WIPO Innovation Panel: Low Economic Growth Not The ‘New Normal’ For Long

Consensus emerged among a panel of top economists last week at the World Intellectual Property Organization that as economies become increasingly intangible they are more susceptible to repercussions on growth caused by a financial crisis. Yet the shift towards a knowledge economy brings with it promise of increased economic growth in the long term, they said.

The 11 November launch of WIPO’s 2015 report [pdf] on “Breakthrough Innovation and Economic Growth” was followed by a dynamic panel discussion debating whether the 2008 global financial crisis has marked the beginning of an era of low economic growth.

Presenting the report, WIPO Director General Francis Gurry highlighted how since “global financial crisis economic growth rates have consistently disappointed us,” “the central question before us now is whether we are “experiencing a different norm of economic growth?”

Gurry explained how “part of the answer lies in innovation” which can spur economic growth, and that there is a “well-known link between intellectual property and innovation.”

After presenting the findings of the report, which are described in detail here, Carsten Fink, WIPO’s chief economist, set the report into the broader context of globally declining economic growth rates since the 2008 financial crisis. He highlighted how “average annual growth is half the growth we saw before the financial crisis,” and that it is important to understand the reasons for this.

Fink raised the question, posed in the report, of whether the financial crisis has heralded a new era of lower growth. He explained that this question can be answered in significantly different ways by optimists and pessimists, and could even be challenged by those maintaining that statisticians’ tools are unsuited to capturing societal welfare gains.

Opening the panel discussion, Fink challenged panellists to consider the questions: “Is low growth here to stay? Will faster growth resume? Should we be happier than the GDP statistics tell us?”

Bart van Ark, executive vice-president, chief economist and chief strategy officer of the Conference Board, opened the discussion by commending WIPO for its “very impressive study”.

He employed the analogy of an airplane one of the historical case studies of “breakthrough innovations” cited in the WIPO report, to make the case that we should not forget that even though we are seeing slow economic growth we are still growing. Just as an aeroplane might remain at the same altitude for a period of time, economic growth may be temporarily “stuck” but we can still find our “way to the next altitude.”

Then van Ark pointed out that if one looks to the 1970s, one sees a similar growth rate to today, and this was followed by a boom in economic growth in the 1990s and 2000s. He explained that we cannot see what is happening “under the surface,” and that the benefits of technology and innovation take a “significant amount of time before they pay off” as it is more than “just about investment in technology, but also investment in people and organisations.”

Also, van Ark emphasised that “one good thing coming out the modelling is that productivity will recover somewhat after 2025,” and that if we just give it some time economic growth should recover.

Jonathan Haskel, professor of economics at the Imperial College Business School in the United Kingdom (UK), and former member of the UK Competition Commission, focused on how economic growth is effected by economies becoming more knowledge intensive and centred on intangibles.

He described how there is an increase in the amount of countries “investing in intangible assets, such as computer software, design and training” whilst investment in “traditional machinery and infrastructure has plummeted.” In the long run, intangible investments will lead to greater economic growth, but in the short run it has caused us to see a “decrease in productivity growth,” he said.

Haskel set out the key characteristics of intangible investments that render “intangible intense” economies more likely to suffer from a decrease in productivity as demand decreases during a financial crisis.

He emphasised that there is a negative correlation between countries with intangible intensive economies and growth rate. Countries that haven’t invested greatly in intangibles have not seen “much of a slowdown” in economic growth, he said, whilst intangible intensive countries “have seen much more of a slowdown.”

Haskel concluded with the point that as intangible intensive economies are “more subject to fluctuation in growth”, “growth policies” will have to “increasingly focus” on “this form of capital accumulation.”

Diane Coyle, professor of economics at the University of Manchester in the UK and founder of Enlightenment Economics, picked up on Haskel’s presentation by remarking that in a “knowledge-based economy” the “dynamics of growth” can be understood through the “snowball effect”. She elaborated that when things are “going well” growth will be accelerated, but when things are no going so well the “downfall” will be accentuated.

Coyle then focused on the disparity that exists between GDP figures and people’s actual welfare. She stated that she “doesn’t believe the pace of basic innovation is slowing at all” as evidenced through price declines, which “are probably the cleanest measures of innovation”. She cited the examples of the cost of computer processing power and graphene continually decreasing.

Coyle explained how the growing gap between the UK’s economic welfare and GDP is in part due to the increasingly intangible nature of the economy, and also due to the data being collected to calculate GDP.

She described how the UK’s occupation list provides individuals with the ability to choose from 50 different types of painters they might be, but not a single category exists for a “social media consultant” or “Ruby on Rails programmer,” and it is thus unclear how people with recently developed digital jobs are categorising themselves.

Coyle explained that as GDP doesn’t “capture the consumer surplus” of certain innovations, it is unable to account for many of the gains brought by digital goods.

She cited the sharing economy, where individuals rent, sell or borrow goods rather than buying them, as creating new consumer surplus that GDP is unable to capture. Describing how online platforms, such as Airbnb, increase “consumer welfare” by making it “possible to match up specific characteristics of consumer demand and supply.”

Coyle brought the presentations to an end by highlighting how GDP is the “main product economists sell to the public” and stressing that they should be careful not to “sell” something that is becoming increasingly “flawed” in an intangible economy.

Marianna Drake is an intern at Intellectual Property Watch and DiploFoundation. She has an LLB Honours in Law from King’s College London where she developed an interest in information technology law, internet governance, and internet related intellectual property issues.

 

Image Credits: Marianna Drake