How to Innovate - what policies for innovation?

How to Innovate - what policies for innovation? Kurt Larsen, Justine White Skills and Innovation Policy, Growth and Competitiveness Unit, World Bank Institute Beirut, July 5&6, 2010

Structure of Presentation Part 1: Introduction What is innovation and Why and Who innovates Part 2: How How (1): Global sources of ideas and knowledge and tapping into them How (2): A receptive environment and creative population How (3): Flows and connections Part 3: Innovation Policy The government s role Positioning Putting innovation policy at the heart of development strategies

Part 1: Introduction

What is innovation Definition: Innovation means technologies or practices that are new to a given society...innovation should be understood as the dissemination of something new in a given context, not as something new in absolute terms...innovation is distinct from research and need not result from it at all (excerpts, Innovation Policy, A guide for developing countries)

Why innovate? Innovation can play a critical role in helping to improve competitiveness, growth, and welfare improving productivity and factor and resource saving Major technological improvements are critical for addressing global warming/climate mitigation (water scarcity, etc.)

Who innovates? Firms and entrepreneurs are at the heart of innovation The government can be a powerful enabler Innovation policy is about: making sure that the overall environment to innovate is good fostering linkages where they do not exist between different sources of ideas and the private sector guided policies - such as in education, trade, etc. by prudent direct action (procurement)

Part 2: Some Pointers on How

An Innovation Map 1. Acquiring from Abroad 2. Acquiring from elsewhere in country 3. Creating New in Country: Public Research Institutes Universities and Training Institutes Firms Individuals Modes of Acquisition or Transfer Purchase of: -capital goods & components, -technology licenses Copying and reverse engineering Outside technical assistance services Outside technical literature Education and training outside country Investments by established companies Immigration of persons with technology and skills People knowledge sharing networks Information technology enabled networks for sharing knowledge Modes of Transfer of Locally Created Patents and Licensing Technology consultancy services Education and Training of students and managers Business incubator and spin-offs or creation new technology based firms Movement of persons from research institutes and universities into business and social sectors Information sharing networks Users of Firms Agriculture Industry Services Government Administration and management Development planning and implementation Public Institutions Education system Health system Infrastructure service institutions Courts Security Social organizations Ngos Communities Cooperatives People 4. Disseminating : Market Growth of more efficient firms Specialized suppliers Engineering and consulting firms Informal Networks People networks Informal technology enabled networks Specialized organizations Information Centers Productivity Centers Extension Organizations Technology Infrastructure Metrology Standards and Quality Control Key Enablers: Economic and Institutional Regime--Information and Communications Infrastructure-Education

Acquiring knowledge and ideas from abroad Key points There is very large and rapidly growing global stock of existing knowledge 2/3rds of R&D is done by private sector and 2/3 rds of R&D is done by five countries Countries can dramatically improve their position by acquiring existing knowledge and increasing international exposure Much of it, especially for improving social welfare is in public domain Lots of it can be acquired through formal modes Some can also be acquired through informal copying and reverse engineering Implications: Developing countries can get big bang from using knowledge that already exists Lots of it is in public domain Much can by purchased or obtained through formal and informal means

1. Acquiring from Abroad 2. Acquiring from elsewhere in country 3. Creating New in Country: Public Research Institutes Universities and Training Institutes Firms Individuals Modes of Acquisition or Transfer Purchase of: -capital goods & components, -technology licenses Copying and reverse engineering Outside technical assistance services Outside technical literature Education and training outside country Investments by established companies Immigration of persons with technology and skills People knowledge sharing networks Information technology enabled networks for sharing knowledge Modes of Transfer of Locally Created Patents and Licensing Technology consultancy services Education and Training of students and managers Business incubator and spin-offs or creation new technology based firms Movement of persons from research institutes and universities into business and social sectors Information sharing networks Users of Firms Agriculture Industry Services Government Administration and management Development planning and implementation Public Institutions Education system Health system Infrastructure service institutions Courts Security Social organizations Ngos Communities Cooperatives People 4. Disseminating : Market Growth of more efficient firms Specialized suppliers Engineering and consulting firms Informal Networks People networks Informal technology enabled networks Specialized organizations Information Centers Productivity Centers Extension Organizations Technology Infrastructure Metrology Standards and Quality Control Key Enablers: Economic and Institutional Regime--Information and Communications Infrastructure-Education

