Innovation Rankings

This article is part of 20in20, a series of 20 blog posts in 20 days to kick off the blogging year 2020. This is 20in20:10.

So Germany was just ranked the world’s most innovative country as per Bloomberg’s Innovation Index. So, all good then, eh?

Somehow this doesn’t sit right with me. It just doesn’t quite seem to… capture what’s going on?

Sure thing, there’s a lot of innovation going on here. The manufacturing sector, the SME’s — Germany’s world-famour Mittelstand— has a lot going on in that sense. The Mittelstand companies in particular with all their so-called hidden champions are often really up to speed, working closely with their clients to deliver best-in-class, high-value products or components. This is great — but I’d file it under lowercase innovation.

Research spending in universities and the big R&D institutes (the Fraunhofer Institutes and their peers) is huge, and they do a lot more basic and applied research, or what seems more worthy of the uppercase Innovation.

So why does it feel a little off? Let’s first take this section in the Bloomberg article (the same as linked at the top of this post):

In the Bloomberg Index, Germany scored three top-five rankings in value-added manufacturing, high-tech density, and patent activity. South Korea lost its crown in part due to a relative slump in productivity, falling to No. 29 from last year’s No. 18 ranking in that category.
“The manufacturing sector is still highly competitive and a source for innovation,” Carsten Brzeski, chief economist at ING Germany, said in an email. “Germany’s performance in such indicators is still strong and much better than the recent economic weakness would suggest.”
Still, Brzeski cited several reasons why Germany shouldn’t be complacent about its innovation standing. Its services innovation is much less impressive, and about a third of research and development spending is in the auto industry, meaning “disruption and longer weakness of this sector could weigh on Germany’s innovative strength,” he said.

This really gets to the core of it. Sure, research spending and patents score high in this ranking — but that tells us about value capture and extracting more than it does about innovation.

The major role that the automobile sector plays here is worrisome because it might pretty much crumble. Germany’s flavor of automobile innovation is innovative within an old-school mindset of one car per person, which I don’t see persist. (I might be wrong, but I don’t think so.) Germany’s car makers had hit the breaks when it came to electric for ages, and still are only learning what to do with data & services. It’s like there’s a ton of brain power sitting there that has to be dragged screaming into the 21st century. I don’t see it leading in anything but efficiency and safety, if that. Not nothing, but not “most innovative country” level innovation.

The education weakness mentioned in the article is extremely worrying, as is Germany’s overall weirdly weak approach to immigration: There’s neither a master plan nor, societally, an agreed end point to when an immigrant has arrived, so to speak: When does an immigrant turn to an accepted citizen? Undefined! So it can’t happen. Yet, without immigration, many societal issues can’t ever be solved; and even if it immigration wasn’t about solving societal issues, it’d still need to happen, and with an approach that had a clear and desirable end point for any immigrating individual as well as society at large. But I digress.

To circle back to the more concrete: Our digital government services — usually a good indicator for innovation, I’d say — lag 10 years behind the state of the art as we see it in the UK or Estonia.

Add to that that patents are a standard but — I’d argue, flawed— indicator of real innovation, and we might just see a lagging indicator of innovation here. Because looking at where I see innovation happening in my professional peer group and looking at cutting edge stuff — literally innovation around the edges — that stuff happens rarely in Germany but also wouldn’t (yet) be measurable by those metrics because it’s too far ahead, too far yet from productization and hence measurable so-called productivity.

So overall, to me this seems like Germany might be leading in the “2 minutes into the future” category of innovation, especially where manufacturing plays a role. But certainly not in the “10+ years into the future” type, which to me is the one that matters.

We might need leading indicators rather than lagging once, to be able to determine who’s on a path to prosperity 10-20 years down the road rather than the next 1-5 years. Only then can we capture the type of innovation that really matters: The one that combines sustainability with productivity, and serves societal interests. The one that creates — positive-sum! — value rather than extracts it. The one that’s expansive in its returns.

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