Innovation: The Key to Competition?

CSPS Fellow Caroline Wesson discusses the increasingly competitive market competition in technology innovation, and how this competition necessitates national-level innovation systems.

The global economy has become increasingly more complex since the inception of the World Trade Organization in 1995. At that point, it appeared that economic competition was more about an economy’s size or existing trade barriers. Meanwhile, several late developing economies were pursuing policies of export-led development and industrial policy. Examples include South Korea, Taiwan, and China. These models of growth advocated for investment into specific industries which were targeted for their export potential, value potential, and any resource advantages the country may have had. For instance, the Taiwanese government invested heavily into the development of semiconductors and the manufacturing processes for semiconductors through the creation of science parks and educational programs, and additionally fostered international links with relevant stakeholders in the semiconductor industry. Similar strategies became quite popular in East Asia, notably in China which also supplemented this approach with other policies and initiatives of their own.

It seems that the current trend is that many countries are now looking to develop domestic technology industries in order to compete on the global stage and gain international prestige. This has led the term innovation to become a buzzword in the fields of economics, technology, and even national security. While increased attention on innovation is productive for understanding the competitive environment of the global economic system, it is not always clear what is being communicated through the term innovation. Famously, innovation is defined by economist Shumpeter as creative destruction – and considers an innovation to be a new product or idea which eventually overturns an old idea. Another notable definition comes from Romer, who considers innovation in terms of new ideas which catalyze experts to create new knowledge. Meanwhile, the Oxford dictionary considers innovation simply as the “introduction of new things, ideas, or ways of doing something.” With little consensus on what innovation is, it is difficult to understand how it works to catalyze economic growth and changes in national security.

Innovation is important because it leads to the development of new and improved technologies which then have the potential to grow a nation’s income, increase trade competitiveness, improve a nation’s ability to make war, and improve a society’s standard of living. Since today’s world is driven by technology, it is important for countries to continuously innovate in order to maintain or improve their international standing.

In the past, the development of new technologies was less contentious, but today’s environment is increasingly competitive. As noted above, some countries have been quite successful in using policy and investment to foster environments where innovation occurs quickly and in impactful fields of technology which then have wide implications for economic performance, quality of life, and national security. It is now necessary for countries to have national innovation strategies, formally knowns as national innovation systems (NIS). National innovation systems are defined by leading scholars in the field, Lundvall and Freeman, as sets of institutions that interact to influence the development of technology. Essentially, a NIS encompasses the policies and institutions which seek to foster new product and idea creation within both private and public entities. A non-exhaustive list of example components of a NIS includes research funding programs and institutions, government to industry consortiums, and public universities.

The reality of the international situation is complex. There is an absence of studies that systematically study how NIS have impacted the global economy. What is known is that some of these programs are quite contentious and can be considered everything from subsidies, protectionism, and corporate espionage. It is no coincidence that innovation has gotten more attention since tensions between the U.S. and China have intensified. China’s NIS includes programs such as the Thousand Talents program, which has funded researchers from around the globe. The U.S. claims that this program functions primarily to steal intellectual property which was at times created using public funds. More traditionally, others have taken aim at the Chinese government’s direct intervention in and funding of the activities of firms, which could potentially enable firms to take more R&D risks. It is important to note though, that China is not the only country with an aggressive approach to innovation, despite the amount of attention they are given.  

Given this, is there a path forward? What should countries be doing in order to compete in this environment? It seems that adopting a well-functioning national innovation system is essential. We must also recognize that there is no one-size-fits-all approach to innovation. If the recipe for innovation were as simple as importing the successful Taiwanese model, more countries would have already adopted it. Governments should think seriously and strategically about performing the proper research to implement an appropriate national innovation strategy, or to encourage smaller regional subunits to adopt their own innovation systems. Adopting an effective NIS could grant a country a competitive edge in both the realm of economics and national security.

Caroline Wesson is a third year PhD student studying Political Science at George Mason University where she is a President’s Scholar and a graduate research assistant. She also holds a bachelor’s and master’s in International Affairs from the Georgia Institute of Technology. Caroline is currently working on research related to the intersection of culture, technology, and economic development. In the security realm Caroline produces research on military innovation, national innovation systems and strategic trade, and emerging technology. Caroline was a research intern with Center of Strategic and International Studies in 2019 and worked on their ChinaPower Project where she contributed to pieces on Chinese innovation, web connectedness, and the WTO. Caroline also serves as the Managing Editor for the Arts and International Affairs journal. During the summer of 2020 Caroline was a Summer Associate at the RAND Corporation working on issues related to science and innovation.

Photo can be found here