We need to keep innovation surveys in perspective

On Wednesday Sept 27, the 2017 Global Competitiveness Index rankings issued by the World Economic Forum were released and as usual, close attention was given to Hong Kong’s ranking.

There were two small pieces of good news for Hong Kong: First, Hong Kong’s ranking improved to sixth compared with the previous year’s ranking of ninth. Second, the gap between Hong Kong and Singapore narrowed, as Singapore fell to third place this year, compared to its second position in the previous year’s rankings.

However, although the report pointed to significant progress in the “innovation” pillar, it opined that there is still room for improvement in that area.

Despite the attention given to such rankings, it is fair to ask: How much weight should we accord these innovation-related rankings? To answer that question we must take at least two considerations on board.

First, for whom are these surveys informative or instructive — outsiders or insiders? Global surveys such as the Global Competitiveness Index, the World Competitiveness Rankings, the Global Innovation Index, the Bloomberg Innovation Index, or the Global Innovation Ranking, recently established by the Information Technology and Innovation Foundation, propound new rankings, usually annually, but what do they really uncover, and at whom are they aimed?

The names of many of the rankings are self-explanatory, and they purport to explain how countries rate in terms of overall competitiveness (with innovation being one component of competitiveness). Some focus more narrowly on the ability to be innovative. In trying to understand their information content, an analogy related to teaching may be helpful.

Suppose we had a group of 150 students all studying together over a long period of time. Even if an outsider came into the class and ranked the students based on some empirically rigorous criteria (that the outsider had created), how much would it matter? To whom would it matter?

If the students are attentive and diligent, they likely already know roughly how they would fare in such rankings and where they stand in comparison with their peers. Similarly, whether, for example, the seventhplaced student’s rank accurately reflects her/his performance is something that lies beyond their direct control. From the students’ perspective the rankings would mean little as they would continue to pursue their personal goals to the best of their abilities no matter where they ranked.

That said, such rankings might be helpful to outsiders who don’t have the time or competency to assess the students’ performance. For such outsiders, the rankings would likely have some value as a broad-brush yardstick, a coarse indicator of the comparative merits of the 150 students in the class. The challenge for the outsider would be to determine how much credibility to assign to the rankings.

Again, though, the students inside the class would know their relative strengths and weaknesses best. No outside ranking could offer deeper insights than a student’s own observations inside the class (provided the student is attentive, conscientious, and cares about his or her own performance). External rankings might be gratifying to high-ranking students but few would change their own opinions based on an external ranking.

Second, and perhaps even more importantly, it is easy to misunderstand what innovation-related rankings tell us. It is critical to understand that, despite the global hype surrounding the concept, innovation is not an end in itself. Rather, innovation ought to be a means to an end. Now, what exactly that “end” might (or should) be can vary across societies and across time. We must decide what the most desirable ends are. In the pursuit of business and economic growth these ends typically involve increased competitiveness, greater employment, higher GDP, higher profits, etc.

However, innovation for its own sake is of little use. Innovation has been variously characterized as the lever of riches or the key to opening the door to wealth. As each of these metaphors suggests, innovation is, again, merely a tool for achieving some greater goal. Without that greater goal in mind, blindly pursuing higher levels of innovativeness can be wasteful. It is also important to add — as I hope the aforementioned description makes clear — that it may be possible to obtain the riches or wealth that a society desires without being highly innovative (that is, by using other means to achieve the desired objective).

Therefore, while the annual Global Competitiveness Index has highlighted challenges that Hong Kong must address if it hopes to evolve itself from one of the world’s foremost financial hubs to an innovative powerhouse — namely the business community’s insufficient capacity to innovate — we must not lose sight of the ultimate goal of striving to become an innovative powerhouse.

We must ask ourselves: What is that goal? What do we want Hong Kong’s future to look like? How are we to achieve the future we foresee for ourselves? These are questions that policymakers and the populace at large in Hong Kong must answer for themselves. The building blocks are in place for us to place claims on our future. As this year’s Global Competitiveness Index report states, “Hong Kong is still endowed with the world’s best physical infrastructure and its healthy level of competition and openness ensure extremely efficient markets, which in turn are supported by strong and stable financial markets.”

Thus, while the World Economic Forum’s competitiveness index may single out innovation as one of Hong Kong’s economic weaknesses, this should not come as news to Hong Kong people, and much less to our policymakers. On the other hand, it may be worthwhile for Hong Kong to reflect on the type of innovation that has brought us to where we are now, and attempt to promote and encourage that stripe of innovation — outsiders’ views notwithstanding.