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My search for factors advancing corporate innovation has led me to a somewhat unexpected conclusion: to innovate, you need freedom.
This freedom can be realized at three major levels. The first level is individual, manifested as freedom from being discriminated against for whatever reason. Organizations can realize this freedom by promoting diversity and inclusion.
The second level is organizational, realized as providing corporate employees with immunity for failed innovation projects. Organizations can do this by modifying their termination policies.
Do You Live in a Free Country?
There is one more level of freedom, which almost never receives proper attention: the level of political freedoms in individual countries.
I first came across this point in 2014 while reviewing the 2013 Global Innovation Index. The Index ranks innovation capabilities of the world’s nations by using 84 indicators, which include the quality of higher education, availability of venture capital, government support, etc.
Even a brief look at the Index led me to a curious observation: the top of the innovation ranking was heavily populated by established democracies (as defined by the 2013 Freedom of the World Report). The reverse was also true: the bottom of the Index was stacked with countries with an extremely low level of democratic development.
Later, I attempted to boost this observation with some statistical support. I took innovation rankings from the 2019 Global Innovation Index (Y-axis) and plotted them against the rankings of political freedoms from the Democracy Index 2019 (X-axis). Here is the result:
Indeed, a reasonably strong correlation (R2=0.46) exists between the world countries’ innovation potential and the level of their democratic development. Free countries innovate better.
What About Economic Freedoms?
Recently, I came across the 2021 Index of Economic Freedom composed by the Heritage Foundation. The Index evaluates the extent and effectiveness of government activities in areas known to have an impact on economic growth:
- Property rights and judicial effectiveness
- Government integrity and the level of corruption
- Tax burden
- Government spending and fiscal health
- Business and labor freedoms
- Financial and monetary freedoms
- Foreign trade and investment freedoms
Of course, it was tempting to see to which extent economic freedoms correlate with the innovation potential. For this purpose, I used data from the 2021 edition of the Global Innovation Index (Y-axis) and plotted it against the rankings taken from the 2021 Index of Economic Freedom (X-axis). The results for 129 countries for which both sets of data are available are presented below:
Like with political freedoms, a country’s innovation potential strongly correlates with the level of its economic freedoms.
The State of the United States’ Innovation
At first glance, the state of the United States’ innovation is bright: over the past three years, the country has consistently held the third-highest position in the Global Innovation Index (all three years following Switzerland and Sweden).
However, clouds might be gathering on the horizon. The 2021 Index of Economic Freedom places the United States only at the 20th position, of a total of 178, in the rankings (in the category of “mostly free” countries). Even among the Americas nations, Canada and Chile score higher.
The state of political freedoms appears to be trending in the wrong direction. Until 2015, the Democracy Index has defined the United States as a “full democracy.” In 2016, for the first time, the country was classified as a “flawed democracy”; its rankings have been gradually sliding down ever since. Freedom House, non-profit advocacy on democracy, political freedom, and human rights, points in its 2021 report that the United States finds itself among 25 world’s countries with the largest decline in freedom and democracy over the past 10 years.
True, the United States still spends a lot of money on R&D—more than any other country in the world—a factor that may explain the stability of its innovation ratings. However, as I pointed out before, only about 30% of this money comes from the federal government, whereas 70% of it is contributed by the private sector. In the long run, this may jeopardize investments into fundamental but potentially risky R&D projects.
Another concern is the growing mistrust in science among Americans; some egregious examples of this mistrust have been on display during the ongoing COVID-19 pandemic. Research shows that mistrust in science often manifests as unwillingness to support it. Taking to the extreme, this sentiment may result in attempts to “defund” science both at the state and, worse, federal level.
Finally, a development to watch is a possibility that some 20 states may soon essentially ban all or nearly all abortions, a social policy shown to negatively affect innovation at the state level.
Innovation has been the driving force of American growth and prosperity—and, as such, a key component of the nation’s psyche. And yet, given current trends, the American innovation edge can’t be taken for granted. Losing it will have consequences we Americans don’t even want to contemplate.
Image credit: Basil James on Unsplash
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