Australia markets open in 4 hours 16 minutes

    +60.20 (+0.73%)

    -0.0009 (-0.14%)
  • ASX 200

    +58.60 (+0.73%)
  • OIL

    +2.13 (+2.64%)
  • GOLD

    -6.00 (-0.24%)
  • Bitcoin AUD

    -400.27 (-0.41%)
  • CMC Crypto 200

    -2.06 (-0.15%)

Australia vs China: Who ranks higher on the world innovation list?

Scientists working in a biotech lab (left); A robot on display in a mall in China (right). (Source: Getty)
How does Australia compare to China in terms of innovation?

Innovation is one of the major contributors to economic growth. It turbocharges productivity by facilitating greater output with the same input or investment.

In straightforward terms, when productivity rises, more goods and services are produced, resulting in greater growth of the economy.

The 2021 edition of the Global Innovation Index (GII), published by United Nations agency World Intellectual Property Organisation (WIPO), pulls together 81 different indicators to rank 132 global economies on innovation.

While Australia makes the top 25 rankings, we're at the bottom of the pack, with China more than a dozen places ahead of us.


But it's not that surprising, when you drill down to it.

Which economies are the most innovative in 2021?

This year's GII finds that the innovative sectors of the global economy have remained strong, despite severe disruptions due to the COVID-19 pandemic.

"The GII 2021 finds that governments and enterprises in many parts of the world have scaled up their investments in innovation during the COVID-19 pandemic," said WIPO director general Daren Tang.

The world’s most innovative economy in 2021 is Switzerland, followed by Sweden, the US, the UK, and Korea, according to the 2021 GII rankings.

These countries have consistently delivered strong performances across all seven GII pillars as detailed below.

Framework of the Global Innovation Index
The seven pillars of the Global Innovation Index (GII) and what they represent.
Global Innovative Index 2021 ranking.
How world economies have fared in innovation in 2021.

Why has Switzerland ranked so highly on the list?

The economies that have consistently gone up the GII ranks over the past decade have dynamic innovation systems combined with efficiency to turn innovation 'inputs' into 'outputs' with a balanced and strong performance across all GII pillars.

Only 11 per cent of all economies ranked this year, that is, 15 economies.

The leading country, Switzerland, not only offers rich ground for innovation, but also inspires many new creations.

Switzerland's strong position, in addition to sizeable investment in research and development, is due to the high quality of extensive human resources and local universities.

Moreover, it performed highly due to its stable political environment, good regulatory environment and infrastructure.

What is Australia's rank on the Innovative Index?

According to this list, Australia is ranked at No. 25 globally, and at No.6 in the South East Asia, East Asia, and Oceania region.

China on the other hand has been ranked at No.12 globally and at No.1 in the South East Asia, East Asia, and Oceania region.

Over the past decades, investments in research and development (R&D) have consistently grown faster than economic output.

So even though Australia has been the highest investor in R&D in 2020, its overall ranking is quite low.

R&D expenditures have typically moved simultaneously with GDP. Historically, during economic downturns of the early 1990s, early 2000s and late 2000s, the GDP of countries have dropped, subsequently affecting the R&D investments.

Australia's Input rank versus output rank in Global Innovation Index
Australia makes the list, but is ranked last. (Source: GII 2021)
China's inout rank versus output rank on the Global Innovation Index.
China is ranked 12th on the GII 2021 list. (Source: GII 2021)

Why does Australia rank so low?

Australia's small population, and fewer top-flight academic institutions compared to rivals such as US, UK and China, stands as one of the barriers to innovation.

Additionally, the country places less emphasis on commercialisation and effective monetisation of innovation in all industries, which is crucial to sustainability and growth.

In an otherwise thriving innovation sector, there are structural and cultural barriers. There is also a gap in communication between the academic, industrial and political sectors.

The Australian political system itself stands as the most significant structural barrier to successful innovation, according to a report from the United States Studies Centre at the University of Sydney.

Australia’s three-year political cycle and successive administrations tends to derail rules set by previous governments. Every new incoming party is inclined to change policies, projects and budgets causing inconsistency in the innovation sector.

How can Australia address these barriers?

There are possible, effective solutions to counter these limitations.

One solution is for Australia to establish an independent and permanent agency to oversee development and execution of a national strategy for science and innovation in Australia.

This would not only improve communication between sectors, but also provide a point of continuity for long-term planning and funding.

On the other hand, China is home to 17 of the top science and technology clusters worldwide.

What's China doing right?

On the GII, the Asian superpower maintains its world leadership in several indicators related to intellectual property. It is the first in patents registered.

China is a large and diverse country with hyper-adaptive population which is aiding it to achieving a new level of global competitiveness.

It has been accelerating efforts in building data infrastructure, making technological breakthroughs and expanding its talent pool.

One of the main reason for China's growth is the establishment of private firms which are essential engines of the wealth-creation process.

But it is also crucial to note that these private firms function in an environment where public sector is extremely powerful leading to better collaboration between sectors.

Bottom line

While it is notable that China has moved steadily up the GII ranking, establishing itself as a global innovation leader and approaching the top 10, it is equally a matter of importance that both Australia and New Zealand are in the global top 30, with European Nations dominating the top 10.

Collaborating across sectors to overcome the final hurdle of commercialisation is the key for Australia's success in innovation.

What is the methodology?

Monitoring the pulse of innovation is not an easy task. Transforming an idea into a new good or service can take months, if not years.

It takes even longer for technological advances to be widely adopted, create new jobs, enhance economic productivity and improve people’s health and well-being.

Today’s progress is the result of past innovations; today’s innovations, in turn, sow the seeds for progress in the years to come.

A successful innovation system balances knowledge creation, exploration and investments – otherwise referred to here as 'innovation inputs' – with the production of ideas and technologies toward application, exploitation and impact – which constitute 'innovation outputs'.

No single indicator captures the full spectrum of innovation performance from idea inception to impact. This is precisely why the GII relies on a wide set of indicators to measure the innovation performance of economies.

Similarly, to capture key innovation trends, the Global Innovation Tracker reviews a variety of data points. It does so for three broad stages of the innovation journey: science and innovation investments; technological progress; and socioeconomic impact.

While tracking the most recent global innovation trends, this edition also focuses on the impact of the COVID-19 pandemic on innovation.

Governments and enterprises in many parts of the world scaled up investments in innovation amid the massive human and economic toll of the COVID-19 pandemic, the Global Innovation Index 2021 showed, illustrating a growing acknowledgement that new ideas are critical for overcoming the pandemic and for ensuring post-pandemic economic growth.

Why is this assessment necessary?

The GII's overall formula for measuring an economy's innovative capacity and output provides clarity for decision makers in governments, businesses and elsewhere as they look forward to creating policies that enable their people to invent and create more efficiently.

Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter.