"Going forward, an economy's competitive edge will depend on its ability to maintain a superior talent pool and knowledge base, along with an environment that encourages and rewards new ideas, products and processes," said Bart van Ark, Chief Economist of The Conference Board and one of the report's authors. "Our report lays this out for the United States - but it's a universal truth."
Today, the scarce and intangible inputs that create a competitive advantage - ideas, knowledge, labor quality (talent) - are much more mobile than the tangible and previously plentiful inputs that gave the United States much of its historical edge. Traditional contributors to growth like land, natural resources and labor quantity are maxing out due to the aging of the U.S. population, uncertain immigration trends, continued rising trends in outsourcing and off-shoring, and the technological advances of the 20th century.
These shifts produce a slowing effect on economic growth, while the "knowledge economy's" share of output growth continues to grow in importance. Even the information technology so critical to U.S. economic growth over the past two decades will not translate into further gains without investment in intangible inputs.
A more systematic analytical approach is needed to understand how innovations come about at the country and the company levels, with new measuring tools that appropriately capture expenditures on knowledge and idea generation, the report states. Current national and firm-level accounting structures, typically more appropriate for the past's reliance on bricks and mortar, often treat these expenditures as costs rather than investments - and economies and firms generally try to decrease costs and increase measurable ROIs.
Changing this mindset and practice to enhance competitive advantage will require developing new metrics to measure intangibles. The report puts forth a relatively simple framework, presented at the economy level but adaptable for use by companies, that treats innovation as a key source of economic growth along with conventional bricks and machinery, capital, labor force size and skill, and productivity.
In recognition of the acute importance of innovation particularly in this economic downturn, The Conference Board is making this report downloadable free of charge to the general public.
"We hear it daily across the global business community: The only way out of this crisis is to innovate our way out," said Gail Fosler, President of The Conference Board and an author of the report. "Innovation is a major element of many of our research projects and executive forums. It should be front and center in strategic planning at all levels of companies and economies."
"This report highlights the critical need to invest in innovation in order to restart economic growth. History suggests that the countries and companies that invest in innovation during the downturn will be the strongest beneficiaries from the recovery - and in fact they'll help to drive that recovery," said Brad Smith, Microsoft Corp. Senior Vice President and General Counsel. "When we look back, successful companies during the Great Depression focused on reducing their debts and cutting their overall costs while sustaining their overall R&D and using innovation to bring new products to market."
