The 8 Best Innovation Ideas From Around the World By Ross DeVol What if we took the world's best

ideas for helping young companies and stitched them together to create a kind of Innovation Super-Nation? Maybe it would look l ike this...

WIKIPEDIA "The first step in winning the future is encouraging American innovation," Presi dent Obama declared in his 2011 State of the Union address. He's right. But what 's the pathway to "encouraging American innovation?" Innovation is a central element in promoting national economic performance, espe cially for the United States, which is at the technological frontier and can't e ffectively adopt technology invented elsewhere to achieve growth. As Paul Romer proposed in his New Growth Theory, investing in innovation is a crucial endogeno us factor - and therefore one firmly in the grasp of policymakers - that creates economic growth. Future growth depends upon our ability to make new things. Nat ions with the ability to innovate are better poised to nurture entrepreneurship, attract early-stage risk capital and sustain a diversified ecosystem that bolst ers long-term economic growth. Where great ideas really come from. A special report Some of the answers to our innovation challenge will come from within the U.S. W e remain in many ways the most dynamic country in the world, with more top unive rsities and multinational corporations than any other nation. But it's foolish t o imagine that the best innovation ideas in the world already have a home in pol icies coming from Washington, D.C. Here is a world-wide tour of the best ideas t hat our government should import to jump-start innovation. These policies encapsulate human capital, both indigenous and from immigration. Some are aimed at enhancing research and development (R&D), such as direct gover nment funding of R&D, R&D tax credits and corporate tax rates. Others nurture in novative small and medium firms and improve access to risk capital. I've also co nsidered policies encouraging technology transfer and commercialization from uni versities and other research centers and those relating to the overall business environment. FROM SINGAPORE: A BETTER WAY TO INVEST IN PEOPLE

First, let's look to Singapore, which developed a set of indigenous human capita l strategies that radically altered its economy. In 1960 Singapore had a per cap ita GDP of $2,300, roughly equal to Jamaica's. Singapore focused on becoming a f inancial services and research hub, while Jamaica concentrated on tourism. Fifty years later Singapore's per capita GDP was $43,100, while Jamaica's is slightly above $5,000. The difference was investment in human capital. Singapore's education system is heavily subsidized by its Ministry of Education to ensure a meritocratic princip le that identifies and nurtures bright young students for future leadership posi tions. In the '60s, Singapore attracted foreign capital by targeting labor-inten sive manufacturing to create jobs. As its workforce became better educated throu gh its investment strategies in the '70s, it began attracting higher value-added

industries such as petrochemicals, electronics and data storage. Today, Singapo re is a leader in a host of knowledge-based industries, including the biomedical sciences. In just the past decade, the number of scientists has leapt from 14,5 00 to 26,600, a gain of more than 80 percent. In the most recent Global Competit iveness Report put out by the World Economic Forum, Singapore ranked 1st in the quality of its math and science education. FROM CANADA: A BETTER WAY TO TREAT IMMIGRANTS

Best practices in high-skilled immigration policy can be witnessed in Canada. Th e government has consistently promoted Canada as a destination for immigrants an d prides itself on having a fairly open and straightforward immigration process. In 2010, Canada welcomed 280,636 immigrants while the U.S. accepted 1,042,625 - on a per capita basis less than one-half of the Canadian figure. Under the Can adian immigration system there are three categories: economic, family reunificat ion and refugee. The economic class is based upon a detailed points system that calculates relevant skills. Canada, with a population one-tenth that of the U.S. , accepted 186,913 "economic immigrants" in 2010, accounting for 66.7 percent of its total. These immigrants unquestionably contribute to economic growth, job c reation and increased demand for housing. In contrast, the U.S. currently caps e mployment-based visas, including those with extraordinary skills, professionals holding advanced degrees, skilled workers and professionals, special immigrants (e.g. religious workers), and investors, at 140,000, or just 13.4 percent of all immigrants. Toronto alone absorbs approximately 100,000 immigrants per year, the vast majori ty high-skilled (or members of Richard Florida's Creative Class) under the econo mic category and has transformed its economy. In addition, Canada is home to 981 ,137 temporary foreign residents, the majority of whom are either foreign worker s or foreign students. Temporary foreign residents can apply for permanent resid ency in Canada under the "experience class." FROM FINLAND: A BETTER WAY TO INVEST IN RESEARCH

Innovation, along with entrepreneurship, involves a lengthy process of research and development, one that inevitably entails risk for firms and industries. Ther e are three main categories of risk: regulatory, innovation and monetary. My res earch and others' shows that lucrative reward systems and regulatory structures directly influence the level of R&D activities. Tax credits are one way to effec tively reduce the risks inherent in conducting R&D. Some readers will be surprised to learn that France has the most generous tax in centives for R&D among the OECD countries. The government is continually expandi ng the scope of the tax credit, and the amount of funding available nearly doubl ed between 2006 and 2008. A company can receive up to 50 percent of its R&D cost s the first year; 40 percent is covered the second and 30 percent in the third. There is a mechanism that allows funding to be "fast-tracked" for small- and med ium-size enterprises, and in most cases, the waiting period for approval is only three months. Lastly, the tax credit is either deducted from the annual corpora te tax or reimbursed after three years, providing greater flexibility. The tax s ubsidy rate per $1 of R&D in France averages 43 cents, while in the U.S. it is a paltry 7 cents. Finland serves as another example of using policy solutions to transform its eco

nomy from resource-based to knowledge-based through consistently increasing gros s expenditure on R&D. Simultaneously it has also pursued international scientifi c collaboration, university/industry partnerships, and enhanced venture capital availability. On a per capita basis, Finland now claims double the OECD average of patent output. FROM SWITZERLAND: A BETTER WAY TO THINK ABOUT TAXES

