Innovation Is Best Antidote to Gloom Ahead at Davos, Breyer Says

Innovation Is Best Antidote to Gloom Ahead at Davos, Breyer Says

Photographer: Simon Dawson/Bloomberg
Jim Breyer, the venture capitalist, said that while government can foster collaboration... Read More

Billionaire venture capitalist Jim Breyer is heading to the Swiss Alps this year with an upbeat message. 
“This is a magical time,” said Breyer, founder and CEO of Breyer Capital and a partner at Accel Partners, which invested early in Facebook and RealNetworks. He rejects the argument that the world economy is stagnating. From San Francisco to Shanghai, new ideas are bubbling up. 
“Innovation is happening in centers of excellence around the world faster than ever before,” he said, “largely because it’s more inexpensive than it was even five years ago to develop a product or service for a global audience.” 
His optimism is likely to be a welcome contrast to the trouble-ahead warnings that leaders of business and government will hear at the annual meeting of the World Economic Forum, beginning Jan. 21 in Davos, Switzerland. Japan and Europe are on the brink of deflation, and onetime dynamos like Brazil, China, and Russia are losing speed. The best antidote to stagnation is innovation: The creation of products, services, and processes that make life better. 
The good news on the eve of Davos is that there has been some innovative thinking about innovation itself, some of which will be shared at a forum panel moderated by Breyer and including Qualcomm Executive Chairman Paul Jacobs and Rolf-Dieter Heuer, the director-general of the European Organization for Nuclear Research, the Swiss lab that discovered the Higgs boson. 

Ranking Good Ideas 

Innovation has been a major theme at Davos since the 1970s, when a courtly Austrian professor of management named Klaus Schwab launched the high-powered confab. It’s one of the 12 “pillars” of the World Economic Forum’s annual Global Competitiveness Index. 
This past year the forum ranked Finland first for innovation, followed by Switzerland, Israel, Japan, the U.S., GermanySweden, the Netherlands, Singapore, and Taiwan. The purpose of the index isn’t to furnish certain countries with bragging rights. It’s “to build a shared understanding of the main strengths and weaknesses of each of the economies covered, so that stakeholders can work together” to make improvements, Schwab wrote in the preface to the 2014-15 report. 
In other words, the value of the ranking is more in the information it brings to the surface than in who finished in what place. 

College Graduates 

Bloomberg’s own ranking zeroes in on quantifiable inputs to the innovation process. Among the factors considered are the intensity of research and development, the amount of high-value manufacturing, college graduation rates, and the number of high-tech companies. In Bloomberg’s ranking, the top 10 countries for innovation in 2014 were South Korea, Japan, Germany, Finland, Israel, the U.S., Sweden, Singapore, France, and the U.K. 
The WEF’s ranking is more qualitative, as it relies heavily on a poll of 15,000 executives asked to grade the nations where they operate on factors such as “capacity for innovation” and the degree of cooperation between industry and university researchers. 
A third approach, used by the Conference Board and others, is to measure what economists call total factor productivity. That’s the portion of an economy’s output not explained by the combination of workers and machinery used in production. The theory is that this extra output can be attributed at least in part to innovation -- say, a smarter way to run an assembly line or organize a restaurant kitchen. 

Bottom Up 

For advanced economies, innovation requires pushing on the frontiers of science and technology. That can’t happen without heavy government funding for basic research, along with pathways to its commercialization. The Internet and the Global Positioning System (GPS) are only two of the crucial technologies that originated as projects of the U.S. federal government. Singapore and South Korea have likewise used R&D to vault themselves into the top tier of economies, says Bart van Ark, the Conference Board’s chief economist. 
That’s not to say that governments can conjure innovation simply by spending money. Breyer, the venture capitalist, said that while government can foster collaboration between universities and business, ultimately innovation must trickle up from the bottom. 
“I’ve had dozens of meetings over the years with leaders from around the world who asked how they can build their own Silicon Valley,” he said. “It never works. There’s a magic. There’s a love for entrepreneurship and experimentation that needs to occur.” 

‘Out the Way’ 

Less-developed economies can make lots of progress in living standards just by playing catch-up. For them, innovation mostly means adopting and adapting existing technologies. 
“In some corners of the world it requires a lot of creativity and innovation to physically survive,” said Kim Wagner, a New York-based senior partner at Boston Consulting Group. A favorite theme at Davos is “frugal innovation” in the developing world, which has produced ultracheap laptops, cell phones, refrigerators, and even EKG machines. 
Regulators can be slow to accept new ideas. Audi CEO Rupert Stadler says that because of strictly interpreted driving rules in Germany, his company has done all of its work on automatic driving systems in the U.S, where “there is more freedom and liberty to do it.” 
That’s why sometimes the best thing a government can do to promote innovation is get out of the way, said Bronwyn Hall, a professor emerita of economics at the University of California at Berkeley. 
Take Uber, the mobile app that connects drivers and riders. Taxi drivers all over the world hate it. The difference is that in some countries, such as the U.S., customer demand has mostly overwhelmed resistance to the new idea. France banned one Uber service as of Jan. 1. “In Paris it’s impossible to get a taxi,” Hall said. “It’s illustrative of the resistance to innovation.” 
To contact the reporter on this story: Peter Coy in New York at pcoy3@bloomberg.net
To contact the editors responsible for this story: Cristina Lindblad at mlindblad1@bloomberg.net Mark Williams