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Innovation Fact of the Week: U.S. Businesses Spend Up to 4% of GDP on ICTs

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

When organizations invest in better communication tools, processing equipment, and advanced software, it has a direct impact on their productivity, so it is a good sign for the United States that its businesses are investing more in these information and communications technologies (ICT) than businesses in any other country.

National Science Board data show that from 2012 to 2014, U.S. businesses spent an average of $650 billion on ICT goods, or 4 percent of U.S. GDP in that period. Among developed nations, Japanese businesses came in second, spending the equivalent of 3.5 percent of Japan’s GDP on ICT goods. Among developing nations, Chinese businesses were hot on the heels of their U.S. counterparts, spending just under 4 percent of China’s GDP.

As a group, businesses in developed countries spent an average of 3.2 percent of their respective countries’ GDPs on ICT goods, while businesses in the developing world spent less—just 2.8 percent, on average. But developing economies receive more productivity benefit on

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Innovation Fact of the Week: In UK, £1 of R&D Tax Credit Spurs £1.70 of Business R&D

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

The U.S. Congress recently made permanent the Research and Development Tax Credit and expanded it for small and medium-sized businesses. Judging by the experience of the United Kingdom, which enacted a similar policy in 2008 for businesses with less than £86 million in assets, policymakers in the United States can now expect to see a significant increase in innovation.

Scholars from the London School of Economics recently examined business R&D data covering more than two million U.K. companies between 2009 and 2011. Their findings show that with the tax credit, private R&D roughly doubled, and patenting output increased by about 60 percent. They went on to estimate that every £1 worth of credit stimulated £1.70 worth of R&D activity.

The scholars based their estimates on trends they identified in the relationships between firm asset sizes, R&D expenditures, and patent outputs. They discovered that the statistical relationships between these variables were different for firms with less than £86 million in assets than they were

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Innovation Fact of Week: Two-thirds of Encryption Products Come From Outside U.S.

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Placing limits on encryption in the United States would not stop sophisticated criminals and terrorists from acquiring the technology elsewhere. Researchers from Harvard University recently collected information on as many encrypted hardware and software products as they could find globally. They found that two-thirds of the products they identified (546 out of the 865) came from outside the U.S.

Germany was the most-common, non-U.S. source of encryption products, followed by the United Kingdom, Canada, France, and Sweden. Of the 546 foreign encryption products that the researchers identified, 56 percent were available for sale and 44 percent were free, while 66 percent were proprietary and 34 percent were open-source. Some of the for-sale products also had free versions. No national law could possibly control this global marketplace.

Read last week’s Innovation Fact of the Week.

Photo Credit: Intel Free Press via Flickr

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Innovation Fact of the Week: US Economy Could Add $1.6-2.2T to GDP By 2025 By Maximizing ICT Adoption

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

The U.S. economy could boost GDP anywhere between $1.6 to $2.2 trillion by 2025 through maximizing the use of information and communications technology (ICT) across all sectors, according to the McKinsey Global Institute. This amounts to an increase of between 6 to 8 percent of the White House’s projected U.S. GDP of $28 trillion in 2025.

McKinsey estimates that the U.S. economy has only reached 18 percent of its digital potential. Their breakdown of the main drivers for potential GDP growth through further digitization include the following:

  • Increased labor productivity will contribute $500 billion to GDP. Digital systems can match worker skills to employer requirements better and continued ICT adoption will generate more productive workers.
  • More efficient use of ICT-enabled capital will generate between $250 to $400 billion in GDP. Through the Internet of Things, factory machinery equipped with sensors and other data gathering devices will optimize maintenance and operation schedules, reducing cost inefficiencies.
  • At the economy-wide level, ICTs are estimated to
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Innovation Fact of the Week: Social Scientists Find Consumers Unwilling to Pay for Added Privacy

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Consumer advocacy groups argue that increasing privacy regulations would greatly benefit consumers. They are mistaken. Increased data-related privacy regulations risk countries ICT adoption rates and overall welfare standards by ignoring the reality of what consumers value.

In a social experiment conducted in Berlin, participants were given the option to purchase a DVD from one of two stores. Both stores required the purchaser to provide some personal information. However, the second store required less private information but increased the cost of the DVD by one euro.

The results show that consumers value their private data minimally. Almost all participants chose not to pay that one extra euro to protect more of their data. Even when the experiment was repeated with identical prices from both stores, consumers were indifferent as to which store they bought the DVD from.

Read last week’s Innovation Fact of the Week.

