The image was created with the help of Microsoft Designer

I like to argue that one of the most powerful drivers of innovation — and the one that draws surprisingly little attention — is freedom. Freedom emerges as a common denominator for the factors that boost innovation. The reverse is also true: restrictions on liberties have a chilling effect on the corporate innovation process.

Three Levels of Freedom

The positive effect that freedom exerts on innovation manifests at three major levels: individual, organizational, and national.

The first, individual, level manifests as freedom from being discriminated against for whatever reason. Organizations can realize this freedom by promoting diversity and inclusion in their workspaces.

The second level is organizational, realized through providing corporate employees with immunity for failed innovation projects. Organizations can do this by modifying their termination policies.

Do You Live in a Free Country?

There is one more level of freedom, which almost never receives proper consideration: the level of political freedoms in individual countries.

I began paying attention to this factor back in 2014 after reviewing the 2013 Global Innovation Index. The Index ranked innovation capabilities of the world’s nations by using 84 indicators, which included the quality of higher education, availability of venture capital, government support, etc.

Even a brief look at the Index composition led me to a curious observation: the top of the innovation rankings was heavily populated by established democracies (as defined by the 2013 Freedom of the World Report). The reverse was also true: the bottom of the Index was stacked with countries with extremely poor record of democratic development.

Some years later, I attempted to boost this observation with some statistical support. I took innovation rankings from the 2019 Global Innovation Index (Y-axis) and plotted them against the rankings of political freedoms taken from the Democracy Index 2019 (X-axis). Here is the result:

Indeed, a reasonably strong correlation (R2=0.46) exists between the world countries’ innovation potential and the level of their democratic development.

Free countries innovate better.

Freedom to Do Business

But what about economic freedoms? Is freedom to do business good for innovation too?

To answer this question, I used the 2021 Index of Economic Freedom composed by the Heritage Foundation. The Index evaluates the extent and effectiveness of government activities in the areas known to have an impact on economic growth:

• Property rights and judicial effectiveness
• Government integrity and the level of corruption
• Tax burden
• Government spending and fiscal health
• Business and labor freedoms
• Financial and monetary freedoms
• Foreign trade and investment freedoms

I plotted these rankings (X-axis) against the data from the 2021 edition of the Global Innovation Index (Y-axis). The results for 129 countries for which both sets of data were available are presented below:

Like with political freedoms, a country’s innovation potential strongly correlates with the level of its economic freedoms — hardly a surprising result given how closely both sets of freedoms are interconnected.

The State of US Innovation

The state of US innovation appears to be bright: over the past three years, the U.S. has held either the second- or the third-highest position in the Global Innovation Index (following Switzerland and competing for the second place with Sweden).

However, clouds might be gathering on the horizon. The 2023 Index of Economic Freedom places the United States only at the 25th position among a total of 176 countries, a slide from 2021 when the country ranked the 20th. Even among the Americas nations, Canada and Chile score higher.

The state of political freedoms seems to be trending in the wrong direction too. Until 2015, the Democracy Index has classified the United States as a “full democracy.” In 2016, the country was ranked, for the first time, as a “flawed democracy”; its rankings have been gradually sliding down ever since. Freedom House, a non-profit organization promoting democracy, political freedom, and human rights, points in its 2021 report that the United States finds itself among 25 world’s countries with the largest decline in freedom and democracy over the past 10 years.

True, the United States still spends a lot of money on R&D — more than any other nation in the world — a factor that may explain the stability of its innovation ratings. However, as I pointed out before, only about 30% of this money comes from the federal government, whereas 70% of it is contributed by the private sector. In the long run, this may jeopardize investments into fundamental but potentially risky R&D projects.

Another concern is the growing mistrust in science among the Americans; some glaring examples of this mistrust were on full display during the COVID-19 pandemic. Academic research shows that mistrust in science often manifests as unwillingness to support it. Taken to the extreme, this sentiment may result in attempts to “defund” science both at the state and, worse, federal level.

Yet another troubling development is a widespread adoption of the state-level laws restricting abortion rights, a social policy shown to negatively affect corporate innovation.

Innovation has been the driving force of American growth and prosperity — and, as such, a key component of the nation’s psyche. Unfortunately, given the current trends, the nation’s innovation edge in the future can’t be taken for granted. Losing it will have consequences we Americans don’t even want to contemplate.