innovation policies for growth why and...

Growth and Competitiveness

Innovation Policies for Growth

Why and How

Yevgeny KuznetsovEconomic Policy and Debt Department

World Bank

Santiago, Chile

August 18, 2011


Table of Content

1. Setting the stage: why innovation and what it is

2. How is Chile doing?

3. Why public intervention? Putting firm at the center of

innovation system

4. Design and implementation of innovation policy

5. Innovation policy for inclusive growth

6. Conclusions


Central Lesson of the Growth Report:

“They fully exploited the global knowledge and

world economy.”

Commission on Growth and Development.

The Growth Report: Strategies for

Sustained Growth and Inclusive

Development. Washington DC: World

Bank, 2008, p.22.


Diverging Growth Trajectories:

TFP makes a difference

Difference in output

due to TFP growth or

knowledge

accumulation in Korea

Difference in output

due to growth in

labor and capital in

Korea


Innovation as Change

How we currently do things, including

management

Changes to how we do things

(it is not about high-tech)

What we already know

How we find new knowledge

The steps to apply knowledge

A way of thinking and doing, it includes

public sector

Technology:

Innovation:

Knowledge:

Research:

Development:

Entrepreneurship:


Example: innovation of a Chilean architect

Alejandro Aravena

Elemental Monterrey, Mexico: the project provides 70

homes by building the basic house including

bathrooms kitchens and stairs but leaving voids that

allow residents to adapt and expand each property

themselves.


What is innovation

� Development and diffusion of new products, new practices – new to a given context

� Transforming knowledge in welfare (more output, better health, etc); innovation is not R&D!

� Different types: RD-led, management-led, etc

� Service Innovations vs. Production Innovations (need for organizational innovations)

� Key role of culture and institutions

7


Going Beyond R&D

2

21

&

+=CAP

GDP

CAP

GDP

GDP

DRββ

Czech Rep.

Hungary

Poland

Romania

Russia

Turkey

Ukraine


Benchmarking Chile

KAM 2009 Innovation Variables


Chile’s Dynamics: modest improvement, the best

in Latin America, yet behind relevant benchmarks

(Australia, Italy, Finland)


Paradox

Private enterprise – the firm – is the center of innovation.

But firm-level innovation depends upon a bundle of public

inputs related education, regulatory framework, public

R&D etc.

Market failure is pervasive: coordination problems;

appropriability; increasing returns

Example of coordination failure:

Salmon cluster in Chile used to be global best practice …

until a “collective suicide” due to massive regulatory failure

to prevent diseases

Why Public Intervention?


A Firm-centric Model of Innovation

WHAT HELP

DO FIRMS

NEED

Money

Know-How

Inform

ation

Infrastructure

Source: Bob Hodgson, UKSource: Bob Hodgson, UK


Institutional infrastructure

The key characteristics of each need are

WHAT HELP

DO FIRMS

NEED

Money

Know-How

Inform

ation

Infrastructure

Wider

accessLonger

duration

Physical

Policy

Technology

Aid

programs

Business

Markets

Lower

cost

Corporate

personnel

Professional

specialists

Training

for skills

Source: Bob Hodgson, Zrnike, UKSource: Bob Hodgson, Zrnike, UK


Innovation System

Innovation system:

a network of organizations, private and public, to

enhance firms’ capabilities and increase welfare

Ideally:

� Led by private demand and responsive to private sector

needs;

� Characterized by strong academia-industry linkages;

� Inserted into international knowledge networks o Provides support to technology entrepreneurs, both financial (early

stage venture capital) and technical assistance;

o Focuses on the bottom-of-the-pyramid innovation

� Characterized by continuous evaluation and monitoring.

� Results of evaluation linked to financing of programs


Reality: the Jig-saw puzzle

Metaphor of development as jig-saw puzzle (A. Hirschman)

Highly fragmented innovation systems Many good elements already exist:

� Many good firms (‘first movers’)

� Many promising/ successful initiatives

� Highly skilled professionals at home

� Highly skilled professionals abroad

(diaspora of highly skilled)

� Yet critical mass is slow to emerge


Approaches to Innovation Policy

Objective: facilitate synergy and linkage between a multiplicity of players and agents, in response to coordination failures

� Traditional: bridging gap between industry (agriculture) and university/research

� Implicit (example -- US): innovation is promoted by most government departments, but is not very visible in a context of non- interventionist ideology

� Systemic: key driver of growth (examples -- Finland: TEKES www.tekes.fi, UK: Scottish Enterprise: www.scottish-enterprise.com):

Innovation policy at the center stage of the overall growth strategy and involves key ministries and civil society groups (business, trade unions, etc)

Often at a sub-national level

16


Traditional Approach

IP


Systemic: Innovation Policy as a Coordinating Hub

I.P.


