Swedish know-how in a novel way

Sweden is the best EU country for innovation, according to a new report that ranks the climate for innovation in 82 countries. The survey by the Economist Intelligence Unit (EIU) ranks Japan as the most innovative economy, followed by Switzerland and the United States, with Sweden in fourth place.

Innovation, which the report defines as "the application of knowledge in a novel way", is critical for economies keen on keeping a competitive edge. The survey places 11 EU economies in the top 20. Behind Sweden come Finland, Germany, Denmark and the Netherlands, all in the top ten. High-ranking countries exhibit many of the important innovation ‘inputs’ such as heavy investment in education and research, an unobtrusive regulatory climate and respect for intellectual property. For innovation to succeed, those inputs must be translated into outputs, or practical advancements with an economic dividend.

Fifteen of the top 25 innovative countries in the world have populations of less than 10 million, pointing to what the survey calls a "small country advantage". Small European countries are able to derive a comp-etitive advantage from "clusters of world-class industries in research-intensive sectors", according to the report.

Per Eriksson, director-general of Sweden’s innovation agency Vinnova, says that small countries, with no large internal market to fall back on, tend to innovate because they learn that "you can’t rely on yourself". In small countries, "You have to open your markets. You have to have innovation. You have to co-operate with customers, suppliers and also competitors." Eriksson cited a culture of innovation and co-operation between univ-ersities and businesses as factors contributing to Sweden’s success.

The report predicts Lithuania will jump from 51st place to 40th by 2011, the largest projected improvement of any country. The jump is due to Lithuania’s increased protection of patent rights, rising spending on research and new "knowledge" parks to stem its brain-drain - the flow of educated researchers and potential innovators out of the country. Despite some similar EU-wide efforts to encourage research and development (R&D) spending, the EU is unlikely to overtake the lead of Japan and the US by 2011, according to the report. The Lisbon Agenda goal of spending 3% of Europe’s gross domestic product on R&D by 2010 looks sure to be undershot. EU15 countries spent only 1.91% of GDP on research in 2005, far lower than the US’s 2.68% and Japan’s 3.18%, according to EIU figures. The 3% goal may not have been realistic, says Simon Tilford, head of the business unit at the Centre for European Reform, but there is still more Europe should be doing to create incentives for innovation.

The survey uses patents as a measure of innovation in a given country - another area where Europe lags behind Japan and the US. Tilford cites the high cost of patenting in the EU as a factor keeping patents low.

Eriksson suggests the most important thing Europe could do is to "move money from agricultural support to support for research and innovation", adding, "We have to move from planning discussion to more action." Eriksson also warns that the competitive pressure on Europe to innovate applies in the policy arena as well. "If a country doesn’t have a policy that a competitor has, we will lose jobs and competent people."

Increased research and development spending may not be enough to put the EU on top of the list of innovators. Another key Lisbon goal was raising the proportion of privately-financed R&D to 67%, currently at 55%. One of the motives for that goal was that public R&D spending may not be as efficient in producing worthwhile innovations, according to Tilford.

Only three of the world’s top ten companies for innovation are in the EU, according to a UK government survey of the world’s top 250 companies. Those in the EU saw R&D investment rise by a slow 5.4%, below the average increase for all companies of 7%.

Tilford says a lack of demand for innovative products in Europe is part of what keeps private R&D figures low. In terms of ways to create demand for an innovation, one of the best ways is an incentive targeted at the development of a specific technology.

The survey points to the use of prizes - such as the "X prize" for the first privately-funded manned space flight - as a good way to encourage innovations. Such ‘demand-side’ solutions may be the key to pushing EU countries higher in the rankings.

Sweden is the best EU country for innovation, according to a new report that ranks the climate for innovation in 82 countries. The survey by the Economist Intelligence Unit (EIU) ranks Japan as the most innovative economy, followed by Switzerland and the United States, with Sweden in fourth place.