International differences in corporate income tax rates are a key factor determi ning where firms locate their corporate headquarters, R&D activities, and a host of other high-value functions. Today, globalization forces firms to operate a w orldwide network of activities to remain competitive. Because innovation is mobi le across borders, tax policies have a stronger than ever affect on where innova tion assets are placed. Switzerland's corporate tax rates are among the most attractive in the OECD. The combined federal and local corporate income tax rate in Switzerland is 21.2 per cent, compared to the U.S. rate of 39.2 percent, which is the second highest aft er Japan. Unlike in most countries, individual Swiss states levy a larger share of corporate taxes and have a high degree of autonomy in terms of setting their own rates. Between 1998 and 2008, Switzerland attracted 180 regional headquarter s of large foreign firms. In recent years the UK has lost a number of corporate headquarters to Switzerland. This has been most prevalent in financial services and the biomedical sectors. It's no accident that Switzerland ranks 1st on the I NSEAD global innovation index. FROM ISRAEL (AND GERMANY): BETTER WAYS TO CAPITALIZE SMALL AND MEDIUM ENTERPRISES

Israel has one of the most active venture capital networks in the world. While t he U.S. might lead the world in venture capital investments in absolute amounts, Israel has surpassed it relative to the size of its economy. The Yozma program (started in 1993) is often credited with initiating the VC industry in Israel. T he Yozma program provided tax incentives for foreign VC investments, and the fun d was used to match investments. This provided a mechanism of due-diligence for the investments; professional VCs had vetted the firms. Yozma was also used to i nvest in existing domestic VC funds to help support the new industry. The objectives of the Yozma program were to: 1. Establish the critical mass for a competitive VC industry 2. Learn from foreign partners 3. Create a network of international contacts Typically, investments were directed toward high-technology companies in fields in which Israel already had an advantage or competency. By 2000, the amount of V C invested in the country had soared. Looking at policies that nurture small- and medium-size enterprises, an outstand ing example is the German Fraunhofer system. Germany is known for its mid- to hi gh-technology manufacturing. While the U.S. has witnessed a decline in manufactu ring output as a share of GDP, Germany's has remained steady. By specializing in medium and high technology manufacturing, Germany is able support relatively hi gh wages. The Fraunhofer Institutes in Germany are an important reason for its c ontinued success in manufacturing. The Institutes support manufacturing SMEs by creating partnerships between businesses and universities and encouraging indust rially-relevant research in advanced technology areas. The Institutes have a bud

get of $2.35 billion, with $2 billion of that generated through contract researc h or publically financed research projects. There are eighty research centers wi th a total staff of 18,000 qualified scientists and engineers. The expertise and partnerships created through this initiative helped sustain high technology man ufacturing in Germany and resulted in a high level of market share for SMEs, fue ling broad-based export growth. FROM GREAT BRITAIN: A BETTER WAY TO TURN IDEAS INTO COMPANIES

The United States may be a world leader in technology transfer and commercializa tion outcomes, but it could learn something by looking to the U.K. Universities in the U.K. are among the world's elite in scientific research. The 2011 QS Worl d University Rankings place the University of Cambridge first, the University of Oxford fifth, Imperial College London sixth and University College London seven th. Building upon this strength, the British government has invested in Engineer ing and Physical Sciences Research Councils at three university research centers . Its aim is to mobilize a collaborative effort between researchers and industry to commercialize academic R&D, mostly in regenerative medicine and medical devi ces. The U.K. launched the Innovation Investment Fund in 2009 to support promisi ng technology-based businesses, especially in clean tech and the life sciences. The government hopes to attract capital from the private sector and eventually c reate the largest technology fund in Europe, which could be worth up to $1.6 bil lion over its 12- to 15-year life. FROM SOUTH KOREA: A BETTER WAY TO SUPPORT BUSINESS

For an example of creating a business environment that is highly conducive to in novative activities and making sure they are imbedded in the economy, look to So uth Korea. The Korean government was quick to respond during the recent global f inancial crisis. The country is highly dependent on exports, and foreign trade w as badly affected by the recession (initially the economy experienced a 15 perce nt contraction in real GDP). In response, the government instituted a number of reforms making it easier to start a business. It also cut the corporate tax rate . The time required to start a business was reduced to 7 days in 2010, down from 14 in 2008. The government created start-biz, an online system where entreprene urs can sign up to start a business. Korea moved up to 8th on the World Bank's 2 012 Doing Business report, an improvement from 15th place the prior year. Korea' s real GDP growth rate in 2010 was 6.1 percent, the highest in the OECD. *** This is just a small sample of best policies from around the world. Over the lon g term, national wealth is determined by how quickly innovations can be imbedded into a country's economy, enhancing productivity growth. If the U.S. can reform ulate a group of strategies similar to those on this list, it could catapult its elf to renewed preeminence in global innovation. Only visionary leadership among political, business and policy officials is required. That said, leadership see ms to be in short supply in Washington, given the partisan discord. Innovation m ust become a top priority and is something that leaders in Washington and around the country must think about when they wake up in the morning. This article available online at: http://www.theatlantic.com/business/archive/2011/11/the-8-best-innovation-ideas-

from-around-the-world/248695/ Copyright 2011 by The Atlantic Monthly Group. All Rights Reserved.