Development Economics of Innovation: How economics and politics interconnect in relation with nation

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Development Economics of Innovation How
economics and politics interconnect in relation
with national systems of Innovation to promote
economic development
Mammo Muchie NRF/DST Research Professor on
Innovation Studies, IERI, Tshwane University of
Technology, Pretoria, South Africa
DIIPER.Aalborg University, Denmark Mario
Scerii, Professor of Economics, IERI, TUT, South
Africa May 4-5, 2009
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Overview

• Inspiration
• Politics and economics in Systems of Innovation
• Definition of innovation
• System of Innovation Actors
• System of Innovation Culture
• Problems in making system of innovation in Africa
• Problems of Linking South Africa with Africa
• Concluding Remark

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Inspiration

• Institutions alone fix the destiny of nations
• Napoleon, quoted in The Economist, November,
  2005
• It is not the strongest of the species that
  survives, not the most intelligentit is the one
  that is most adaptable to change
• Those who can anticipate the change, can lead the
  change
• RA Mashelkar, Council of Scientific Industrial
  Research(CSIR), O Launching the Indian Innovation
  Movement, Feb.21,1999 at JRD Tata Corporate
  Leadership Award Lecture
• The speed of economic change is a function of
  learning, but the direction of that change is a
  function of the expected payoffs to acquiring
  different kinds of knowledge (D. North), quoted
  from Banji Oyelaran-Oyeyinka, in Learning to
  Compete, 2006, Ashgate

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System building

• All systems have elements, components, parts
• All Systems undergo linkages, interconnections
  and interactions
• All systems have boundaries (spatial, sectoral,
  disciplinary, etc)

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Systems of Innovation

• Have elements specifically related to innovation
  creation, absorption, transfer and adapatation as
  the case may be
• The elements interact(strong, weak, in between)
• Boundaries range spatially from local to city,
  community, region, national and global
• Boundaries if related to production, industry,
  firms, sectors, global firms)

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Part IElements for making System of Innovation

• Conceptual frame and ideas
• Policy setting
• Context and environment
• Institutions
• Knowledge
• Incentives

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Making system of innovation

• When the 6 elements identified interact in space
  and time, they can span a systemic behaviour
• The system that emerges can be defined as a
  system of innovation
• If the boundary is sector, or a region , or a
  nation, a city or a globe
• We can variously designate the relevant bounded
  interaction as sectoral innovation system,
  national innovation system or global innovation
  system

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Emergent systems of innovation

• If the interaction within the given boundary
  becomes strong and sustainable, a functioning
  system is said to emerge
• If the interaction is weak, a non-functioning
  system of innovation can occur
• If the interaction is neither strong or nor weak,
  a relatively functioning system may emerge

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Explaining variation in systems of innovations

• The degree of functioning of a system of
  innovation is not only dependent on the quality
  and strength of interactions
• It also dependes on the quality of the actors
  interaction
• The politics of the actors , and the politics
  governing the nature of their interaction
• The expected outcome can be any goal set such as
  economic development, growth, social cohesion,
  knowledge production
• But the way the politics of system building plays
  out heavily influences the outputs, outcomes and
  impacts.

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Systenm of innovation Actors

• The system of innovation key actors differ in
  their capabilities, efficiences, commitment and
  policy creation and implementation capabilities
• Universities differ (e.g Research uni,
  developmental uni, entrepreneurial uni, teaching
  univ. , well resourced, under resourced, private
  or public)
• Industries differ (products, services,
  cpacitities to take risk, assets)
• Governments differ(capabilities, ethics, policy
  independence, planing)
• They differ in the quality of what they produce
  and their interaction
• Some interactions produce results and outputs
• Others interact but produce little or no
  output.

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Evaluating system of innovation actors

• Key actor interaction
• On the input side are the actors well organised,
  do they have visions and missions to assist the
  vision and mission of the nation
• Do they have resources
• Do they have human capital and concentration of
  talent
• Do they have trust and dilaogue capital
• Are citizens engaged or disengaged, inspired or
  deflated?

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On the output side

• Does the interaction of actors enhance
• more and the build up of capacity, capability,
  competence?
• Does the interaction permit science , technology
  and innovation to enhance wealth creation?
• Is the interaction productive or destructive?
• Is the output effective or ineffective?
• Is the output sustainable or one or short term?

