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How about an Innovation Index to "predict" downturns?

"While Wall Street's mistakes may have triggered the financial crisis, the innovation shortfall helps explain why the collapse has been so broad," says Michael Mandel in his June 15, 2009 BusinessWeek article. He comes to that conclusion based on an analysis of innovation in America in the past decade. A driving fact: potential high-impact innovations in areas such as satellite-based Internet and drug development did not commercialize.

Mandel's analysis looks at some factors that indicate the presence or absence of important innovation:
  • Stock market
  • Trade balance in advanced technology products
  • Wages of college-educated workers
  • Venture capital investments
  • Death rates by age.
Each of these (mostly economy-related) factors has shortcomings as an innovation indicator, but taken together, they tell important stories such as "weaker-than-expected-innovation" as in Mandel's recent findings. Alan Greenspan, in a 2000 speech, said "We appear to be in the midst of a period of rapid innovation that is bringing with it substantial and lasting benefits to our economy." While the prediction may not be entirely accurate, the connection between innovation and economy is clear.

If so, can these indicators go into creating an Innovation Index that can be used to "predict" events of economy such as downturns?

In that pursuit, we could also borrow some ideas from The International Innovation Index, which measures a country's level of innovation. Produced jointly by three organizations including The Boston Consulting Group, this index is part of a large research study that looked at both the business outcomes of innovation and government's ability to encourage and support innovation. Innovation inputs included (a) government and fiscal policy, (b) education policy and (c) the innovation environment. Outputs included (a) patents, technology transfer, and other R&D results, (b) business performance such as labor productivity and total shareholder returns and (c) the impact of innovation on business migration and economic growth.

If a good innovation index can predict economic events, how early can it? How would the next decade be for Innovation Nation, America? Would there be life-transforming and economy-boosting innovations? Would the rate of commercialization of such key innovations pick up soon and shorten the current downturn?

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