Key Challenges of Implementation

1. Focus and selectivity: priorities

(‘critical mass’ issue)

2. Coordination

� Public-to-public: government policies

� Private-public: consortia, programs and projects

� Private-to-private: global value chains and supply

networks

3. Sequencing: some policies and programs are

preconditions for others


Focus & Selectivity: Three Approaches

1. Top-down priorities (‘picking winners’)

Worked in some settings (S. Korea) but now is highly

problematic

2. Neutral: clear eligibility criteria

Transparent but questions about efficacy (e.g. matching

schemes for SMEs)

3. Making Choices without Picking Winners:

Co-development

Multi-stakeholder long-term technology consortia

(international participation, continuous assessment of

performance).


Focus & Selectivity:Making Choices without Picking Winners

Neutral vs. vertical industrial policy is an old and

increasingly counter-productive debate

‘Doomed to choose’: a shift from one-time selection

(‘picking winners’) to continuous process of choice,

error-detection and correction – co-development

Chile is one of the pioneers: long-term technology consortia

(example: wine consortium)

The need for diagnostic monitoring of technology consortia

in Chile


Coordination Three complementary approaches

1. Top-down: Inter- ministerial and

inter-organizational council

� Can be useful as an entry point but can become a cartel of

established interests. Cannot be the main form of coordination

2. Bottom-up: Project and program-based

� E.g. Multi-stakeholder consortia play an important coordination

role

3. Horizontal: Peer-to-peer–networks (e.g. Fundacion

Chile)

� Policy networks

� Regional and sub-national networks

� Process to arrive at a shared vision: technology and innovation

foresight

� Increasingly become the main form of coordination


Time-Sequencing and Scaling up: How to Create a Virtuous Cycle?

Immediate

Agenda

Long-Term

Agenda

Critical

Mass of

Projects

Pilot

Projects

Adoption of

Major Reforms

and

Institutional

Changes

Top-Down

Initiatives

Bottom-up

Initiatives

Medium-Term

Agenda

Scaling

Up

Moving

Full

Force


Innovation for Inclusive Growth

� Inclusive growth: concerned not only with the level of growth, but with distributional elements and agents of growth. Variety of metrics for inclusion, and notably:

� Income inequality (Gini coefficient)

� Opportunities

� Participation

� Other issues:

� Long term rather than short term

� Broad based across sectors

� Focusing on productive employment/entrepreneurship rather than redistribution

\


Innovation Policy for Inclusive

Growth: two main approaches

� Mainstreaming (no specific measures towards the poor – getting them in sector/overall growth processes):

� attracting poor to new industries: China

� building industries in poor areas: Morocco

� Empowering (specific actions towards the poor, recognized as such):

� pro poor actions: India (South Asia)

� rural poor actions: Burkina Faso (Africa)

J.E. Aubert 03-25-2011


Suggestions for Chile

• Enhance focus and priorities through co-

development with private sector (long-

term technology consortia). Not to be

confused with vertical industrial policy

• Develop inclusive innovation (innovation

for inclusive growth) as a key priority

• Develop shared vision of innovation-based

growth: innovation foresight process Chile

2035


Conclusions

� Be pragmatic: focus on what works

� Avoid exhortations: ‘must’ and ‘should’

� Mistakes are unavoidable: learn from them

� Match policies and programs to implementation

capabilities

� Leverage heterogeneity in public sector and private

sector: work with dynamic and better performing

segments

� Turn more dynamic segments of vested interests

into your allies

� Build the history: be humble (in the short-run) yet

ambitious (in the long-run)


THANK YOU

Yevgeny Kuznetsov

[email protected]

Senior Economist

Economic Policy and Debt Department

World Bank

Washington DC

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