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Variation in input and output

• Developing countries have problems in assembling
  the input side
• Hence problems in generating predicatable
  developmental output
• Poorer countries depend very much on outside
  input
• This distorts their policy vision and a
  well-functioning system generating potential
• Often distorts that vision
• The combination is not good it can perpetuate
  their states of underdevelopment

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Transition countrieslike ZA!

• The transition countries have features of system
  of innovation actor interactions characterised by
  a bifurcated developing and developed country
  features
• The challenge is to shed the developing country
  feature to make it a developed one!
• All the more to get their systems of innovation
  to evolve and develop and become sustainably
  well-functioning.

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Developed countries

• They have established systems of innovations
• They have universities (at least a few top world
  class research universities)
• They have industries
• They have goverments (national and local)
• The system of innovation actors , however the
  variations within them may be, span together with
  their interactions a broadly well functioning
  system of innovation

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Global innovation trends

• Global innovation networks
• Global innovation race
• Global competition in R D
• Global companies create intra-firm global
  innovation networks
• Global companies outsource stages of innovation
  such as R D to specailised supplier inter-firm
  networks
• This may or may not cascade by creating
  intra-firm networks within the country also

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Global innovation networking

• The downside
• Network integration who is able to make use of
  it?
• Those with functioning systems of innovation?
• A Poisoned Chalice to the rest?
• global firms can attract the talent pool (brain
  drain) of the countries they wish to outsource
  their R D operations
• Can weaken linkages with local universities?
• Can IPR limit knowledge sharing?
• Knowledge spill over may be limited to the local
  economy.

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The Up side

• Global Innovation Network
• Can it facilitate flows of knowledge integration?
• Help upgrade technological and management
  capabilities and skill levels of workers
• Lead to welcome exposure to leading-edge
  technology and (tacit) knowledge transfer
  through the network about technology and
  management
• Help to upgrade rather than undermine national
  innovation systems
• Facilitate better connections with markets and
  financial institutions
• And better access to intellectual tools and
  sources of knowledge
• For well functioning systems the above may take
  place, but for others, not sure!

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The debate continues!

• If the outsourcing is in competing as the
  lower-cost RD end network, and not the high
  knowledge end, then the benefit of global
  innovation networking may not be that productive
  to the recipient
• If IPR is controlled by the outsourcer , the
  benefit may be even lower
• Advantages from innovation networking comes only
  when the transition or developing economy and
  their high tech firm create unique products and
  solutions, addressing important user needs that
  incumbent market leaders have neglected or
  ignored internationally or domestically.

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National Innovation Strategy?

• The Global innovation network has a dynamic of
  its own
• U.S.-led global innovation networks combine
  system integration capabilities in the United
  States with lower-cost offshore development of
  intellectual property
• Pursue mainly military related mission-based
  complex technology systems (space, military,
  energy, environment, climate) fo
• The MNCs complete for global market leadership
• By being leaders in new technology and
  innovation technology
• By engaging in technology, product
  diversification
• For those with non-functioning systems, most of
  the people live in rural areas
• Question is whether bottom-of-the- pyramid
  innovation (essentials for lower- tier urban
  markets and rural poor)
• Global RD factory (contract support and RD
  services)

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Global knowledge Economy?

• Critical to link the NSI dynamics in the Global
  Knowledge Economy
• But the interaction has to be managed
• Knowing how to be far when very close and get
  close when one is far from the world technology
  frontier
• Undertake comparative studies
• Globalization of Knowledge Work through R D
  outsourcing?
• Governing the Global Knowledge Economy Minding
  the technology or knowledge gap!

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Part IIOrganising for Innovation Clarity of
use of the concept

• Innovation comes in a variety of forms
• It seems to be used often by different people to
  mean different things
• Making sense of its use is necessary to know how
  we go about using it with a shared sense-making
  of its salient meaning.

