World’s top innovative nations

January 16, 2009

1. United States

The United States still rules the world when it comes to innovation. This is no surprise, as the US with a legacy of over 100 years in innovation, has been consistent in taking the leader’s slot. The US knows it must continue to innovate to stay ahead. It tops in three areas: human capacity, business markets and competitiveness. The five input pillars that are included in the GII are: Institutions and Policies, Human Capacity, General and ICT Infrastructure, Markets Sophistication and Business Sophistication. The input pillars define aspects of the conducive environment required to stimulate innovation within an economy. There are three output pillars which provide evidence of the results of innovation within the economy: Knowledge Creation, Competitiveness and Wealth Creation. The US scored high on both input (ranked 2nd) and output (ranked 1st) pillars.

2. Germany

Germany follows in second position, maintaining its position from last year. Germany scores relatively low on the input pillars (10th) and very high on the output pillars (2nd), leading to an overall second rank. It is important to note that that eight out of the top 10 countries in the list are from Europe. As global competition intensifies and innovation becomes more important, the business sector has been internationalizing knowledge-intensive corporate functions, including research and development, the study points out.

3. Sweden

Sweden rises to 3rd rank in 2008 year from 12th position in 2007. It’s important to provide a safety net to innovators, says the study. There must be a conducive environment for innovative companies. A ‘succeed or perish’ environment often kills innovative ideas in the nascent stages as people will be too intimidated to take creative risks that could fail.

4. United Kingdom

The United Kingdom fell from 3rd to 4th position in 2008. The study reflects that innovation is correlated with income levels in a country. For example, the innovation levels in the OECD (Organization for Economic Cooperation and Development) countries are much more than non-OECD countries. The high income countries do significantly better by topping innovation rankings. The average innovation index falls with the income levels of the country.

5. Singapore

Singapore rose to 5th rank in 2008 from 7th. Singapore is also 2nd from the Asian region. Innovation is not just about generating new ideas, says the study. It is about translating these ideas into value-added products and services. This requires flexibility of attitude and a willingness to adapt and welcome unprecedented levels of change on the part of all stakeholders involved, says the study.

6. South Korea

South Korea made a giant leap by grabbing the 6th rank, up from 19th position in 2007. Over the last two decades, the Republic of Korea has undergone a great change, with Information and Communication Technologies (ICT) and innovation becoming the power engine for its high economic growth. After facing a big financial crisis in 1997, Korea emerged into a powerhouse of knowledge through the consolidation of knowledge industries with the ICT industry itself contributing to more than 30 per cent of its total exports, the study states.

7. Switzerland

One of the world most beautiful places has also made it to the top innovative nations’ list. Switzerland is ranked 7th in the global innovative index. Innovation is the key driver of any economy. It works best when like-minded individuals come together in small collectives, irrespective of political and cultural differences and work on projects that yield value for all parties involved.

8. Denmark

While Denmark features among the top nations with an overall score of 5.73 along the different input pillars, it ranks relatively low at position 21st along the output pillars. This pulls the overall GII rank of Denmark down to 8th and raises questions as to why despite creating a highly conducive environment for innovation, it is not able to capitalize on it. The remarkable leadership and phenomenal development of the three Nordic countries of Finland, Denmark and Sweden have consistently done well in the development of institutions and policies that nurture innovation. Denmark tops the ICT and infrastructure pillar. Denmark also comes at top position in the 2008 Networked Readiness Rankings of the World Economic Forum.

9. Japan

The world’s industrial powerhouse Japan moved down to 9th position in 2008. It was ranked fourth in 2007. Ranked relatively lower along the input pillars (16th), Japan comes in at an impressive 3rd position along the output pillars. Clearly, Germany and Japan are able to leverage their less favorable innovation environments into more effective innovation results. The Japanese society is currently undergoing deep structural changes. Japan enjoys a competitive edge in business sophistication, innovation and R&D (research and development) spending. But its macroeconomic weaknesses have led to one of the highest debt levels in the world. People are also questioning the values of the political, economic and social institutions, and alternatives are being explored. This includes the fields of education, research and innovation as well. The government and the private sector give high priority to R&D spending.

10. Netherlands

The Netherlands with a prosperous economy is ranked 10th in the list. It is also the 16th largest economy in the world. A country’s readiness is linked to its ability to garner the best from leading-edge technologies, expanded human capacities, better organizational and operational capabilities and improved institutional performance, according to the study.

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What you MUST know about Inflation

March 31, 2008

“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” — Sam Ewing.

