Four-part solution for economic growth

AN excellent education system, cutting-edge research and development efforts, a thriving export market, and global competitiveness are critical ingredients for any thriving economy. And while some countries are winning in these areas, others are falling woefully behind. It’s time to source best practices from various nations to figure out how to get more from the money citizens are investing in growing their economies and companies. Here’s a prescription.

Innovation/research

In the old days, rich nations were the innovators; they came up with great products and services and sold them to poorer ones. That’s changed, now that economies in places like India and China are in high gear. One key trend is ‘reverse innovation’, a phrase coined by Vijay Govindarajan, a professor at Dartmouth’s Tuck School of Business. (He’s co-author of Reverse Innovation, which I consider required reading for every executive.)

Reverse innovation is a process where industrialised nations such as the US import great ideas from less developed economies.

For instance, there are Indian cardiac facilities that achieve better outcomes for surgeries for which they charge $2,000 than American facilities do when billing $20,000 or more for similar procedures. Countries should be looking to overseas entrepreneurs to achieve similar magnitudes of savings in their own healthcare industries -and many other fields.

At the same time, leaders can take a page from Peter Diamandis and his US-based X Prize Foundation and start crowdsourcing innovation. The foundation offers prizes to brilliant visionaries who can solve challenges that advance humanity, in sectors from education to energy. For instance, it’s offering $30 million to the first privately funded team to send a robot to the moon. That may sound like a lot of money, but it’s a fraction of what the R&D would typically cost for a project like this. Companies can sponsor smaller prizes as well.

What’s powerful about prizes is you only have to pay the winners, not fund all the losers. Countries and companies need more initiatives like this to draw great ideas from everyone in the global economy, not just those who are entrenched in existing institutions.

Education

Companies need an educated workforce. It’s time we learn from nations like the Netherlands to trust parents to choose the best schools for their children. The Dutch adopted their government-funded school voucher program - which lets students attend their parents’ choice of public or independent schools - in 1917.

Today, the Netherlands consistently ranks among the nations with the best-scoring students. The only way for nations with failing public education systems to get back on top educationally is through a parent-driven voucher system, where all parents have access to schools that can help their children learn, regardless of their family income.

Exports

Leaders of every country should be paying attention to Germany, where per capita exports were $18,863 in 2011, compared to $4,859 in the US. As screenwriter and actor Woody Allen has said, 80 per cent of success is showing up. Every nation needs its executives to fan out around the globe to establish overseas outposts.

Given the globalisation of the internet, it’s becoming exceedingly more difficult for companies to defend their local turf. The best defence is offense. A key resource is Hermann Simon’s powerful book Hidden Champions of the 21st Century.

Competitiveness

All business leaders should look at how their country has fared in the World Economic Forum’s Global Competitiveness Report. The US has been sinking in the rankings for several years, and this holds lessons for every country. The US has slipped to seventh place, after claiming one of the top two places until 2008.

Why is this? The WEF cites reasons such as the business community’s lack of faith in public institutions and lack of trust in politicians, concerns about wasteful government spending, and economic instability. The WEF doesn’t have an axe to grind here, and it’s worth paying attention to its findings.

Nations can also take a page from countries that have maintained thriving economies by keeping their corporate taxes low. It’s no accident that business is humming in Singapore, where the corporate tax is 17 per cent, and Canada, which lowered its tax last year to 15 per cent. Nations with the highest-taxed corporations in the world need to lift this heavy burden from their economic engines so they can start firing again.

Verne Harnish is CEO of Gazelles Inc, an executive education and coaching solutions provider, and author of Mastering the Rockefeller Habits: What You Must Do to Increase the Value of Your Fast-Growth Firm.