Discussing Efficiency and Innovation as paths to economic growth

Matthew Yglesias talked about the distinction between increased efficiency in the allocation of resources and fundamental innovation. Either can produce economic growth, but he feels in the long-term fundamental innovation that matters most of all.

Yglesisas says San Francisco is a hotbed of inefficiency it’s also a hotbed of real innovation. The corridor that starts in San Francisco and runs down to San Jose is the premiere cluster of technological innovation in the world and has been for some time

Here are problems with Matthew article. He talks about San Francisco’s population (about 800,000) but then credits the innovation of Silicon Valley and San Jose and other parts of the Peninsula to San Francisco. He speak like the artistic innovation of San Francisco is the key driver of economic growth that resulted from the computer and internet revolutions. This is a fundamental mistake because he is attributing developments that came from cities with 2 million other people solely to the artistic city that they are near. His analysis then assumes that the arts and artists in San Francisco were critical to the development of PCs and the internet and the various companies that emerged. This is a sweeping and wrong view.

Cities, regions and countries are now rising to challenge silicon valley giants and they often do not have an artistic city component. An alternative view is that science and technology investments with a large military component were critical.

Systematic Analysis of Innovation for national economic growth

The Global Innovation Index is a global index measuring the level of innovation of a country, produced jointly by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM’s nonpartisan research affiliate. NAM describes it as the “largest and most comprehensive global index of its kind”.

The International Innovation Index is part of a large research study that looked at both the business outcomes of innovation and government’s ability to encourage and support innovation through public policy. The study comprised a survey of more than 1,000 senior executives from NAM member companies across all industries; in-depth interviews with 30 of the executives; and a comparison of the “innovation friendliness” of 110 countries and all 50 U.S. states. The findings are published in the report, “The Innovation Imperative in Manufacturing: How the United States Can Restore Its Edge.”

The report discusses not only country performance but also what companies are doing and should be doing to spur innovation. It looks at new policy indicators for innovation, including tax incentives and policies for immigration, education and intellectual property.

The study measured both innovation inputs and outputs. Innovation inputs included government and fiscal policy, education policy and the innovation environment. Outputs included patents, technology transfer, and other R&D results; business performance, such as labor productivity and total shareholder returns; and the impact of innovation on business migration and economic growth.

Singapore is ranked number one when small and large countries are mixed. South Korea (population about 49 million) is the top for large countries.

For decades, the Singapore government has aggressively courted foreign investment. The Southeast Asian island nation is a center for manufacturing, with strong petrochemicals, consumer electronics, and pharmaceutical industries, and the government has funded the growth of industrial parks focused on nurturing innovation in technology and biotech. Singapore’s universities receive extensive support from the government, helping to make the country an attractive destination for multinationals seeking a well-educated workforce. Although Singapore has a population of just 4 million, the country makes it relatively easy for foreign talent to live and work there.

Singapore is not highly regarded in terms of the arts.
South Korea does have PSY and Korean soap operas. However, that is not a factor in Samsung putting a beat down on Apple in technology.

Martins Prosperity – Creativity Index

Another Creativity Index is Richard Florida’s “overall measure of regional economic potential”. It combines the three T’s (Talent, Technology and Tolerance) to create the index. The three T’s are made up of indexes such as: visible minority, foreign born and gay/lesbian population share for Tolerance, a Tech-Pole index and patents per capita for Technology and Creative Class occupational share and educational attainment for Talent, amongst others.

They have working papers that try to analyze talent versus trade.

Talent is measured as educational attainment and the regional share of knowledge-based occupations; trade is measured as traded industry employment shares. The findings indicate that talent has considerably more explanatory power than trade in accounting for regional economic performance.

Talent trumps trade by a large margin when it comes to regional economic development. The talent variables – which we measure both as educational human capital (college grads) and knowledge workers – explain more of the variation in regional economic performance across all three of our measures. In most cases, the trade variable is not significant, when talent is controlled for.

A second key finding concerns the interaction of talent and trade. We developed a series of combined variables to examine how talent measures – either as educational human capital (college grads) or knowledge workers – might operate through industry structure. What we found is particularly interesting. When it comes to economic productivity and wages, talent has an approximately equal effect through traded and local industries, and in some cases, even a stronger effect when employed in local industries. The results for innovation are slightly different. Here, talent appears to work primarily through traded industries; this is the case for both the human capital and knowledge workers. Still, in each and every case, the combined variables with talent (measured as education or knowledge-based occupational structures) have a bigger effect on regional economic performance than the trade variable alone. This suggests that talent plays a vital role through its contributions through both industry structures, as well as on its own as a condition for regional economic performance.

Overall, our findings suggest that talent, or what economists refer to as human capital, is the key driver of economic development, having a far greater effect than traded industries.

China’s approach – Science and Technology as Strategic Assets

Over the last three decades, to achieve strategic parity with the United States and to construct a modern military, the Chinese have made massive investments in building their science and technology infrastructure.

China adapted the model that Japan, South Korea and Taiwan followed to catch up and challenge the technology leaders.

Lessons Learned

* China is working to build basic and applied science and technology leadership
* Like the U.S. and the Soviet Union in the Cold War they are using science and technology to build advanced weapons systems
* Technology startups are a side effect from these investments

China’s Strategic Investments

* Basic research: National Natural Science Foundation (equivalent to the U.S. National Science Foundation,) ~$1.75 billion budget. The 973 program (National Basic Research Program) part of the Ministry of Science and Technology.

* High technology R&D: 863 Program (State High Technology R&D Program) headed by ex leaders of Chinese strategic weapons programs, and the National Key Technology R&D Program.

* Technology innovation and commercialization: National New Product Program, the Spark program for rural innovation, and probably the most important one for startups in China , the Torch Program

* Science research infrastructure: National Key Laboratories Program, and the MOST program for the construction of research facilities, R&D databases, and a scientific research network

* Development of human resources in science and technology: Programs for attracting returnees or overseas Chinese talent: from the Ministry of Education – the Seed Funds for Returned Overseas Scholars, Chunhui Program, and the Cheung Kong Scholar Program. From the Ministry of Personnel – the Hundred Talents Program. From the National Science Foundation – the National Distinguished Young Scholars Program.

Not just raw artistic innovation

It is competence applied in innovative ways. It is being able to create fundamentally transformative technologies. I think Yglesias is not defining regions correctly and not really distilling the contribution of the artistic components.

Systematic approaches to making successful startups

Key aspects are not just the raw creativity but creativity that makes successful businesses and successful world changing businesses.

There are lessons to be learned from the Lean Startup approach and from trying to transform and intensify and improve the productivity of idea generation and for training people on how to make ideas that scale.

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