“Inflation and credit expansion, the preferred methods of present day government openhandedness, do not add anything to the amount of resources available. They make some people more prosperous, but only to the extent that they make others poorer.” – Ludwig von Mises.

Everyone is facing the brunt of rising prices. Prices of all essential commodities are rising not just in India but across the world due to a fall in supply. Inflation has spiralled all over the world. With India importing food items, it is only adding more woes to the people.

The Indian economy is also facing a slowdown. The markets have also shed huge gains — March 25 was a sort on anomaly — taking a cue from global meltdown. Industrial production has slowed down, further decelerating the economy. There were risks from turbulence on global financial markets and from rising oil, metals, and wheat and rice prices worldwide. The rise in Inflation is a matter that causes worry to any government. When inflation is on the rise, all of us should be concerned.

What is inflation?

“Inflation is the most regressive form of taxation because it hits the poor the most.”-Narendra Jadhav, Vice Chancellor, University of Pune.

 Inflation is a rise in the prices of a specific set of goods or services. In either case, it is measured as the percentage rate of change of a price index. Food prices are soaring . . . all essential items like vegetables, oil, milk, sugar are getting costlier. Rentals and real estate rates have almost doubled in just a few months in most cities. The real estate prices are at record highs making life miserable, especially for people who have migrated to cities for jobs.

Why inflation hurts us badly

“Inflation is bringing us true democracy. For the first time in history, luxuries and necessities are selling at the same price.” — Robert Orben.

Inflation hits you badly as prices are rising. You end up spending more money for things that you could buy for les earlier.

What you could buy for $ 100, a few years ago, would now cost you nearly double. As a result, your savings will come down. As prices rise, the purchasing power of money goes down too. So to fight inflation, you must always invest money wisely. When you invest money, you must be careful about the return on your investment. The return on your investment must always be higher than the rate of inflation. You may have got a good pay hike, but were you able to save the extra cash? Well, if inflation is high, you end up spending more money so in effect the hike makes little sense. A high inflation rate negates the salary hike you have received.

Inflation reduces the purchasing power of your money. It hits retired folk and people with fixed incomes very badly. Inflation destabilizes the economy as consumers and investors change their spending habits. People tend to spend less when prices are up as a result production slows down resulting in job losses as well. Inflation also affects the distribution of income. Lenders and borrowers are also hit. Experts say a little inflation is good for the economy. It keeps the economy active as the prices of goods keep changing. In the short term, it encourages spending and borrowing and also encourages long term investments.

How inflation hits you

“The first panacea for a misguided nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” — Ernest Hemingway.

Economists attribute inflation to a demand-pull theory. According to this, if there is a huge demand for products in all sectors, it results in a shortage of goods. Thus prices of commodities shoot up.

Another reason for inflation is the cost-push theory. It says that labor groups also trigger inflation. When wages for laborers’ are increased, producers raise the prices of products to make up for salary hike. The rising prices of food products, manufacturing products, and essential commodities push the inflation rate further.

Spiraling global crude oil prices have worsened the situation. Sometimes, banks create more liquidity by allowing more loans for people, giving them the purchasing power to buy more, as a result of which prices are driven up further. The demand-supply gap also drives inflation rates.

How is inflation calculated?

“Inflation is taxation without legislation.” Milton Friedman.

India uses the Wholesale Price Index to calculate and then decide the inflation rate in the economy. Most developed countries use the Consumer Price Index to calculate inflation. WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market.

 In India, data on a total of 435 commodities’ prices is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions.

CPI is a measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.CPI are a fixed quantity price index and considered by some a cost of living index.

Many economists say that India must adopt CPI to calculate inflation as CPI measures the increase in price that a consumer will ultimately have to pay for. United States, the United Kingdom, Japan, France, Canada, Singapore and China use CPI to measure inflation.

WPI does not measure the exact price rise consumers will experience because; it is calculated at the wholesale level.

Another issue with WPI is that more than 100 out of the 435 commodities included in the Index are no longer important for consumers. Even commodities like livestock feed are considered to measure the WPI. In India, inflation is calculated on a weekly basis.

Types of inflation

“Inflation is like sin; every government denounces it and every government practices it.” Frederick Leith-Ross .

 There are different types of inflation:  

 Deflation: It refers to a general falling level of prices. 

 Disinflation: This is a decrease in the rate of inflation.  

Hyperinflation: When prices zoom and inflation goes out-of-control, it is called hyperinflation. 

 Stagflation: It is a combination of inflation, rising unemployment and stagnation in the economy.  

Reflation: This refers to move to hike prices to fight deflationary pressures.