Ranking Technological Innovation: The E.U. and U.S. as Unions of States

“With the rise of AI, self-driving cars, and wi-fi connected appliances, it can feel like innovation is everywhere these days.”[1] Lest the BBC be presumed to be referring to California, the fifth largest economy in the world, with Caltech and Stanford University, government investment in IT and data infrastructure, and a high concentration of science/technology graduates and employment, California (as well as Massachusetts) is absent from the BBC’s rankings of technologically innovative countries. So Switzerland comes up in that ranking as the world’s foremost in computer technology, while the U.S. comes in third, with states like California and Mississippi being lost in an average that does not correspond to any actual place.

Of course, Europe presents itself as myriad of republics, with the E.U. not being counted, and thus ranked, even though the U.S. rather than California or Massachusetts is counted, and thus ranked. Referring to the 2016 Milken Institute's "State Technology and Science Index," an article in Bloomberg highlights the great science and technology divide existing between the fifty states.[2] With the Index showing a strong positive correlation between a state's innovation ranking and its GDP (gross domestic product), it is obvious that averaging California or Massachusetts with Alabama and Mississippi would be misleading for any generalizations. So too would be averaging Switzerland and Romania in Europe. 

Put another way, the BBC’s ranking highlights little Finland, The Netherlands, and Denmark in the top ten, all three of which are E.U. states, and yet ignores the U.S. member states completely.  It is telling, therefore, that the Global Innovation Index Ranking of 2024 is based in part on the assumption that it is appropriate to average all the U.S. states together on technological innovation, but somehow ill-fitting to lump all of the European states (whether E.U. states or not) together. Not even a polity in Europe having full sovereignty could explain or justify the incongruency, for every E.U. state has delegated some governmental sovereignty to the E.U. Perhaps it is denial of the E.U. instantiating modern federalism that is behind the inconsistency in the Global Innovation Index Ranking for 2024. For in terms of GDP, territory, and even population (clustering) too, the E.U. states and the U.S. states are roughly equivalent (and the E.U. and U.S. are thus equivalent too). 

The Global Innovation Index Ranking 2024: Including the U.S.[3]

1.       Switzerland

2.       Sweden

3.       United States

4.       Singapore

5.       United Kingdom

6.       Republic of Korea

7.       Finland

8.       The Netherlands

9.       Germany

10.     Denmark

Averaging all of the U.S. member-states into #3 rather than listing the foremost American states in technological innovation may be what allows Denmark to be in the top ten, and perhaps this could also be said of the E.U. states on the list: Sweden, Finland, The Netherlands, and Germany. Alternatively, the following ranking, which I have assembled in a cursory manner, may be more accurate, as a consistent polity-basis for comparison replaces the false union-state equivalence:

The Global Innovation Index Ranking 2024: Including the E.U.

1.       California

2.       Massachusetts

3.       Switzerland

4.       European Union

5.       Washington

6.       South Korea

7.       Japan

8.       China

9.       United Kingdom

10.     Singapore

California is no longer held down in a lower average of all the U.S. member states, and Massachusetts and Switzerland follow close behind. The European Union’s rank of #4 reflects the averaging from Sweden to Romania. That no E.U. states are listed leaves room for the U.S. Commonwealth of Pennsylvania, mainly due to the efforts by companies in computer tech in Pittsburgh. Of course, we could refuse to sit both E.U. and U.S. states, and thereby leave more room to other areas of the globe to make the cut. Perhaps a ranking of the top 20 could include E.U. and U.S. states, but without the E.U. and U.S. themselves being ranked. We could do another ranking, using the E.U. for all of its states and the U.S. for all of its states, and thus leave room for sleeping giants in other parts of the world that are quite innovative yet are not getting credit for it. To avoid a noxious political category mistake, avoid including the U.S. (instead of its states) when the E.U. is not included while E.U. states are included.

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1. Lindsey Galloway, “What It’s Like to Live in the World’s Most Innovative Countries,” BBC.com, December 5, 2024.

2. Richard Florida, "America's Great Science and Technology Divide," Bloomberg, November 1, 2016.
3. Lindsey Galloway, “What It’s Like to Live in the World’s Most Innovative Countries,”

Strategic Thinking beyond the Business Plan

“When smart people came up with ideas for well-conceived business opportunities, we said go for it. As always, organizational charts, management consultants, and business plans played virtually no role in any of this. My own strategic thinking I did mostly while showering or shaving.”

—Alan C. Greenberg, former Chairman and CEO of Bear Stearns

Similarly, when I write an essay, I inevitably pass on first constructing a formal outline and go instead off of what I have worked out in ratiocinating while exercising, in transit, or showering. Freeing the mind up to search for and try out connections between ideas, and working a theory over and over—like kneeding dough or forming a clay pot on a wheel—are inconsistent with too much structure.

The human mind needs its own space to solve abstract or applied problems needing considerable thought. Subjecting the processes of theory-construction and problem-solving (“critical thinking”) to too much structure is simply not in line with the nature of the mind itself. Human reasoning, it turns out, is not a linear process that necessarily fits within the confines of a business plan or consulting diagnostic tool. Particularly if creativity and innovation are to be encouraged, mechanistic structure must succumb to organic process.

For example, I did a consulting project as part of an organizational design senior seminar that I took in college. The professor had developed a structured organizational audit—a diagnostic tool geared to detecting discrepancies between an organization chart and actual communication. As he had developed the instrument, we were naturally to rely on it in making our recommendations to the clients. I used the tool on a computer retail store and proffered recommendations from it. Because the business was family-owned and operated, I could see that the communications were in part a function of the family dynamics, which the professor’s organizational audit failed to pick up. So I asked some additional questions and made some supplemental recommendations, which the business owner/manager found quite useful—unlike those that came from the audit.

