The Role of Innovation in the Global Economy

Hi. My name is Neil Lee.

I'm a professor of economic geography at the London School

of Economics and Political Science.

I'm gonna be talking to you about innovation and the global economy.

Now the first question you should be asking yourselves is,

what is innovation?

So innovation is the successful commercialization or the

successful bringing to market of new products or processes.

So it's different from invention.

When we think about innovation, we often think about invention,

people coming up with new ideas,

but it's different to that.

Innovation is about bringing them to market.

It's about making sure they are practically used in the real world.

Now there's two basic types of innovation.

One type of innovation is product innovation,

when you're producing something new.

For example, the iPhone is a good example of a a product innovation.

The other type of innovation is process innovation.

Now process innovation is when you get better at sort of

making things.

So, for example, if you run a factory and you improve the way that you

produce whatever you're producing in your factory,

that is process innovation.

So, the way you should think about these is, you know,

product innovation is making better things,

and process innovation is making things in better ways.

So, essentially, you know,

these are two things which drive the economy.

They're really important economically because they help

you do more with less, and in doing so,

they help raise productivity and living standards.

But that doesn't mean that all innovations are the same.

So if we can talk about the distinction between incremental

innovations, for example,

if you make small improvements in something.

So we all have you know, those of us who have smartphones,

you know, we know that every year,

there is a new smartphone which is introduced,

which is slightly better than the last ones.

So this is an example of incremental innovation.

We're making small changes to improve something rather than

making something which is completely different and radical.

But often, we also think about innovation as being radical innovations.

Major changes, which new things which didn't exist before.

So good recent example of this is the COVID vaccines.

We had vaccines, of course,

but we didn't have a vaccine for COVID in the middle of the pandemic.

Now another example of a radical innovation, for

example, would be the silicon chip.

Now the silicon chip you'll find in your computer or your

smartphone or even your watch,

it's a way of of storing electronic circuits.

This was a radical innovation because it changed the way that

we could do computing.

Now radical innovations can have really important

consequences for the world.

They can change the world economy in very important and distinct ways.

Now when we talk about innovation, it's important,

first of all, that we don't think about it as only about

people wearing lab coats in scientists wearing lab coats

in, laboratories.

Actually, innovation is everywhere,

and it often takes place in other parts of the economy.

So I'm speaking from London.

One of the places one of the things London is very good at

is innovation in financial services.

We have a financial technology industry where they come up

with new things around banking and finance.

We can also see many parts of the UK are very good at

innovation in the creative industries.

So, for example, if you if you're were producing a new,

a new, box set, a new sort of series for the television,

then that might be seen as an innovation.

It's a different form of innovation,

but it's an innovation nonetheless,

and it's one which may have some significant important economic,

implications.

But often, we also think about innovation as being,

innovations in sort of social care or something like that.

So people will say that the National Health Service of the

UK was an innovation.

It was something which was thought of an an invention.

Someone thought of it.

They decided that it was a better way of doing things,

and they took it they made it happen.

And this has improved many people's lives.

So when we think about innovation,

we shouldn't just be thinking about computers.

We shouldn't just be thinking about smartphones.

We should be thinking about something broader than that to

include innovations in culture and innovations

in social care or or something like that.

Now the next thing I think you need to know about innovation

is that it is what we call combinatorial.

So combinatorial sounds complicated, but it's not.

Essentially, what this means is that we build on what has gone before us.

So I gave you the example of the iPhone as being an example

of an innovation.

Now, it's an important innovation in its own right,

but the technology which went into the iPhone,

the the camera, the GPS, the touchscreen,

these were all things which existed before the iPhone.

And, really, what happened at Apple was that they put them together.

So it was combinatorial.

So we it's often said that in science,

you build on you stand on the shoulders of giants to see

further, and this is the same as that.

Essentially, you take what has gone before,

combine it in new ways, and then, you know,

you can create something which is new and improves things in

some ways, and hopefully, it will improve the world.

Now, there are plenty of other examples of combinatorial innovation.

I'll give you another one is often sometimes I will pay for

things using my phone.

This is an example of combinatorial innovation,

which needed to happen.

You know, essentially, we've had credit cards for some time.

We had phones for some time.

It was only sort of when they put them together that

something new was created and something new which is useful

and improves human life.

But my final point about innovation,

which I think you need to understand at this stage,

is that everything I've told you so far is generally seen as

a good thing, but often innovation can be bad as well.

So we talk about new forms of weapons.

These can be sort of innovations.

New ways of killing people, sadly, can often be seen, as innovations.

So while many innovations are, you know,

good and generally should improve our lives,

innovation can also be negative,

and it can be can be a a bad thing in some ways.

Some for example, if you think about the,

you know, innovations in automobiles,

which led to people burning fossil fuel,

which then causes climate change.

So So we need to be careful when we think about innovation.

It's important, but we shouldn't be thinking about it uncritically.

Now at this stage,

you should be thinking about why innovation matters.

And let me just say, you know, that there are you know, essentially,

innovation is is an important way of growing your economy.

So if we look at the most successful countries in the

world economy, the richest countries in the world economy,

there are really three different types of country.

Some of these countries have grown rich because they have

extractive industries.

So they have oil and gas,

and they manage to take that out of the ground and sell it.

So, for example, countries in the extractive category might include Kuwait

or Saudi Arabia or Norway.

A second group of countries grow rich essentially through,

financial services or trading.

So countries like Singapore and maybe Ireland,

you put in that category, Luxembourg.

But for most countries,

the only way in which they can get rich is by getting better at doing things,

and the way that you get better at doing things is through innovation.

So innovation is really crucial for economic development.

We also know that it matters for workers.

So if you go and get a job when you've graduated,

you will earn more if you're working for an innovative

company than a company which is not innovative.

And this isn't just about the people working in science and technology.

This goes across the board.

You earn more as a worker in an innovative company if you're a

receptionist or a janitor than if you're working in a less innovative,

sort of in a less innovative company.

And, overall, this means that innovation is really crucial for national

economic development.

It's crucial for people's living standards, how much they

earn, and it also should be, you know,

crucial for making sure that we can live better lives.