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How would you define innovation in economic terms?

There are different definitions that cover various levels and perspectives. Basically, our economic system is based on competition. Innovation is an integral part of this economic system: Companies must innovate continually if they want to survive in the long term. Innovation includes activities such as launching new products and improving processes to gain an advantage on the market. But this is more the entrepreneurial viewpoint. There is also a lot of innovative basic research, which doesn’t focus on making a profit.

So innovation doesn’t intrinsically exist — it is a result of the system? There is a pressure to innovate?

I would say that innovation is both. Human beings enjoy new things; they like to develop new methods and new products. And innovations have also led to considerable improvements in many areas. But becauseinnovation is such an important part of long-term profit, people have an almost religious view of it. Many companies like to talk about how innovative they are — without understanding why they are innovative and the actual purpose of innovation. They use the term without thinking about it. And I also think the word “innovation” has replaced the word “growth” to some extent. “Innovation” has a more positive association.

You hear contradictory things about the situation in Switzerland. On the one hand, Switzerland holds one of the top spots in international innovation rankings. There are also plenty of articles about our thriving startup scene. On the other hand, an analysis of the Swiss industrial sector’s innovative capacity in 2021 showed that research and development is taking place at fewer and fewer companies. The number of Swiss companies without R&D has increased signif­icantly, and SMEs are investing less money in R&D.

I would rate Switzerland’s innovative capacity as basic­ally positive. The University of Applied Sciences and Arts Northwestern Switzerland (FHNW) maintains regular contact with SMEs. I am continually impressed by how innovative Swiss companies are, including smaller ones. Research is getting more and more expensive, and SMEs can’t conduct it on a large scale. So research is increasingly concentrated at large companies. But it’s not always about big innovations and research budgets. The small adjustments count too. And this is where Switzer­land is really very innovative. In part because many SMEs do business on the global market, so they are exposed to global competition. When it comes to innovative projects, you have to ask yourself: Why do we want to be innovative? What do we want to achieve? Often, inno­vation happens without a plan. In the end, these initiatives usually result in the arrival of a new technology. And this doesn’t have much to do with innovation itself.

What do we actually mean when we say that Switzerland is innovative? Do we just have good general conditions that attract innovative people, who then establish startups here?

Unfortunately, innovation is just talk to an increasing extent. We are focused on security; we don’t want to experiment. So we like talking about innovation, but we don’t encourage or reward it in practice. The main aim is to make as few errors as possible and not be respon­s­ible when something goes wrong. We bring in a lot of brain power from outside, especially when it comes to technology. Fewer and fewer people are studying STEM subjects. On certain master’s courses at ETH Zurich, over 50 percent of students are from abroad. We run the risk of becoming the Real Madrid of research — buying up the best researchers in the world, but becoming less and less able to conduct research ourselves.

Can innovations solve the world’s big problems? Do we expect too much from them?

Whether it’s climate change or other environmental issues, everyproblem is an opportunity to be more innovative. This presents new potential for growth — and new problems as well. Innovations in the field of energy efficiency, for example, didn’t reduce energy consumption. The amount of living space per person kept expanding. This was possible and economically viable because of the improved energy efficiency. Innovations have to be profitable, which is why the rebound effect cancels out many of the advantages of innovations that were otherwise positive. Innovations are always affected by private interests. People want to earn money with innovations. And even so-called green innovations are part of our economic system.

Are there ways of avoiding the rebound effect?

Setting the right prices can limit this effect. Let’s take the example we talked about before: Improving the en­ergy efficiency of a heating system makes it possible to use less energy to heat a square meter of living space to the same temperature. This then contributes to living spaces becoming larger and larger. But if energy then becomes more expensive, for instance due to a carbon tax, this limits that effect.

What is your view of the relationship between the free market and the state? Many important innovations like the internet were not invented by private entities. The army in particular has generated far more modernizations — from weapons technology to medical care for the wounded — than privately funded initiatives. 

A very large number of innovations come from the state. After all, only the state can fund basic research. And people generally accept that the state should conduct basic research. Applied research primarily focuses on the economic benefits of innovations and protecting them with patents. The argument that regulation kills off the innovative spirit isn’t always true. Business primarily wants to make a profit. In real market conditions, this does not automatically promote the common good. So the state has to make sure that this growth is beneficial to society. But it is true that too much bureaucracy does not encourage innovation. Innovations also help companies achieve a certain position of power on the market. Companies are not interested in competition itself. People say that competition encourages innovation. But businesses must be regulated for this competition to even happen. Leaving the economy to its own devices does not result in an especially innovative economy.

Last question: What would you say was the most important innovation in the last 30 years?

Artificial intelligence and the self-learning algorithms that build on it. This development will have the biggest impact on society and is leading to an economic system with a momentum of its own. Algorithms understand capitalism better than people can. The vast volumes of data they work with let them make optimizations 24 hours a day. We will start delegating more and more decisions to these systems. In future, algorithms will search comparison sites like Comparis to find the best offer for me. And they will conclude the contract at the same time. This will make life more simple and convenient, However, the consumer will become dependent and won’t be in charge of their decisions.

This was an article from the ti&m special “Innovation”

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