Even though the professor graded me lower for adding the recommendations, the client went so far as to call him to urge that an A be given to me for the project. From what the client told me later, the professor was perhaps too attached to his “organizational audit” tool (which he used in his own consulting practice). My orientation as a novice consultant was neither to my grade nor to the tool; rather, I wanted to help the owner/manager by proffering him insight that he could use to solve his problem. Although I cannot be sure at this point, I might have come up with my final recommendation to him on the way to a class, during a run, or even while shaving.

So I can totally understand Alan Greenberg’s aversion to organization charts, business plans and “professional” consultants. A true consultant comes from a perspective of expertise that clients do not have. For example, a consultant could be an academic or a nearly-retired practioner. In either case, the advice should be viewed as supplemental to the client’s focal situs “on the ground”—that is, consulting advice is something for a client to digest and possibly integrate with his or her larger considerations outside the range of the consultant.

Being geared to helping a client, a consultant should be able to let go of his or her “black bag” if the tools therein fall short in diagnosing the organizational dysfunction, or “illness.” I suspect that one's “gut” can come into play, effectively transcending the mechanistic tools, only if the consultant cares, because only then is he or she intrinsically oriented to the client’s situation rather than the consultant’s own bag of tricks as ends in themselves. In the end, consulting is interpersonal—helping others who are suffering from a problem. Such problems typically involving human beings, it should be no surprise if a consultant should approach them from more than one level.

Therefore, both strategic and consulting thinking ought to be accommodated in the sense of giving them some organic free range. Treating business plans, organizational charts, and diagnostic tools as ends in themselves, as if they were rational beings (i.e., Kant's kingdom of ends), is ultimately self-defeating, if not suffocating. Just as managing can sometimes be informed by simply wandering around, so too the strategic mind needs some room to roam.  

Source:

Alan C. Greenberg, The Rise and Fall of Bear Stearns (NY: Simon & Schuster, 2010)

Hedge Fund Set to Hack Nestlé Up: A Case of Sensationalistic Over-Kill

Does the fact that an earnings-per-share figure has not meaningfully improved over, say, five years justify an overhaul pushed by a hedge-fund activist investor?  Put another way, is a steady earnings-per-share tantamount to failure? Especially for an established company, steady numbers do not evince bad performance. An airline would only foolishly fire a pilot for not climbing once having attained a cruising altitude. Maintaining such an altitude during a flight is hardly a reason to turn a plane around or set it in a radically different direction.

With 40 million shares, which amounts to about $3.5 billion, in Nestlé, Third Point hedge fund urged the company’s management in June of 2017 to “sell its stake on L’Oréal and sell off nonessential operations as part of a broad shake-up.”[1] The conglomerate’s shares had appreciated nearly 15% over the preceding 12 months—behind Unilever but better than Mondelez and Kraft Heinz. So why a shake-up? 

Dan Loeb of Third Point.  Relax, Dan, Nestle is not on a nose-dive. 

To be sure, the conglomerate structure is itself arguably too much of a strain on the extant science of management, especially in the United States given the penchant for specialization over “big-picture” management. Selling L’Oréal thus may make sense so the management can concentrate on food. It was not as if such a focus would leave corporate managers with nothing to do.

In May, Nestlé announced a joint-operation with Amazon to offer a cooking companion with recipe instructions and other help for customers. At the same time, Nestlé set to work eliminating unpopular ingredients to its Maggi line. The company had been working to remove preservatives from its ice creams. Lastly, the company announced in June that it was the lead investor in a $77 million in Freshly, a subscription meal service. Such adaption to changing consumer tastes and changes in the industry is a solid means by which an established company improves its profitability. Slogans like “a bold strategy” and a “broad shake-up” make for good press, but they do not fit with a company that has achieved cruising altitude. In other words, severing arms and legs should only be attempted in the more dire of cases, rather than as business as usual.

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[1] Michael Merced, “Third Point, a Hedge Fund, Sets Its Activist Sights on Nestlé,” The New York Times, June 26, 2017.

An Ebola Vaccine: A Lesson for Obamacare

With the Ebola virus confined to impoverished states in Africa until 2014, drug companies had little financial incentive to develop a vaccine. “A profit-driven industry does not invest in products for markets that cannot pay,” Margaret Chan, the director general of the World Health Organization, said in late 2014.[1] At the time, at least 13,567 people were known to have contracted the virus in the outbreak, with nearly 5,000 people dead. It cannot be said that the profit-motive in a market economy is efficient in this case.

As a few cases made their way to the U.S. and E.U. in the Fall of 2014, elected officials quickly felt the fear among their respective constituents. As a result, the U.S. sent troops to West Africa to help contain the illness. In short, money began entering the equation in significant amounts as soon as the people in developed countries perceived themselves as being at risk. Doubtless public funds went to drug companies for expedited research toward a viable vaccine. The arrow here goes from governments to private companies in the marketplace, rather than coming out of the “efficient market hypothesis.” In other words, relying on private companies and the market mechanism, moreover, may be suboptimal in the field of medicine.

The implication for the Affordable Care Act, or “Obamacare,” is that the president erred in caving into the health-insurers lobbyist on including a public option. Relying on private insurance companies may be suboptimal, though admittedly they are not drug companies. Even so, if the market mechanism itself is deficient in the case of a vaccine, then perhaps the healthcare industry, including health insurance, ought to rely chiefly on government rather than the private sector.

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1.Rick Gladstone, “Ebola Cure Delayed by Drug Industry’s Drive for Profit, W.H.O. Leader Says,” The New York Times, November 3, 2014.