Innovation Systems in Latecomer Development

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Innovation Systems in Latecomer Development

• Banji Oyelaran-Oyeyinka
• Professorial Fellow, United Nations
  University-Merit, Director, UN-HABITAT
• Emerging Economy Perspectives and Priorities in a
  Multi-Polar World November 2011

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CONTENT

• What is Development in the context of Innovation
  studies?
• How do we view development in light of Innovation
  and Learning Studies
• What have we learnt in this Dialogue and the
  extant Framework?
• On the Role of Policy and Institutions for
  Innovation
• Thoughts on Future

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How Has Development been interpreted?

• What are key issues emerging from the more than
  five decades of learning, theorizing and
  experimentation?
• They are complex issues that can be classified
  into a number of stylized facts.
• How do we understand lessons from the Dialogues?

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• Three stylized categories
• Underdevelopment has a single cause
• These causes have evolved over time and include
  the following
• Shortage of physical and financial capital. The
  debate conceptualized economic development as a
  process requiring complex shifting of factors of
  production from low-productivity, traditional
  sectors plagued with diminishing returns to the
  more productive industrial sector characterized
  by increasing returns.

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• The high end is an economy with high levels of
  human capital and knowledge with an economy
  corresponding to increasing returns to scale
  and corresponding path is a high-factor-productivi
  ty, high growth and high levels of per capital
  income.
• Ineffective government
• Recently governments matter (Chang, 2001
  Stiglitz, 2001) and that the role of the state
  must be at center stage (Stein, 2001)

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What we Know from Development and Innovation
Studies

• The issues pivotal to the new development
  framework are
• 1. Development is a non-linear, non-sequential
  and complex process Innovation is a non-linear,
  non-sequential and complex process
• Example East Asian firms reversed the sequence
  of innovation cycle
• 2. Development paths are differentiated and
  non-unique Innovation trajectory is equally
  differentiated.
• Examples Foreign owned Taiwan small firms,
  locally-owned Malaysia. Large MNCs,
  foreign-owned China a new set of institutions
  and organizational forms. India complex
  sectorally-diverse modes (BPO success)

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• 3. Development is path dependent Innovation is
  path dependent.
• Both shaped by initial conditions which affect
  subsequent paths of the process.
• Examples Chinas dominance of computer hardware
  not a sudden success Indias success in software
  rooted in long years of building engineering and
  science human capital
• 4. Development paths are not fixed Innovation
  paths are not set in unalterable contours
• Both are subject to change through policy and
  institutional changes.
• 5. Development process is shaped by the state
  Innovation is shaped by state action.

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What is New in the New Development Framework?

• The new makes a decisive shift in focus and
  content of the factors explaining economic
  growth.
• 1. That development is not only about capital
  accumulation neither is it just about more human
  capital, important as these elements are.
• 2 Eliminating big government and simply
  correcting for price distortions resulting from
  state action has equally not solved the problem
  of development.

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• Development is a long process of organizational
  change that takes as starting point five
  fundamentals, namely, financing, technology,
  institutions, human capital and policies.
• The role of institutions are critical, that
  history matters, and that wealth distribution
  is a spur to sustained economic growth.

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• 5. Distributional inequalities perpetuate
  individual and productive structures from one
  generation to another. For instance an economy
  stuck in a low equilibrium production system will
  only be capable of supporting an incentive,
  contract and outcomes reflective of the kind of
  economic system.

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STI What Differentiates Countries

• Pattern of RD and Wealth Creation RD spending
  is highly correlated with the wealth of nations
  the highest spending is found within the OECD
  countries although a number of Asian countries
  are beginning to spend substantial amounts on
  RD

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STI What Differentiates Countries

• Pattern of Sectoral Specialization Countries
  specializing in so called high-tech goods and
  services tend to invest proportionally heavily in
  RD activities.
•  
• Pattern Public-Private of RD Spending Private
  firms in high income countries are the dominant
  RD players

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What separates Countries

• Pattern of Basic Research Investment Spending on
  basic research is also concentrated in high
  income countries with the sort of incentive
  structure and institutions that promote advance
  scientific knowledge
• Differential Investment in Skills Acquisition
  There is a significant difference in the quality
  of skills and knowledge of scientists between
  developing and developed countries.

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What separates Countries

• Identify Key Drivers of Innovation Success
  Innovation capacity building effort in latecomer
  countries must seek context-specific Policies and
  Institutional solutions.

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How will Institutions and Policies solve the
Development Problem?

• In addition to what we do we need to include
• How technology, Institutions and Innovation
  increase living standards and do we reflect these
  in standards of health and literacy.
• The goal will be to eliminate poverty and
  inequalities as has been done at least in part by
  most industrial societies.

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• We need explicit formulation to include
  sustainable environment and all inclusive
  societal transformation.
• We have pointed out differences in Systems of
  Innovation, Now we need to explain them and finds
  way to articulate different systems in emerging
  economies.
• We need to help build Policy and Institutional
  Capacity to build Innovation Capacity

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What innovation is

• Much of Innovation in a developing context
  includes continuous improvement in product design
  and quality.
• Changes in organization and management routines,
  creativity in marketing and modifications to
  production processes that bring costs down.
• Increase efficiency and environmental
  sustainability.
• The ability to manage a portfolio of
  partnerships, to form linkages and to learn
  through them.

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Innovation Policy

• The focus of Innovation Policy is on the
  interaction between system actors and their
  embeddedness in an institutional and policy
  context that influences their innovative
  behaviour and performance.
• Coordinating these different actors e.g. agencies
  of government is difficult, complex and
  undermined by vested interests.

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Innovation missing Links

• The innovation system approach considers the
  demand-side. Demand flows amongst others signal
  the shape and focus of research, and the decision
  as to which technologies from among the range of
  the possible will be developed and the speed of
  diffusion.
• Demand is not articulated at arms length through
  the market, but may take place through a variety
  of non-market mediated collaborative
  relationships between individual users and
  producers of innovation (Lundvall 1988, 35).
• In broader systems terms demand may be
  intermediated by policies.
• Conventional ST policy in poor countries has
  only come to terms with this reality.

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Innovation Policy

• Government Innovation policy in industrial
  countries usually result in actions in three
  broad dimensions
• Supply conditions which involve the provision of
  financial and human capital,
• Macroeconomic conditions which include
  competition, taxation and legal framework to
  allow for innovation activities to thrive
• Demand conditions which include procurement and
  purchases by central and local governments.

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Elements of IP

• Supply Side (a) Support for knowledge
  infrastructure particularly RD in public and
  private domains,
• promote research and professional associations,
  use of competitive research grants
• (b) general and technical education, support
  university research, apprenticeship programmes.
• (c) Information networks, library and database
  services.

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Elements of IP..

• Macroeconomic Conditions
• Loans, subsidies to private provision of
  innovation, financial services, export credits
• (ii) taxation company, personal, indirect and
  payroll taxation and tax allowances
• Legal and Regulatory measures patents, health
  and environmental regulations, monopoly
  regulations and competition policy.

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Elements of IP.

• Demand Conditions (i) Procurement policy
  central and municipal government purchases and
  contracts, RD contracts, purchases
• (ii) Commercial instruments trade agreements,
  tariffs, currency regulation.

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THOUGHTS ON STIPS

• INNOVATION

• DEVELOPMENT

• POINTS FOR DISCUSSION

• POINTS FOR DISCUSSION

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END