Acquiring knowledge and ideas from abroad: modes of acquisition Trade Foreign Direct Investment Technology Licensing Technical Assistance and Consulting Foreign Education and Training Diasporas and Brain Circulation Information Enabled Networks Copying and Reverse Engineering

Acquiring Global vs. Domestic R&D Effort by Developing Countries Modes of Acquiring Global Estimated Value ( $US Billion) Percent of total Merchandise Imports 239 37% Service Imports 43 7% Foreign Direct Investment 60 9% Technology Licensing 34 5% Technical Assistance and Consulting 14 2% Foreign Education and Training 22 3% Copying and Reverse Engineering 68 11% Subtotal for Acquiring Global 480 74% Total Domestic R&D 166 26% Total 646 100%

Information Enabled Networks Key Figures Great variance in international internet bandwidth (bits/second/capita) Correlated, but not perfectly with income Key Points International internet access is important channel for acquiring global knowledge and overcoming constraints of distance Developing countries are still far behind high income countries Developing countries still need to improve access 2008 GNI per Capita International Bandwidth per capita World 8,654 3,546 High Income 39,687 20,143 Middle Income 3,251 377 Low Income 523 24 EAP 2,644 470 ECA 7,350 1,244 LAC 6,758 1,391 MENA 3,237 323 S. Asia 963 31 SS Africa 1,077 34

From knowledge and ideas from abroad to value at home --> Acquiring knowledge from abroad is important, BUT you have to have the ability (and interest) to use it at home! Countries need to invest in domestic capability to acquire, use, and create knowledge and ideas Need technological and other capabilities to know what knowledge to look for, assess its relevance to domestic context, adapt and improve it. Need to do basic R&D in order to be part of global research networks and be part of the invisible college of science

Domestic Capabilities and Environment Depends largely on educational factors Entrepreneurship Human capital Basic education High level skills Also requires supporting institutional infrastructure Standards and quality control Engineering R&D capability Depends on economic regime forcing better performance Competitive Pressure - this comes from abroad Results driven and accountable government

Diasporas and Brain Circulation Basic Figures Emigration of people with tertiary education to OECD countries as % of population 25+ in source region (data for 2000) Key Points Countries can turn brain into brain gain through brain circulation strategies to tap into knowledge, experience, and resources of their diasporas Good examples are Taiwan Korea China Armenia World 5.4% High Income 4.0% Developing 7.2% -EAP 7.0% -ECA 4.2% -LAC 10.6% -MENA 10.4% -SA 4.0% -SSA 12.3%

Demand Pull and Supply Push Demand Pull is critical Without need to improve performance there is little effort The overall economic and institutional regime is critical to create this demand pull Supply Push is also important Many areas of general public infrastructure support such as education and training, basic technological support infrastructure Targeted programs to focus on specific problems Includes removing restrictions on accessing global knowledge or establishment and expansion of new firms Also need pressure and orientation to improve performance of government Transparency Performance targets Monitoring and accountability

Part 3: Innovation Policy

Innovation Policy: the government s role The soil: Human capital: Basic education and high-level technical, business, scientific skills creating a entrepreneurial culture Nurturing and Removing weeds: Business environment: MNCs, competitive pressures, business incubation support, financing (microfinance, seed, venture capital) Protecting IPR, ensuring MSTQ infrastructure Cross-pollination Fostering in-country and cross-country networks and links: SME networks, University-industry collaboration, foreign linkages (diaspora)

Innovation Policy: the government s role And finally...a good gardner! Results driven and accountable government --> public sector excellence Very important role of monitoring and evaluation of the government s policies

Innovation Policy: positioning Central - spanning several Ministries (Finland) --

Conclusion: Innovation Policy, at the heart of development strategies Start now -- the time for action is now Have a long and medium-term vision with innovation at the core Get the foundations right: education, business environment, ICT infrastructure Look sectorally and small: pilot and scale up when it works (example of wine in South Africa/Salmon in Chile) Work on existing strengths and sectors Get external advice and expertise (particularly if difficult reforms are required)