Restoration Roundtable

Innovation is a topic we often write about here at Restoration Calls, so I was pleased to see the Organization for Economic Cooperation and Development included a special section on innovation in its biannual survey of the U.S. economy, out this morning and packed with charts and policy recommendations.

Fissures have begun to appear in the country's innovation system, the report warned. The U.S. is falling short in human capital development, its patent system and manufacturing activity. Innovation in America just isn't what it used to be, according to the group of international economists.

"Productivity in the U.S. is still growing faster than in most other OECD countries but growth has slowed down since the 1970s," the OECD writes. "Also, U.S. companies are no longer more likely to innovate than companies in other OECD countries."

So, how to fix that? Education plays a major role. Twenty-two out of 30 OECD countries have more science and engineering graduates than the United States among 25-to-34 year-old workers. To remedy the problem, the report recommends giving students greater access to quality secondary education, limiting cuts to federal R&D spending, and further reforming patents.

The report delves deeply into each of these categories and the problems the country faces. But as someone interested in data, I thought one of the most interesting sections detailed how to measure innovation. Turns out the OECD uses three primary methods:

1)    Looking at Multifactor Productivity (MFP) growth. Although there are many components of MFP, long-run increases in MFP are often attributed to innovation, the OECD explains. And, the OECD adds, the MFP's decline since the 1970s suggests a deterioration in innovation performance.

2)    Conducting surveys of innovation outputs. Data is still limited in the U.S., but suggests the country is around the OECD average.

3)    Deploying the "proxy method," which tracks indicators like patents and R&D spending as a proxy for the rate of change in innovation. This method shows that the U.S. has "high but stagnating" levels of innovation activity, and that the country is gradually sliding down the global rankings.

The 119-page document is well worth a look if you're interested in economic policy. It can be read here. The report is part of a series of regular economic surveys the OECD publishes for each member country and major non-member economies every two years.