U.S. Loses Innovation Crown to ... Iceland

Posted by: Michael Arndt on March 3, 2010

Once upon a time—actually it was just last year—the U.S. was the world innovation champion, according to an annual report by INSEAD and the Confederation of Indian Industry. In this year’s study, the nation slumps to 11th place. Perhaps even more surprising is the new No. 1: Iceland.

Soumitra Dutta, an INSEAD professor of business and technology, who oversaw the survey, theorizes that the rankings show that, as in so much else, size matters. But in this case it’s the smaller the better.

He tells me that having easy access to a big marketplace still makes it easier for innovators to profit from their inventions. Would the iPod or the iPhone have been such big hits if Apple had been based in, say, Iceland? But the Internet is turning the entire world into one big market, to which everyone everywhere has access, he says. Also, it appears that smaller, homogeneous countries can unite to support policies, institutions, and infrastructure that promote innovation—in the developed world, at least.

Size certainly makes a difference in the 2010 Global Innovation Index report. The most-populous land in the Top 10 is the Netherlands, with 16.4 million people. It finishes in eighth place. Several of the biggest nations in the developed world cluster just below the U.S. Japan is 13, with Britain at 14, and Germany at 16. Of the so-called BRIC giants in emerging markets, China comes out best, at 43. Trailing are India (56), Russia (64), and Brazil (68).

This year’s report, financed by Canon India and released on March 3, evaluates 132 countries. Researchers used data from a number of sources, including the World Economic Forum, the World Bank, and the UN, to gauge innovation inputs—things such as education and business climate—as well as outputs to quantify scientific and creative advances.

The U.S. drops out of the Top 10 because it isn’t sufficiently providing many of the inputs or what the study calls “pillars of innovation.” It ranks 22 in political environment and 21 in regulatory environment. It ranks 22 in K-12 education, 22 in technology infrastructure, and 24 in exports and employment. “The U.S. is unable to create a coherent public agenda,” Dutta tells me on the phone from India.

So where does the U.S. score best? In market and business sophistication, which includes access to capital and openness to foreign competition and where it rises to second and third.

Iceland, by comparison, falls below the U.S. in market and business sophistication—no surprise, says the report, given the complete collapse of Iceland’s banking industry. But it outshines the U.S. in education and infrastructure. Iceland comes in fourth overall, for instance, in per capita mobile phone subscribers. Its general infrastructure is the world’s best.

Here’s the Top 10, with 2009’s rankings in parentheses:

1. Iceland (20)
2. Sweden (3)
3. Hong Kong (12)
4. Switzerland (7)
5. Denmark (8)
6. Finland (13)
7. Singapore (5)
8. Netherlands (10)
9. New Zealand (27)
10. Norway (14)

Reader Comments

Bjarni Ellert Ísleifsson

March 3, 2010 7:48 AM

Funny that and it is just under 1 year since I started working for the Icelandic Innovation Center... coincidence? I would not like to be the judge of that :)

JLST

March 3, 2010 8:29 AM

Another one of these nonsense "per capita" articles dreamed up by some armchair innovation "expert".

Divide two meaningless numbers by each other -"x" innovation / "y" population to get a high ranking.

Anyone who says that Iceland "outshines the U.S. in infrastructure clearly hasn't visited Iceland. Furthermore ISP charges and mobile phone tariffs in Iceland are amongst the highest in the civilized world.

The source: "used data from a number of sources, including the World Economic Forum, the World Bank, and the UN, to gauge innovation inputs" - explains everything.

nagaraj

March 3, 2010 8:45 AM

not surprising

Nick Stuart

March 3, 2010 8:57 AM

An interesting use of the word innovation. Ask the wrong questions and you get a curious answer. If innovation means new products and services to market I'd see the UK virtually at the top with the US shading ahead.
And even though I would say that from UK trade & investment it doesn't change the facts.

Árni Þór Þorgeirsson

March 3, 2010 10:34 AM

In your face David Suzuki ( youtube will explain this )

Carl

March 3, 2010 1:05 PM

What innovations have come out of the top 10?

tham

March 3, 2010 5:57 PM


Well, US has outsourced 90% of software and 50% of hardware design and development to India. I am surprised it India was not ranked the same or higher than US.

Prashant Srivastava

March 4, 2010 7:53 AM

Outsourcing execution of the backend or to improve efficiency doesn't affect the fact that product and services ideation is all done in the US. India is merely like the arms and legs of the innovation commercialization and therefore appears low.

