The Ends and the Means of Development

The best innovation capacity in Latin America With a rank of 29 among the 131 countries included in the ICI, Chile is by far the best performing country in Latin America. Indeed, it has a rank a full 20 places ahead of Uruguay (49), the next best performer. Chile is firmly positioned among 12 members of the European Union, with some slightly ahead (e.g., Belgium, Austria, France, and Spain), and others slightly behind (Italy, Slovenia, the Czech Republic, and Portugal). Chile has the highest rank among countries with a broadly similar level of income per capita, with only Malaysia (34) exhibiting a similar performance. Chile has a rank of 1 in Latin America in several important indicators including government effectiveness, rule of law, absence of corruption, the fiscal balance (as a proxy indicator for the strength of macroeconomic policies), the number of schools connected to the Internet, the ease of paying taxes, broadband penetration rates, reliability of electricity generation, a

Korea is ranked 11 in the 2010 edition of the Innovation Capacity Index, because it does extremely well in many of the areas captured by the Index. Let us begin by highlighting a few facts about Korea’s innovation capacity. First, the information and communications technology industry is a powerful engine of economic growth, contributing over 40 percent to the total expansion of GDP growth in recent years. Second, expenditure on research and development in relation to GDP has risen from under 1 percent in the 1980s to close to 3.5 percent in 2009, well above the OECD average. Third, the share of R&D expenditure carried out by the private sector had risen from 29 percent in 1970 to over 70 percent by 2000. Fourth, the average number of patents granted in the United States to Korean firms rose from about 10 per year during the period 1963–1986 to an average of about 4,800 per year during the period 2002–2007, a close to 500-fold increase. Fifth, the share of ICT in total manufacturin

The Innovation Capacity Index (ICI) gives Spain a rank of 29, 1 somewhere between the Baltics and Chile. The rank itself is not bad, and it is not surprising that Spain scores below Sweden, Finland, Switzerland, Taiwan, Japan, Korea, Germany, and Israel, countries with a well established track record of innovation and highly-developed and sophisticated high-tech sectors. What is noteworthy about Spain is that, whereas in 2008, its PPP-adjusted income per capita was US$30,589, that of Chile was less than half (US$14,529) and those of the Baltics ranged from US$17,106 in Latvia to US$20,561 in Estonia. In other words, for its stage of development—a rich industrial country with the world’s 11th largest economy 2 —Spain’s innovation capacity is lagging behind its true potential. What are the factors that have contributed to this mediocre performance? We focus our attention on three: fiscal management, market regulation (including the dysfunctionalities in Spain’s labor market), and educat

Brazil has taken important steps in recent years to modernize its economy and to lay a stable foundation for sustainable growth. Its ranking of 81 in this year’s ICI, 1 however, is extremely low, given its level of per capita income—US$10,466 on a PPP-adjusted basis in 2008. India, for instance, has a broadly similar ICI rank, but a much lower income per capita of US$2,780. What are the factors which appear to be preventing Brazil from boosting its innovation capacity? We focus our attention on four, all of them fairly central when assessing a country’s ability to create an environment conducive to innovation. Inefficiencies in resource allocation Over the past decade and a half, successive Brazilian governments have done much to improve management of the public finances, at least when measured by the size of the government deficit and the magnitude of the public debt. Brazil had a long history of fiscal mismanagement, and improvements made in this area in recent years have, therefore

The last year that China’s growth rate was below 7.5 percent was 1990. On a PPP-adjusted basis, Chinese GDP has already overtaken Japan and Germany, making China the world’s number two economy. This impressive growth performance has turned the Chinese economy into an important contributor to global growth, a major force in commodity markets, the most important destination for foreign direct investment and, hence, an emerging power in international trade. Chinese exports and imports in relation to GDP were less than 15 percent in the mid-1980s, but by 2008 had risen to 33 percent for exports and 26 percent for imports. Whereas Chinese exports were less than 1 percent of total world trade in 1984, this share 20 years later had risen above 5 percent. So, if the intent of the strengthened reform effort seen in China in the last 20 years was to contribute to its integration to the global economy, it has succeeded well beyond anyone’s expectations. The above trends have all contributed to in

An impressive performance Sweden was the top-ranked country in the 2009—and now just recently in the 2010—edition of the Innovation Capacity Index , 1 because it does exceptionally well in all the areas captured by the Index. Sweden is an exceptionally good performer, very often placing in the top ranks in those areas identified as being particularly important to assessing innovation capacity. Indeed, Sweden has a rank of number one among 131 countries in transparency and judicial independence, corruption perceptions, gender equity, e-government readiness, personal computer penetration rates, receipts of royalties and license fees, as well as the “doing business” indicators for the time and number of procedures required to register property. It has a rank of 2 in scientific and technical journal articles per capita, environmental sustainability, and research and development expenditure in relation to GDP, where it is second only to Israel. There are 12 other indicators in which Sweden

Russia is in many ways a unique case, with a relatively mediocre ranking of 56 on the Innovation Capacity Index (ICI), 1 well below the rank of countries such as Chile (31), Malaysia (39), and Poland (40), which share broadly similar levels of income per capita. Russia has a solid human capital endowment, reflecting decades of investment in education in science and technology. If Latin America has a grand total of three Nobel Laureates in science, there are at least ten Russian Nobel Laureates in physics alone. And had Alfred Nobel created a category for mathematics, there is little doubt that Russian mathematicians would have been awarded many prizes, perhaps more than any other nation. At the same time, however, it is a country where there is a huge gap between the stock of resources spent in past decades to foster contributions to knowledge, on the one hand, and, on the other, the kind of output that we would normally recognize today as reflecting achievements in scientific innovat

Viewed in a long-term perspective, India’s recent economic performance has been quite impressive. According to the OECD, GDP per capita has accelerated from 1.2 percent in the 30-year period to 1980 to 7.5 percent currently, a growth rate, which, if sustained, would double income per capita in a decade. This is clearly an important achievement that has brought with it a substantial reduction in the incidence of poverty, from 36 percent in 1994 to some 27 percent by 2005. 1 Inevitably, the global financial crisis has contributed to a deceleration of India’s economic growth in 2008 and 2009, and the emergence of other problems, such as a substantial widening of the budget deficit. However, assuming this to be a temporary phenomenon, the key question for Indian economic policy for the foreseeable future will be what policies will allow it to sustain or, indeed, accelerate its growth performance over the next decade. Just as China has benefited from a massive process of urbanization in the

The latest forecasts put out by the IMF for global economic growth are cautiously encouraging. Following a 0.6 percent contraction in 2009 (more brutal in the United States, Europe and Japan, softened by rapid growth in Asia, particularly China and India) world output is expected to expand in 2010 by 4.2 percent and to continue at that pace in 2011. These forecasts assume that interest rates in the advanced economies will remain at near zero levels and that public debt levels will rise from 75 percent of GDP in 2008 to some 110 percent by 2014. A huge increase in public indebtedness by the industrial countries is perhaps one of the most distinctive and worrisome features of the current global economic situation. The onset of the financial crisis was met by calls from leading economists such as Paul Krugman and Larry Summers to respond to the contraction of demand with fiscal stimulus. It was essential to avoid repeating the mistakes of the Great Depression when the authorities in a mis