Photo Credit: mlange_b via Flickr

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Innovation Fact of the Week: Women Represent 40% of STEM Workforce in China, But Only 24% in US

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

The STEM workforce is much more gender-diverse in China than it is in the United States, even accounting for the male skew in China’s population. About 40 percent of China’s STEM workforce is comprised of women, a stark contrast to the U.S. workforce, where women only hold 24 percent of STEM occupations.

A lack of gender diversity in STEM occupations means that a sizable chunk of the population is not involved in the scientific discoveries and innovations that spur economic growth and improve overall wellbeing. With global competition, greater gender diversity would create more of an edge in innovative capacity.

U.S. education policies thus need to build interest in math and science among a broader pool of elementary school students, and also see that policies and programs are in place across all levels of education to encourage and retain the best and brightest women across STEM fields.

Read last week’s Innovation Fact of the Week.

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Innovation Fact of the Week: China Led World in Labor Productivity Growth from 2000-2011

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

China’s labor productivity grew by a world-best 12 percent from 2000 to 2011. For comparison, productivity growth in the other three “BRIC” nations averaged 4 percent in the same period. There are two main reasons for China’s explosive productivity growth. The first is what economists call the “shift effect”: High-productivity industries account for an increasing share of the country’s economy compared to other, less-productive industries. This phenomenon—marked by workers moving from rural, agricultural regions to fast-growing urban centers—accounts for two of the 12 percentage points in China’s productivity growth from 2000 to 2011.

The second factor is even more significant: China is rapidly improving its labor productivity across every sector of its economy, as industries of all sorts adopt newer and better technologies, and as more productive firms replace less productive ones. Economists call this the “growth effect,” and it explains the other 10 out of 12 percentage points in China’s overall productivity growth in this period.

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Innovation Fact of the Week: IP Protections Spur Innovation, Contribute to Better Health Outcomes in Developing Nations

(Editor’s Note: ITIF features an “Innovation Fact of the Week” in each edition of its weekly email newsletter. With this installment, we will begin featuring them here on Innovation Files, too.)

Stronger global intellectual property protection, such as the agreement on Trade-Related Aspects of Intellectual Property (TRIPS), which was signed in 1994, has helped spur innovation in health care and contributed to better health outcomes.

Although much work has focused on how the developed world has better health outcomes due to health care innovation, the developing world too has enjoyed overall welfare improvements. In the two decades following TRIPS ratification, improvements in life expectancy in lower-income countries more than doubled that of the global aggregate. The world’s average life expectancy rose from 66 years to 71 years, while lower income countries saw their average life expectancy increase by 10.5 years. In the previous 20 year-period, when there were less effective, if any global IP protections, life expectancy for lower-income countries increased by just 5.3 years.

Children also have been better off in the TRIPS era. With concurrent improvements in health care, infant mortality in lower-income countries has fallen

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Why Computers Don’t Replace Workers

“Technology replaces workers, and we should be very afraid.”

Writers continue to spin this time-worn fallacy with “click-bait” articles that add fuel to an ongoing hysteria of Luddism. Thankfully, economic studies help to demystify these bogus claims.

Technological innovation spurs productivity gains, thereby encouraging economic growth. Of that much, we are certain. By studying the linkages between computer use and occupational categories, James Bessen, a professor at Boston University, finds that employment grows faster in occupations that use computers more, as compared to occupations with lower computer use. Occupations that use computers can attribute up to 0.9 percentage points of their employment growth to the use of computers. As a comparison, national employment grew on an average of 1.8 percent during the 1990s.

Why is this important? Naysayers make the case that jobs get eliminated when organizations adopt information technology, like computers. By this logic, occupations that use more computers should see employment grow slower, or even experience negative growth. But Bessen finds that computer use triggers an evolution of skill requirements, thereby increasing the need for some positions while reducing the need for other position within

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Fueling Innovation: The Role of R&D in Economic Growth

Innovation drives economic growth. But what fuels innovation? At the heart of it, research and development (R&D) activities allow scientists and researchers to develop new knowledge, techniques, and technologies. As technology changes, people can produce more with either the same amount or fewer resources, thereby increasing productivity. As productivity grows, so does the economy.

A recent study by Begun Erdil Sahin adds to the already wide breadth of economic literature that affirms this notion—investing in R&D increases economic growth. From a sample of 15 Organization for Economic Cooperation and Development (OECD) countries, including the United States, she estimates that a 1 percent increase in R&D spending could grow the economy by 0.61 percent. This means that as countries invest more in R&D, their economy will grow faster.

Significant interest in understanding how innovation impacts the economy started to gather in economics during the 1980s. Prior to this, the general consensus in economics was that innovation just “happened” and improved the economy through technological change—basically, government policy had little impact on long-term economic growth.

However, some economists started to realize that innovation could be shaped by public policy and that as

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