I think of this as an assessment of the climate for innovation: the presence of a sophisticated market that is willing to pay for new products and services, access to capital markets to fund innovative companies, ease of starting such companies (regulatory and legal environment), and availability of infrastructure to support such companies (education, broadband, facilities etc).

In such a framework, India is rightfully at its spot driven by red tape, licensing, undeveloped consumer markets, unreliable capital markets, lack of venture fund and angel networks. Singapore, Hong Kong and others score highly on all these accounts and thus high in the rankings.

However, it remains to be seen if the US's advantage on capital markets and sophisticated consumer markets continues to attract innovation onto its shores despite the other drawbacks. I suspect that it might.

Joanne Gucwa

March 4, 2010 9:48 AM

I find it hard to believe that the same criteria for ranking are being used from one year to the next.

The U.S. ranked 22 in K-12 education this year. What was it last year? #1? I doubt it. The same can be said about the other cited factors: political and regulatory environment, et al.

Now look at Iceland. It ranked #20 last year. Had it improved its rankings in K-12 ed, infrastructure, political & regulatory environment, and all the other criteria so drastically in a single year?

Soumitra Dutta

March 5, 2010 2:40 AM

This is a comment from the author of the report. I suggest that you read the entire report and browse the data at:
www.globalinnovationindex.org
and then make your own judgments and interpretation of the data and results.

I agree that no data is complete and no ranking can be 100% defensible. Moreover, we have to deal with major problems of lack of comparable data when it comes to ranking 132 nations around the world. One has much better data to use when one only considers the USA or the EU or the OECD. But data problems become major barriers to research and analysis when one ventures outside these territories.

The model for innovation used in the report also recognizes that innovation has become a more holistic and horizontal activity as compared to the traditional more narrow/vertical interpretation and measurement in terms of patents, publications and PHDs. Innovation can come from poor farmers in emerging economies who do not have advanced degrees. Venture capital is not the only measure of measuring entrepreneurial financing micro-finance can also be very important. I could go on but it is time to reconsider our traditional model and views of innovation and the report tries to take a step in that direction.

If you have feedback for improving the model and the data collection/analysis methods, please do let me know. This ia collective exercise and we can always learn from each other.

Jenny

March 5, 2010 5:58 AM

Absolute none-sense. The findings themselves should have urged the researchers to revisit their methodology. Iceland on paper might well be among the best equipped for firms to innovate, but in practice it has failed!

Steven

March 5, 2010 7:52 PM

This report has very strong curry smell. Is the author an Indian?

Enrique

March 6, 2010 12:15 AM

After the referendum perhaps the Icelandic Government will not have a single krone to pay for research,

Simon

March 6, 2010 12:10 PM

It looks like the methodology is biased towards smaller nations. So it is not all lost since many of the countries in the top 10 list are indeed innovative (Iceland included not in its banking system but its hydro-power technology). The question is why large economies are missing? Are small countries in fact more innovative?

luca

March 7, 2010 9:26 AM

Veru funny. The point is: may be the intere world could survive without the innovation made in top ten countries, for sure the world can survive without innovation made in USA, Germany, Japan, Italy, France, UK... With probably the exception of Netherlands, it's important to consider the fact that Hong Kong is just a scientific and tech sensible part of China (just like consider Boston in USA) and Iceland, Switzerland, Scandinavia in general are part of EU or related to EU just like Colorado, Minnesota, New Mexico to USA, i mean, of course New Mexico isn't USA but Los Alamos Labs belong to the nation... Think about CERN in Geneva.. CERN is financed by all EU.. SO this is just a worng way touse statistic science

Simon

March 7, 2010 5:22 PM

Steven: Your comment is useless and stinks of racism.

Andy

March 8, 2010 3:22 AM

To Soumittra Dutta: thanks very much for providing the link to the data source!
(Indeed much better to just let the figures speak for themselves than to react to the lot of ego-centric or racist reactions without any added value ;-)

www.venturatis.com

March 8, 2010 2:52 PM

My congratulations to INSEAD for the report, as I´m sure it will be provocative for some people, which will ultimately make them debate, discuss and think about innovation. It will force them think, study and build their own opinion around it, and even proposing an alternative methodology to measure innovation. The debate is not around the ranking, but innovation.

