Innovation Joins Labor, Capital as Economic Indice

As more than 4 million businesses receive and complete the quinquennalis Economic Census, a new report to the U.S. Secretary of Commerce for the first time recognizes that innovation has joined labor and capital as components of the economic engine.

Download the January 2008 report of The Advisory Committee on Measuring Innovation in the 21st Century Economy, Innovation Measurement: Tracking the State of Innovation in the American Economy.


There has been a growing recognition that innovation is distinct from invention or productivity. The new report defines innovation as:

the design, invention, development and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm.

This definition is considerably beyond the current recognition in economic development where innovation equates to invention and invention applied produces productivity.

The purpose of the report is not to advocate for the recognition of innovation as the grease (no pun intended), but rather to champion the call for measurement of innovation. This call necessarily recognizes that data either does not exist or is woefully inadequate as a decision base for economic policy to address fostering innovation. Among many researchers, there is agreeement that the nation's continuing shortchanging of financial resources for our presently scoped data needs must be fixed. A call for more research only begs the question of where supportive resources are to come from.

Perhaps aspects of the report's recommendations that will cause more heartburn that others, are the calls for data sharing, especially of IRS data, and to organize data on an individual firm (company) basis. There is recognition within the report of a necessity of privacy and confidentiality. Achieving such a standard when the walls of separation are breached will be much more difficult. What is someone's stovepipe limiting data access is another's firewall.

For those who prefer market driven solutions to provide needed goods and services in the economy will quickly share a caveat within the report; that a recognition of the importance of innovation will drive economic policy to good or ill effects. Whatever the quality of data about innovation, public policy will seek to drive or enable it. It is better to work in light than in the dark.