential. But in the digital age, creative and collaborative talents are integral to delivering value. An employee motivated to learn and grow can be much more valuable than a less interested coworker. While the private sector is increasingly recognizing this trend the public sector is lagging behind. While much of the private sector has transformed over the past two decades, the public sector, for the most part, has not. Most public sector organizations are still locked into decades-old workforce policies, such as rigid job classifications, lockstep pay, and reliance on seniority as a substitute for capability. The reality is, government agencies are increasingly called upon to address society’s most complex challenges using workforce approaches rooted in the distant past. This not only makes it harder to recruit talented people but also makes it more difficult for public sector managers to provide their employees with great work experiences.

Promoting European Growth, Productivity, and Competitiveness by Taking Advantage of the Next Digital Technology Wave

Robert D. Atkinson and Stephen Ezell, ITIF
A new suite of digital technologies is reshaping advanced economies and promising increased rates of innovation, productivity, and economic growth, along with improvements in quality of life. However, the EU will not gain the full benefits of this next innovation wave without the right policies. This report begins by discussing the emerging digital technology transformation, what is required for success, and where Europe stands vis-à-vis progress on digital development and adoption. It then compares Europe with China, Japan, and the United States in terms of indicators of both digital economy development and adoption as well as key policies and factors related to digital economy success. It then lays out six key strategic issues for the EU as it seeks competitive advantage and growth from the next technology wave. Finally, the report presents a series of policy recommendations for the EU, organized into five sections: regulatory framework conditions, trade policy, resources for firms (including data, R&D, skills and digital infrastructure), technology/sector/firm policies, and culture and institutions.

Digital Innovation: Seizing Policy Opportunities

OECD Working Party on Innovation and Technology Policy (TIP)
To an ever-increasing extent, innovation is digital. Most innovations today are new products, processes or business models at least partly enabled by digital technologies or embodied in data and software. Innovation processes themselves are changing in an era of digital transformation, with the use of AI-based analytics that allows for large-scale experiments in research and new virtual simulation and prototyping techniques for developing new products. This report describes how the digital transformation is changing innovation processes and outcomes, highlighting general trends across the economy and factors behind sector-specific dynamics. In view of such changes, the report evaluates how policy support to innovation should adapt and in what directions. It also explores novel innovation policy approaches implemented by countries to promote digital technology adoption and collaborative innovation.

The digital transformation changes innovation because of the significant reduction in the cost of producing and disseminating knowledge and information – innovation’s key ingredient – that can be digitalized. Smart and connected products are very different from the tangible products that typified the previous industrial era. Four pervasive trends characterize innovation in the digital age. First, data are becoming a key input for innovation. Second, innovation activities increasingly focus on the development of services enabled by digital technologies. Third, innovation cycles are accelerating, with virtual simulation, 3D printing and other digital technologies providing opportunities for more experimentation and versioning. Fourth, innovation is becoming more collaborative, given the growing complexity of and interdisciplinary needs for digital innovation.

Impacts of the digital transformation differ significantly, however – both among and within sectors – in three main respects. First, the scope of opportunities for innovation in products, processes and business models that digital technologies offer differ among sectors. Second, sectors need different types of data for innovation, and so the challenges faced for their exploitation differ. Third, the conditions for digital technology adoption and diffusion also vary, for instance, due to differences in capabilities to take up those technologies and the level of maturity of sector-specific digital technology applications.

Key Recommendations

Changes in the characteristics of innovation in the digital age require that governments change existing innovation policy instruments and mixes to respond to emerging challenges. Four new challenges for policy making that need to be addressed as a priority include the following:

1. Develop policies addressing data access. This now has to be a major priority in all countries. These policies are critical, as data have become a core input to innovation and data access directly affects a wide range of policy domains, such as innovation support policies, public research policies, and competition policy. There is no simple approach to data access policies, as opportunities and challenges differ across data types. A general principle is that data access policies should ensure the broadest possible access to data and knowledge so as to favour competition and innovation, while respecting constraints regarding data privacy, ethical considerations, economic costs and benefits, and intellectual property rights considerations. Policies should take into consideration the diversity of data types as well as the diversity of interests and objectives served by providing different forms of data access and data rights to their owners.

2. Strengthen the responsiveness and agility of policies in view of rapidly changing contexts, offering more opportunities for small-scale policy experimentation to be scaled up or abandoned depending on assessed impacts. The use of digital tools to design and monitor policy targets can also spur faster and more efficient decision making. Mission-oriented programmes setting a goal but not the means to achieve it can also increase flexibility.

3. Support technology development that responds to societal challenges and engages with citizens to increase trust and address public concerns regarding new digital technologies, setting the necessary (anticipatory) regulations to ensure that new technologies and applications do not harm the public interest.

4. Consider the global nature of some of the pressing challenges affecting innovation (e.g. data access) when designing and reforming national policies; this will involve favouring cross-country co-operation and joint action.