My opinion (in Spanish) at http://wp.me/pNhN0-5D

David Tubbs

March 11, 2010 4:08 PM

Based on the rankings I'm inclined to agree with them. The thing you need to remember is that the efficiency and methods of measuring innovation differ and (hopefully) improve as well. If you take a look at all of the countries listed in the top 10 and look at the big picture they put out and then see where they fall in the grand scheme of things and this all makes sense. Is the US an innovative country? Yes, but I think we (the US) have also become complacent due to our position(s) within all these rankings. The thing that I try to do is not fall into the trap of taking these rankings as they are presented. Not being #1 doesn't mean you're a loser. Try and view these rankings in a horizontal way. I've been traveling for a month in Central America and my writing stinks! Just wanted to drop my 2-cents here. THANK YOU for the article!

Manaek Simamora

March 14, 2010 4:56 AM

Thanks to the link given by Soumitra Dutta, I can appreciate the value of the report. This is the first time (for have no information on the 2009 report before) I find a comprehensive report on this global innovation index. It is quite easy to find such information, e.g., at OECD scale…; but not at this scale. Policy makers, especially in many emerging and developing countries, will get benefit from this study.

I am also very thankful to INSEAD for providing full access to the report and detailed framework used. Regardless of the natioality of who does the study and who sponsor it, for me, ‘INSEAD Inside’ with its international reputation guarantee objectivity of the report/study.

Just a brief note…. Indonesia’s rank on the ‘Availability of Venture Capital’ to finance risky projects seems to be inaccurate. Almost all VCs in Indonesia behave just like conventional banks—funding low risky business; although some efforts are underway to improve this condition. But this does not diminish the value of the report/study as it is based on availble sources as acknowledges in its methodology. Instead this can encourage various parties in Indonesia to provide appropriate data/informaion IF it wants to have a better picture of its innovation landscape (I know a group of researchers has been planning to undertake similar study for Indonesia. For sure this team will gain benefit from this report.)

Again thank you very much for this valuable contribution from INSEAD. Manaek Simamora, Indonesian Institute of Sciences-LIPI/Association of Indonesian Business Incubators (AIBI).

Enrique

March 29, 2010 10:28 AM

7 of the top10 countries are European, two Asian and one from Oceania (even if these three are former British colonies: HK, Singapore and New Zealand)

4 are E.U. member states and 2 are members of the Eurozone, including the only midsize economy (The Netherlands)

Kumar

March 30, 2010 12:32 AM

It is a very interesting analogy. Yes, in your view India is the arms and legs - today. With all the exporting of innovation to India and China, for free, just to produce low cost goods and services, it will not take very long for them to beat the US. The "arms" are the ones that feeds us. We need to think about the future - where is US going to be in the next 10-15 years. In my opinion, no time in the history has US exported innovation to outsiders on a wholesale basis. If you read the business magazines very closely, Oracle has already acquired many Indian organizations and IBM as well as others are getting ready to jump in as well. Our thinking is that H1-B visa holders are taking our jobs, whereas we are exporting thousands of jobs to outsourcing. Combined with this is the reverse brain drain. Think about it.

Hendrik Rood

April 18, 2010 3:20 PM

The interesting point of this top-10 list is that most of the European countries that are on it were known in the second half of the 19th century for their entire lack of or very weak patent legislation.

For sources that underpin this observation one has to look at the work of then MIT/NBER and now Stanford's Petra Moser [http://www.jstor.org/pss/4132712] or a book like that from AEI scholar Eric Schiff (1971) on Switzerland and the Netherlands called: Industrialization without National Patents. Princeton University Press.

Most countries that industrialised first in the 19th century (UK, Germany, France, Belgium, USA, Japan) developed a strong patent system that then benefited large industrial companies.

The western country's from the list were "Johnny come lately's" and had specialised in different oriented innovations. They have been far more active in sectors that either required recipes, tacit knowledge and craftmanship, where you can thrive better without patent protection.

Software, creative design etc. has until know escaped industrialisation and remains far more "arts and crafts".

The countries on the list were effectively strongarmed around 1900 by the large industrial countries to also adopt a strong patent system. Still, as latecomers they have invested far less in industrial innovation. So now that industrial innovation is moving to mainland China (and out of the city states Singapore and Hong-Kong) they are faster in adapting their economies.

That innovation index is more or less measuring this phenomenon, due to the selection of metrics that compose it.

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