ANALYSIS:
The Consumer Technology Association, which organizes the giant tech confab CES in Las Vegas every year, has released its first ever International Innovation Scorecard. Given the global influence of CTA and CES, naturally it’s getting a lot of attention.
Finland is ranked first on the index, which isn’t necessarily surprising, given its size and the density of its startup scene. Portugal boosters are tickled the country made the top 10. French Tech lovers are disappointed that the country ranked a mere 18th despite sending more startups to the affair every year than any other country.
Such criticism has a way of stinging the French quite hard. Before the news hit, I could already imagine the wave of self-loathing and finger-pointing that was going to result from what would likely be received as rebuke. So while bracing for the inevitable wailing and gnashing of teeth in my adopted homeland, I became curious about the scorecard and its methodology.
If there is a single takeaway I could offer about the scorecard, it would be this: More than being a true measure of entrepreneurship and innovation, the rankings reflect the anti-regulation agenda of the CTA.
This philosophy reflects a fundamental gulf I’ve experienced in the way U.S. tech companies view regulation of any kind and the way it is viewed broadly in Europe. U.S. tech companies see regulation as fundamentally incompatible with innovation. If you favor regulation, you are an enemy of the future. Period. It’s black and white.
In Europe, on the other hand, regulation is seen as fundamental to protecting fairness and competition. You have referees on the field to make sure the rules are enforced, which in turn makes a game more competitive. Nobody ever thinks, “Gee, we should get rid of the refs and just let the teams make up their own rules.” Same goes for business and markets.
It’s impossible to overstate the size of the chasm between those two viewpoints.
Naturally, the CTA falls on the anti-regulatory side of that canyon. For additional context, it’s important to remember that the CTA is run by Gary Shapiro, who himself falls somewhere to the far right of right on the political spectrum. You can read some of his political musings in the conservative Spectator magazine: “Will Trump Be as Great as Lincoln?,” “Firing Comey Proved Trump Acts Like America’s CEO,” “Why Brexit Is a Win for Brits and the U.S.”
In that light, it’s little surprise that the scorecard leans heavy on anti-regulation themes for its rankings. The category for ridesharing, for instance: “Ridesharing assesses federal laws and regulations affecting ridesharing services. A country fares well if it allows ridesharing services to operate free of burdensome federal, provincial, or municipal regulations.”
This means that France, home to ridesharing unicorn BlaBlaCar and to Chauffer Privée, which was just acquired by Daimler, earns a “D” in this category. Likewise, India, which is one of the most hotly contested ridesharing markets in the world, thanks to the competition between homegrown Ola and Uber, gets an “F.”
Likewise for Airbnb-type services: “Short-Term Rentals assesses federal laws and regulations affecting short-term housing rental services. As in the Ridesharing category, a country fares well if it allows housing rental services to operate free of burdensome federal, provincial or municipal regulations.”
As for taxes: “Tax Friendliness ranks the competitiveness of a country’s tax system based on two indicators: its top corporate tax rate according to KPMG [which constitutes 70 percent of a country’s grade in the category], and the imposition of taxes on video streaming services [30 percent of the grade].”
Now why are video streaming taxes given such heavy weight relative to the infinite other tech products and services that could be considered? No clue. Why not single out ecommerce? Or some other category of tech?
Meanwhile, according to the KPMG study, the United States ranks second in the world for highest corporate tax rates. KPMG calculates the U.S. corporate tax rate at 40 percent. I feel confident in saying no corporation in the U.S. pays that. The real effective tax rate tends to be in the mid-20s, and with the new tax cuts, it will probably go lower.
And then there is the abstract Freedom ranking: “Freedom represents the degree to which a country grants its citizenry certain civil and political freedoms. The grades are derived by equally weighting select components of CATO Institute’s Human Freedom Index (freedom of movement, religious freedom, and freedom of association, assembly, and civil society) and scores from Freedom House’s Freedom in the World 2017.”
CATO is one of the most well-known libertarian think tanks. And Freedom House’s report notes “setbacks” for freedoms in France due to “high-profile terrorist attacks” and the rise of Marine LePen’s National Front Party, which “frequently praises Vladimir Putin [and] has received financial assistance from Russian sources.” Freedom is worried about terrorism but seems not too bothered by the surge in mass shootings in the U.S.
The U.S. doesn’t fare too well in that category, either: “After eight years as president, Barack Obama left office with America’s global presence reduced and its role as a beacon of world freedom less certain. Trump’s positions during 2016 raised fears of a foreign policy divorced from America’s traditional strategic commitments to democracy, human rights, and the rules-based international order that it helped to construct beginning in 1945.”
Of course, the CTA’s scorecard could have added several other notable categories. How about investment in education? Patents? Quality and cost of health care? Social welfare support and unemployment? Nope.
Even categories such as Entrepreneurial Activity, which seem to have reasonable sources and criteria, still manage to produce odd results. With all due to respect to Australia and New Zealand, are they really worthy of their respective No. 2 and No. 3 ranking in this category?And should India really be fourth from the bottom?
When you get weird results that defy common sense, it’s best to stop and review the methodology.
Now, none of this is intended to burst the bubble of Portugal, which really is pushing hard to develop its innovation ecosystem and has made great progress. Nor is it intended to ignore the fact that France still has plenty of challenges if it wants to become the “startup nation” of President Emmanuel Macron’s dreams.
But in this case, it’s important to understand that the scorecard reveals more about the CTA’s priorities than it does about the countries on the list. So everyone: Please just chill.
