Why governments must keep innovating

Feb 4, 2015

Mohammed Bin Rashid Al Maktoum

Vice President and Prime Minister, United Arab Emirates

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Companies, like people, grow old. They start life small and eager to survive, fueled by youthful energy and fresh ideas. They compete, expand, mature, and eventually, with few exceptions, fade into obscurity. The same is true of governments: they, too, can lose the hunger and ambition of youth and allow themselves to become complacent.

Consider this: only 11% of the Fortune 500 companies from 1955 still exist today, while the average time that companies stay in the top 500 has fallen from 75 years to 15 years. In this age of rapid change, those who lag behind become irrelevant– in a heartbeat. Countries whose governments grow old face the same fate as outdated companies. Their choice is simple: innovate or become irrelevant.

The race for national competitiveness is every bit as fierce as the competition among companies in the marketplace. Countries compete for investment, talent, growth, and opportunity in a globalized world, and those that are pushed out of the running surrender the greatest prize of all: human development, prosperity, and happiness for their people.

To avoid this fate, governments must focus on what really matters: how to be like the 11% of companies that have remained, through the decades, in the top 500. The lifecycle of companies should teach governments that the secret of eternal youth is constant innovation – seizing opportunities and behaving like the dynamic, entrepreneurial companies that are defining today’s world and shaping its future.

The key to corporations’ rejuvenation, civilizations’ evolution, and human development in general is simple: innovation. I am always amazed when governments think they are an exception to this rule. Innovation in government is not an intellectual luxury, a topic confined to seminars and panel discussions, or a matter only of administrative reforms. It is the recipe for human survival and development, the fuel for constant progress, and the blueprint for a country’s rise.

The first key to business-like innovation in government is a focus on skills. Top-tier companies continuously invest in their employees to provide them with the right skills for the marketplace. Governments must do the same, by constantly upgrading skills and nurturing innovation – among their own employees, across key sectors of the economy, and at the foundations of the education system. Governments that fail to equip new generations with the skills needed to become leaders for their time are condemning them to be led by other, more innovative societies.

A United States Department of Labor study found that 65% of children currently in primary school will grow up to work in jobs that do not exist today. Another study at Oxford University found that 47% of job categories are at high risk of ceasing to exist because they can be automated through technology.

So, how do we prepare our children and future generations for such times? How do we equip our countries to compete, not only today, but in the coming decades as well? The answer lies in honing our children’s creativity, and providing them with the analytical and communication skills needed to channel it toward productive ends.

The second key to transforming governments into engines of innovation is to shift the balance of investment toward intangibles, as in the private sector. Whereas more than 80% of the value of the Standard & Poor’s 500 consisted of tangible assets 40 years ago, today that ratio is reversed: more than 80% of the largest companies’ value is intangible – the knowledge and skills of their employees and the intellectual property embedded in their products.

Governments, too, should think strategically about shifting their spending away from tangible infrastructure like roads and buildings, and toward intangibles like education and research and development.

It is no secret that the US and Europe, combined, spend more than $250 billion of public funds annually on R&D to maintain their leading positions. Likewise, a key driver of rapid development in countries like Singapore, Malaysia, and South Korea has been their strategic decision to shift public expenditure away from hard infrastructure and toward the “soft” infrastructure needed to build and sustain a knowledge economy. Likewise, the British government spends markedly more of its budget on such intangibles than on tangible assets.

Most of today’s transformative companies are well known for having an innovative corporate culture and working environment that inspires and empowers employees. Governments that set an example for innovation have the power to implant a nationwide culture of creativity. When such a culture takes root, people feel inspired to run further with their ideas, to aim higher with their ambitions, and to pursue bigger dreams. That is how countries that encourage innovation take the lead – and stay there.

To sustain innovation, businesses must attract and retain the most creative and productive minds. In this age of global mobility, countries, too, go head to head in the battle for talent. Global cities compete to provide an ideal life and work environment for innovators, and to harness their creativity to become stronger and more competitive still.

Innovative governments do the same thing on a national scale. They attract talent, perform efficiently, and continually upgrade their systems and services. They empower citizens to cultivate their collective energy and develop their potential, and thus become drivers of their countries’ growth and advancement in the world arena. Above all, they value human minds and help people become better guardians and builders of our planet.

For governments, innovation is an existential question. Only those that sustain innovation can drive change in the world, because they are the governments that never grow old.

This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Mohammed bin Rashid Al Maktoum is Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai.

Image: REUTERS

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