U.S. Loses Innovation Crown to ... Iceland

Once upon a time—actually it was just last year—the U.S. was the world innovation champion, according to an annual report by INSEAD and the Confederation of Indian Industry. In this year’s study, the nation slumps to 11th place. Perhaps even more surprising is the new No. 1: Iceland.

Soumitra Dutta, an INSEAD professor of business and technology, who oversaw the survey, theorizes that the rankings show that, as in so much else, size matters. But in this case it’s the smaller the better.

He tells me that having easy access to a big marketplace still makes it easier for innovators to profit from their inventions. Would the iPod or the iPhone have been such big hits if Apple had been based in, say, Iceland? But the Internet is turning the entire world into one big market, to which everyone everywhere has access, he says. Also, it appears that smaller, homogeneous countries can unite to support policies, institutions, and infrastructure that promote innovation—in the developed world, at least.

Size certainly makes a difference in the 2010 Global Innovation Index report. The most-populous land in the Top 10 is the Netherlands, with 16.4 million people. It finishes in eighth place. Several of the biggest nations in the developed world cluster just below the U.S. Japan is 13, with Britain at 14, and Germany at 16. Of the so-called BRIC giants in emerging markets, China comes out best, at 43. Trailing are India (56), Russia (64), and Brazil (68).

This year’s report, financed by Canon India and released on March 3, evaluates 132 countries. Researchers used data from a number of sources, including the World Economic Forum, the World Bank, and the UN, to gauge innovation inputs—things such as education and business climate—as well as outputs to quantify scientific and creative advances.

The U.S. drops out of the Top 10 because it isn’t sufficiently providing many of the inputs or what the study calls “pillars of innovation.” It ranks 22 in political environment and 21 in regulatory environment. It ranks 22 in K-12 education, 22 in technology infrastructure, and 24 in exports and employment. “The U.S. is unable to create a coherent public agenda,” Dutta tells me on the phone from India.

So where does the U.S. score best? In market and business sophistication, which includes access to capital and openness to foreign competition and where it rises to second and third.

Iceland, by comparison, falls below the U.S. in market and business sophistication—no surprise, says the report, given the complete collapse of Iceland’s banking industry. But it outshines the U.S. in education and infrastructure. Iceland comes in fourth overall, for instance, in per capita mobile phone subscribers. Its general infrastructure is the world’s best.

Here’s the Top 10, with 2009’s rankings in parentheses:

1. Iceland (20) 2. Sweden (3) 3. Hong Kong (12) 4. Switzerland (7) 5. Denmark (8) 6. Finland (13) 7. Singapore (5) 8. Netherlands (10) 9. New Zealand (27) 10. Norway (14)

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