'Like no other country, Switzerland has succeeded for many years
in keeping the other emerging and innovation-oriented countries at
a distance. Switzerland has had a consistently high rating on the
Innovation Indicator for almost the complete evaluation period.
Only few nations have succeeded in achieving similarly good
positions.
This leading group (Switzerland, Singapore, and Sweden) is
followed by a broad midfield of countries. This ranges from Germany
with an indicator rating of 57 to South Korea with 43 points.
Germany lies neck and neck with Finland, just ahead of the
Netherlands (56) and Norway (55). These four countries thus differ
only marginally in their overall innovation capacity.
Erosion of USA
Behind this group of countries in this year's ranking are
Austria and the USA (rating 53). Austria especially has advanced
several places in the past years. After hovering around the 14th
place since the beginning of the new millennium, it now lies in 8th
place, according to the forecasts for 2010.
This year's analysis clearly revealed that the USA no longer
belongs in the leading group and that with the ranking 9th place
(rating 53) in 2010 they belong only in midfield - behind Germany.
Due to the banking and economic crisis which began in the USA and
had its worst impacts there, the country has dropped down several
places in the past two years.
An erosion of the US-American position, however, was clearly
recognizable even before 2009. For a long time they were able to
defend second place behind Switzerland, but in the wake of the New
Economy crisis at the millennium they were overtaken already by
Sweden and Finland as well as finally Singapore and the
Netherlands. Now the USA have slid down even further and have
fallen behind - even if only just - Germany, Finland, the
Netherlands, Norway and Austria.
As this development results from structural problems, the USA
threatens to remain permanently in the midfield, if not to slide
down even further. It is still the largest R&D nation and its
science system is also the largest worldwide, in absolute terms.
However, more could be expected of the USA because of the size of
the country. In addition, greater dynamics are presently found in
other countries.
A particular challenge for the USA is the enormous balance of
trade deficit, especially for high-technology products. The USA
imports around 40 percent more high technology than it exports. All
things considered, the massive investments in R&D and science
no longer bring advantages for the USA on the international scene
to the former extent. This is partly because other countries have
also recognized the significance of research and innovation and
competition has increased.
The American economic system
Ultimately, the American slide down the Innovation Indicator is
also a symptom of more fundamental problems in the entire economic
system. A currently sharply rising budget deficit, and in
particular a notoriously negative balance of trade exert pressure
on the system, whereby the high budget deficit is already almost a
tradition in the USA since the days of the Reagan administration in
the 1980s. At that time, significant tax cuts and state investments
were intended to boost the economy.
These debt levels exploded as a result of the massive military
expenditures since 2001. This was accompanied by the challenges to
the welfare systems caused by the current banking and economic
crisis. The budget deficit of the Obama administration has more
than tripled from 2008 to 2009. Despite the ideal of lean
government that all political parties claim to represent, which the
Americans have associated for decades with dynamic growth, it is
questionable in the meantime whether a paradigm shift towards a
debt-financed government activity has not taken place.
Experiences from the 1970s as well as from the 1990s in Japan
indicate that such politics are not sustainable in the long term.
Rather, the state expenditures financed by excessive borrowing
increase the money supply and, under certain circumstances,
discourage private investment. Possible consequences are inflation
and a lower medium-term economic growth.
Budget deficits in the USA
In addition to the federal deficit, the USA also has an enormous
current account deficit, which increases the need for capital
inflows and thus exerts pressure on the US dollar, which again
increases inflation. The problem of American indebtedness to
foreign countries is in many respects more problematical than
Germany's.
Firstly, the German budget deficit is lower - not only in
absolute terms, but also measured in terms of economic power.
Secondly, in Germany the budget deficit is countered by a high
surplus from the private sector, so that in net terms the state is
indebted to its own citizens, while in the USA the private sector
is becoming increasingly indebted to foreign countries, i.e. the
nation as such is also becoming ever more dependent in the medium
term.
The problem is also how the debt-financed resources are
utilized. The US trade deficit is primarily due to consumer goods.
Many consumer goods such as, for instance, electronic articles are
subject to stronger price competition today than was the case
several years ago, so that producing these goods cheaply is
absolutely imperative. However, the western industrialized nations
- also including the USA - have not been able to offer cheap
production sites for some time now.
For this reason, the significance of innovations and new
technologies at a qualitatively high level are a basic
pre-requisite for the success of western industrialized countries,
at least for those that have no raw materials to offer, like Norway
or Russia. It can be assumed that the incurred debts will not be
utilized in such a way that economic returns in the form of
strengthening the US-American competitive position are to be
expected.
The USA is losing importance
According to the analyses in the new Innovation Indicator, the
USA will no longer be among the leaders in the coming years, not
only in relation to its size and expenditures. In the medium term,
it will no longer occupy a leading place in absolute terms, neither
for R&D expenditures nor in scientific publications or patents.
In a far distant future it will also no longer be the largest
economy in the world.
This is already foreseeable today, because the USA's population
is too small. It is to be expected that at least China and possibly
even India, if they continue to increase the productivity of labor
and capital inputs at the present pace, will catch up with the USA
in terms of economic power and ultimately overtake it. This must,
however, not be a fundamental problem for the USA or for other
countries.
With an indicator rating of 52, just behind the USA, Belgium is
in tenth place. This is followed by a group consisting of Canada
(51), Taiwan (50), Denmark (50) and the two large European
industrial nations France (50) and Great Britain (49), with
Australia (48) and then Ireland (47), which is unlikely to maintain
even this place in future in view of the austerity policies
resulting from the economic crisis.
Read the full report here.