GII 2021 highlights the incredible resilience of innovation investments

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On September 20 this year, the World Intellectual Property Organization (WIPO) published the Global Innovation Index (GII) 2021, one of the most influential reports on the relative strengths of different countries' innovation ecosystems. Among the key findings of the 2021 edition was the remarkable perseverance of investments into innovation in the face of the COVID-19 pandemic. In some areas, especially those involved with efforts to contain the disease, R&D expenditures increased much more than many expected, given the economic slowdowns that the pandemic has created.

Historically, economic downturns, especially those associated with healthcare crises like pandemics, have typically led to cuts in innovation investments as firms pull back on these costs to deal with rising uncertainties. In a break from this trend, the GII 2021 report includes several data points indicating that scientific output continued to build upon its remarkable gains in 2019 when global R&D expenditures increased by 8.5 percent to an all-time high. National governments and top private firms that have disclosed their R&D budgets for 2020 show sustained growth in R&D investments that year. The WIPO also saw a 3.5 percent increase in international patent applications filed, reaching a record high thanks in large part to energetic filing activity in the medical technology, pharmaceuticals and biotechnology sectors.

While the COVID-19 pandemic has generally depressed the world's economy, it has led to some uneven results within the innovation landscape as different industries displayed growth or contraction of spending. For instance, the GII 2021 found that investments into innovation grew in sectors involved with COVID-19 containment, including information and communication technology (ICT), ICT hardware and electrical equipment, pharmaceuticals and biotechnology. Conversely, firms in the transportation and travel sectors, which had their business models completely upended during the pandemic, tended to decrease their R&D investments.

In national rankings, the top-rated economy for the 11th consecutive year was Switzerland, followed by Sweden, which maintained its second-place ranking from last year. According to the WIPO, these two countries have been within the top three spots of the GII's overall national rankings for more than 10 years. For the past three years, Switzerland and Sweden have been joined in the top five by the United States (#3 in 2021) and the United Kingdom (#4 in 2021). This year, the Republic of Korea made it into the top five for the first time since the GII began in 2007, ranking in fifth place.

Innovation investments during the COVID-19 pandemic

This year's GII makes it clear that while innovation investments were steadfast throughout the pandemic, the past year did little to change the geographic distribution of where those investments were being made. North America, comprising solely the United States and Canada (#16), maintained a slight edge over Europe, which is home to 16 national economies ranking in the top 25. The only geographical group to make progress in closing the innovation gap with these two continental regions was South East Asia, East Asia and Oceania (SEAO). This region's success was buoyed by the robust showings of the Republic of Korea, Singapore (#8), Japan (#13), Hong Kong (#14) and China (#12), which has rapidly improved its ranking thanks to resolute governmental action on improving Intellectual Property (IP) rights.

However, these successes were not universally repeated as the innovation economies in other continental groupings lagged considerably behind. In Northern Africa and Western Asia, the highest-rated nation was Israel (#15), a result buttressed by its impressive knowledge and technology outputs. Second in this region was the United Arab Emirates (UAE) at #33 globally. No nation from the regions of Latin America and the Caribbean nor Sub-Saharan Africa appeared in the top 50. On the other hand, in Central and Southern Asia, India has seen dramatic progress in its innovation framework in recent years, rising from #81 in 2015 to #46 in the most recent index. However, other countries in the region have shown uneven improvement.

The GII organizes data not only according to continents and countries, but also penetrates the sub-national level. Regional innovation activity is often driven by metropolitan hubs that are home to a critical mass of technology firms and other companies that use IP rights heavily. Japan's Tokyo-Yokohama area was again reported as the top science & technology (S&T) cluster in the GII 2021. However, the United States was home to the most S&T clusters at 24, including the fifth-ranked San Jose-San Francisco cluster. Following the United States in terms of an overall number of S&T clusters were China (19), Germany (8) and Japan (5). In another sign that developments in Chinese IP law are having the intended effect of stimulating innovation in that country, the three fastest-growing S&T clusters in the GII 2021 were all Chinese: Qingdao, Shenyang and Dalian.

From innovation inputs to observable outputs

In addition to studying the vitality of the global innovation environment, the GII 2021 report discusses the issues many countries have had in successfully converting innovation inputs, including institutions, market sophistication and human capital, into observable outputs. To illustrate, while Switzerland, Sweden, the United States and Singapore are high-income economies that are adept at converting innovation inputs into outputs, Canada, Norway and the UAE are high-income economies that score considerably lower in outputs than each country's respective input ranking. Overall, only 15 economies tracked by the GII, about 11 percent of the total index, maintained consistently strong scores across all seven pillars of innovation inputs and outputs monitored by the GII 2021.

In all, there is much in the GII 2021 report to inspire optimism about the global innovation ecosystem and its resoluteness concerning the COVID-19 pandemic. Worldwide, the publication of scientific articles increased by 7.6 percent in 2020, and venture capital (VC) deals increased by 5.8 percent during the same period. This private financing is a significant source of equity for pioneering firms that can increase the scale of their business operations thanks to sturdy IP rights. The fact that VC deals exceeded their 10-year average growth rate during 2020, a year during which the world's economy seemed otherwise completely stymied, is a reassuring sign that investments in innovation have become an integral part of many economies – to the benefit of producers and consumers everywhere.