Billionaire venture capitalist Jim Breyer is heading to the Swiss Alps this year with an upbeat message. "This is a magical time," says Breyer, founder and CEO of Breyer Capital and a partner at Accel Partners. "Innovation is happening in centers of excellence around the world faster than ever before." His optimism contrasts with the trouble-ahead warnings that business and government leaders will hear this week at the annual meeting of the World Economic Forum in Davos, Switzerland. Japan and Europe are expected to grow only about 1 percent this year, and one-time dynamos like Brazil, China, and Russia are losing speed.

The best antidote to stagnation is innovation, the creation of products and services that make life better—whether it's air conditioning, vaccines, or text messaging. Every country wants to foster a culture of innovation, but it's not easy to do. "I've had dozens of meetings over the years with leaders from around the world who asked how they can build their own Silicon Valley," says Breyer. "It never works." He has his own theory about what does work, though it's not exactly scientific: There's a magic. There's a love for entrepreneurship and experimentation that must be there.

Bloomberg's 2015 ranking of the world's 50 most innovative countries takes a more prosaic approach to the question, focusing on six tangible activities that contribute to innovation. South Korea tops this year's overall ranking. The U.S. places sixth, and China 22nd. Morocco finishes last. You can click here to go straight to the full results, but don't do that just yet. The point of this list isn't to award bragging rights to one country over another—it's to see whether a broad formula for innovation can in fact be identified, and what companies, and governments, need to do to reproduce it.

Research & Development
Top 5
South Korea
Israel
Finland
Sweden
Japan
South Korea, No. 1 in this category, is proof that countries can lift themselves up by their bootstraps through a combination of government support and private enterprise. In 1957, not long after the Korean War, the nation's GDP per capita was on the same level as Ghana's. But R&D doesn't do much good if it stays bottled up in the lab. In many countries, such as France, scientists who are government employees working in prestigious institutes have little incentive to commercialize their work, so the public is slow to benefit, says Bronwyn Hall, a professor emerita of economics at the University of California-Berkeley. Hall says a more efficient tech-transfer model is America's National Science Foundation, which makes 94 percent of its research grants to people in university labs and companies. It's not just governments that are doing the heavy lifting. In South Korea, research-intensive companies, led by Samsung, have modernized the whole economy.
Samsung annual R&D spending
Manufacturing
Top 5
Switzerland
Ireland
Singapore
Germany
Austria
Why include manufacturing in a ranking of innovation? It takes a lot of know-how to stay at the leading edge of making things. Manufacturing industries accounted for 68 percent of the R&D of U.S. businesses in 2011, the last year for which data is available, according to the National Science Foundation. But not all manufacturing is equally innovative—think potato chips vs. computer chips. Bloomberg's measure focuses on the value added by manufacturing, which boosts the ranking of countries that focus on products like pharmaceuticals, autos, and computers. Switzerland, home of pharmaceutical giants Novartis and Hoffmann-La Roche, is tops in this category. China, by contrast, lags at 41st. Although its manufacturing sector is huge, much of its output remains low-tech--and China's population dilutes the per-capita figure.
Gross value added by manufacturing in Switzerland
Apple$625bU.S. Microsoft$377bU.S. Google$342bU.S. Facebook$210bU.S. Oracle$189bU.S. Intel$175bU.S. IBM$154bU.S. Qualcomm$118bU.S. Cisco$141bU.S. Tencent$147bChina
High-Tech Companies
Top 5
United States
China
Japan
South Korea
Canada
This is the one category in the ranking that isn't adjusted for the size of the economy or population, so it's no surprise that the U.S. finishes way ahead of all other countries, substantially boosting its overall ranking. You can argue that this factor is unfair to small nations. But there is something to be said for the sheer innovative power of America's huge high-tech sector, which ranges from Google to Lockheed Martin to Monsanto. As the aphorism, sometimes attributed to Josef Stalin, has it: Quantity has a quality all its own.
Ten largest tech companies, by market capitalization (as of Jan. 16)
Postsecondary Education
Top 5
South Korea
Russia
Finland
Israel
Ukraine
This category measures the education levels of a country’s workforce four different ways. South Korea comes out on top overall, and those at the bottom include Pakistan, Kenya, Brazil, and Indonesia, which struggle to achieve minimum levels of universal education. While education may be necessary for innovation, it's clearly not sufficient. Russia, second overall, has an illustrious tradition in science and math, but innovation is not a national strength. And some of the top performers in each of the individual measures are hardly innovation standouts.
  • Greece

    #1

    In postsecondary education as a percentage of college-age population
  • Russia

    #1

    In the percentage of the labor force with a postsecondary degree
  • Tunisia

    #1

    In annual new science and engineering graduates per thousand people in the labor force
  • Tunisia

    #1

    In annual science and engineering graduates per thousand postsecondary graduates
Because of corruption and red tape, among other roadblocks to innovation, these dysfunctional economies can't generate enough jobs to employ all their newly minted college grads. In Tunisia, there's even a special French-Arabic word for unemployed young people that means “those who lean against the wall.”

