As the world economy begins to shake off the effects of Covid-19, nations will be looking to gain competitive advantage as they recover from the recession caused by the pandemic.
Research has shown that innovation remains a key element of competitiveness and a factor that can differentiate national economies in terms of growth and development.
An important data source to understand this phenomenon is the Global Innovation Index (GII) which was published earlier this week. This not only captures the innovation ecosystem performance of 132 economies and ranks them, but also tracks the most recent global innovation trends.
So what does it say about the state of innovation during the Covid-19 crisis?
Whilst economies have generally had a rough time over the last 18 months, the GII 2021 report shows that not only has investment in innovation shown great resilience during 2020 but, in certain sectors and regions, has exceeded expectations.
In terms of ranking, it is worth noting that only a few economies are consistently delivering and include Switzerland (ranked no 1), Sweden (2), USA (3) and the UK (4) which have all been placed among the top five most innovative nations in the past three years.
Despite this success, the data suggests that the pandemic has accelerated the long-term geographical shift of innovation activities toward Asia, even if North America and Europe continue to host some of the world’s leading innovators.
It is fair to say that many economic historians expected severe cutbacks as a result of the shutdowns across the world which led to Global output declining by 3.3% in 2020. However, the reverse has actually happened and the performance of innovation measured by a number of key indicators has improved in the last 12 months.
For example, publication of scientific articles worldwide grew by 7.6% and whilst this was lower than for 2019, it was at was at a far faster rate than average for the last ten years.
In addition, international patent filings reached a new all-time high and increasing by 3.5%. This was largely driven by growth in China, the Republic of Korea and the USA in areas such as medical technology, pharmaceuticals and biotechnology, all of which were directly linked to the race to find a vaccine for Covid as innovators in healthcare looked to commercialise their inventions.
Indeed, this contrasts starkly with previous years when patent activity was dominated by digital communications, computer technology and audio-visual technology.
In terms of business expenditure on R&D, data from the top 2,500 largest corporate R&D spenders worldwide showed that overall, they had increased their R&D expenditures by around 10 percent in 2020 with 60 percent of companies reporting an increase.
This pattern was not the same across all sectors with firms in areas such as software, ICT, pharmaceuticals and biotechnology that were positively affected by the pandemic showing above average increases. In contrast, there was a decline in R&D spending in the automobile sector, as well as the travel, leisure and personal goods industries.
However, it is also worth noting that those sectors with the potential to raise living standards, improve human health and protect the environment, such as ICT and renewable energy and that will be at the heart of building back better, also demonstrated considerable progress in the last year
A key indicator of the commercialisation of R&D into the market is that of venture capital deals and in 2020, these grew by 5.8%, exceeding the average growth rate over the last decade. Not surprisingly, firms that were located in sectors that were central to containing and managing the pandemic were the one to see significant increase in investment. These included compute software, hardware and electrical equipment, pharmaceuticals and biotechnology.
However, what is fascinating about the geographical distribution of venture capital is that VC deals declined in Europe and North America in the second quarter of
2020 although strong growth in the Asia Pacific region made up for this fall.
All of these indicators show a positive picture of innovation globally but perhaps the most amazing result of 2020 has been the acceleration of technological progress as scientists and businesses developed, clinically tested and manufactured Covid-19 at an unprecedented speed.
In fact, whilst such developments normally take years to come to fruition, it is incredible to think that 16 months after the pandemic broke out, 3.5 billion people were estimated to have received at least one jab of the vaccine.
Therefore, whilst historically innovation is one of first areas to be cut back during times of economic crisis, the data from the latest GII report suggests that contrary to established norms, it has actually thrived. The pandemic, instead of being an inhibitor of progress, has been a catalyst for development and change.
Of course, the real question is whether this will continue over the next few years but with the post-Covid world changing in so many ways, governments, universities and businesses will have no option but to invest in innovation if they are to stay ahead of the game.