“hittistes”

Research Personnel
Top 5
Finland
Iceland
Denmark
Israel
Singapore
Finland is No. 1 in this category. After Nokia's fall from grace in mobile phones, the Finns vowed to diversify and make better use of their engineering talent. The hottest new sector is gaming, exemplified by Angry Birds. Iceland, Denmark, Israel, and Singapore--all smallish, prosperous nations--fill out the top five. Smaller countries tend to have more open economies, which means they both export and import more goods. Free trade allows them to carve out a niche as centers of brain power. Iceland is a leader in genomics, Denmark in pharmaceuticals, Israel in software, and Singapore in electronics. For less-developed countries, innovation takes the form of smart adoption and adaptation of technologies developed elsewhere.
Professionals working in R&D per 1 million population
Patents
Top 5
South Korea
Japan
China
United States
Germany
Patents are a mixed blessing. They protect and encourage inventiveness by allowing patent holders to exclude others from pilfering their ideas. But when used as a weapon they can squelch invention by blocking the ability of new inventors to build upon existing technologies. Countries whose residents earn a lot of patents (and attract patent lawsuits) tend to be those at the frontiers of science and technology. South Korea, thanks in large part to Samsung, again finishes first in this metric.
Number of patent lawsuits filed in U.S. courts
The Missing Measurement

This attempt to measure innovation leaves out one important but hard-to-quantify influence: government regulation, which can either accelerate or impede the adoption of new ideas. Politicians and regulators are often wary of change.

Audi CEO Rupert Stadler says that because of strict driving rules in Germany, his company has conducted all of its work on new automated systems in the U.S., where "there is more freedom and liberty to do it."

Uber, the mobile app that connects drivers and riders, is another example of how governments approach innovations that threaten the existing order. Taxi drivers all over the world hate Uber. In the U.S., customer demand has mostly overwhelmed attempts by cities and states to stop the company from operating. But France has banned one of its services. "In Paris it’s impossible to get a taxi," says economics professor Hall. "It’s illustrative of the resistance to innovation." Sometimes, Hall says, the best thing a government can do to promote innovation is get out of the way.

The Results
Here are all the categories together. A country's overall rank is the average of the six measures. Faded bars indicate a country for which there isn't complete data. You can click the title of any column to re-sort the list by that measure.
Here is the overall ranking—a country's overall rank is the average of the six measures.

The Bloomberg Innovation Index

By Peter Coy

Research by Wei Lu

Produced by Keith Collins, Jeremy Scott Diamond, Braulio Amado, Cindy Hoffman and Adam Pearce

 

Methodology

Bloomberg ranked countries and sovereigns based on their overall ability to innovate and identified the top 50. Six equally weighted metrics were considered and their scores combined to provide an overall score for each country from zero to 100.

1. Research & Development: Research and development expenditure as a percentage of GDP

2. Manufacturing: Manufacturing value-added per capita

3. High-tech companies: Number of domestically domiciled high-tech public companies—such as aerospace and defense, biotechnology, hardware, software, semiconductors, Internet software and services, and renewable energy companies -- as a share of world's total high-tech public companies

4. Postsecondary education: Number of secondary graduates enrolled in postsecondary institutions as a percentage of cohort; percentage of labor force with tertiary degrees; annual science and engineering graduates as a percentage of the labor force and as a percentage of total tertiary graduates

5. Research personnel: Professionals, including Ph.D. students, engaged in R&D per 1 million population

6. Patents: Resident utility patent filings per 1 million population and per $1 million of R&D spent; utility patents granted as a percentage of world total

Of the more than 200 countries and sovereigns evaluated, 69 had data for all six metrics. Postsecondary education and patent activity consisted of multiple factors that were weighted equally. Weights were rescaled for countries with some but not all of the factors in those two metrics. The ranking shows only those countries included in the top 50. Most recent data available were used.

Ranking sources: Bloomberg, International Monetary Fund, World Bank, Organisation for Economic Co-operation and Development, World Intellectual Property Organization, United Nations Educational, Scientific and Cultural Organization

Other sources: Samsung, Swiss Federal Statistical Office and Unified Patents