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Definition Clarification

• Two senses of its use are relevant use and
  application as product, process and service
• And degree of novelty associated with innovation
• incremental ..Immprovements not changes
• radicalChanges calling for a whole new
  architecture, not a modification of it
• Modular.. Using an existing system of a product
  while employing new or different components
• Architectural. A reconfiguration of an
  established system to link together existing
  components in a new way

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The importance of definition

• Innovations are not homegenous
• Innovations vary
• Finding out what precisely is being innovated is
  important
• Need to be critical of what we mean by innovative
• Responses to different types of innovation by
  those in competition will differ
• Creative destruction will affect the destroyed
  but will be good news to the new entrants ready
  to capitalise on the created.

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Definition Clarity

• It is not sufficient to define innovation by use
  and application alone
• Nor by novelty alone
• Both must be included to make credible sense of
  the concept of innovation
• Otherwise it will be difficult to have a common
  vocabulary
• We must take care not to trivialise and misuse it
  in the noble effort to address the issues of
  Africa, the poor, the community,indegenous
  knowledge and such like!

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Not in a vacuum

• Innovation does not occur in a vacuum
• Concept/definition/framing matters
• Theory Matters
• History matters
• Path dependency matters
• Context matters
• Institution matters
• Environment matters
• Culture matters

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Organising Innovation through

• Research led-driven by S T
• Requiring R D expenditure
• User-driven.. But often this leads to incremental
  innovation
• Coupling producer-user interaction through
  feedback loops
• Project teams that integrate various functions
• Innovation through alliances,networks

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Organising for Innovation

• Deals with the way people work
• Create success, learn from failure
• Organisations that enable people to work together
  effectively
• Internal workings of organisations that foster
  climate for innovation
• Shared understanding of roles and cultures that
  favour innovative activitities
• Structuring to find the optimal way of
  integrating people, functions and resources to
  foster innovation
• Why are some organisations better at fostering
  environment for innovation than others?
• How to create learning organisations that
  contribute to to a total learning and innovation
  culture
• Caution No organisational fix or prescription
  to solve the problem of being innovative is
  possible just ideas that can foster a better
  climate for innovation

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Organising for Innovation

• Outward looking
• Receptive to new ideas from any source or region
• Communication, teamwork, motivation, leadership
• Open to new approaches
• lack of fear to take on challenges
• willingness to accept and learn from failure
• Reflexive, reflective, periodic self-evaluation

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Why Government supports Innovation

• Knowlege as public good difficult to extract
  rent by private firms, appropriability issues,
  copying, imitation, non-rivalrous, leakege and
  spillover problems, difficult to control
  knowledge once in the public domain
• Uncertainity problems R D may not lead to
  innovation, can be costly to firms, or if
  successful it will be validated in a market

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Why Government support

• Infrastructure support
• Problems related to creative destruction and
  support by government to build new institutions

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Why Government Support

• Governments visionings such as forecasting
  futures, identifying priorities
• Assisting in partnership for knowledge flows
• R D support
• Science parks
• University, industry and government partnership
• Granting incentives, awards
• Tax credits for example the R D tax credit in
  the USA

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Why Government Support

• Long- term projection of trends
• Protection of IPR
• Provision of technical, legal, commercial and
  patent resources
• Grants
• Policy on knowledge workers, including diaspora
• Support for clusters

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Part III National System of Innovation

• An ability by a nation to mobilise and use
  resources, deploy institutions, put in place
  incentives and regulations, carry out favourite
  experiments
• Why some countries are better at innovation than
  others?
• National culture that foster innovation matters
• Relevant to and affects attitude to work, time
• Use of authority
• Styles of decision-making
• Balancing contradictory claims
• Equality, legitmacy issues can influence

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National Innovation systems vary

• in Africa, they have to be made a need to
  launch an African innovation movement
• The unit for making them is a matter of debate
  cities and wealth creation linking rural with
  city economy the region, continent and so on
• Where a national system exists like South
  Africa, it is radically bifurcated need to
  combine its link with the challenge of linking
  ZAs NSI with the rest of Africa
• Similar to the BRICS
• See our conceptualisation in our book Bridging
  Digitial Divide Innovation Systems for ICT,
  Adonis-abbey, Publishers, 2004, London

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Social goal for National Innovation System

• National innovation system is not just a tool to
  achieve the narrow goal of industrial/economic
  competitiveness,
• But it is about achieving a broader development
  and wider social benefits to people and society
  at large.

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Conceptual framework

• Conceptual Framework
• by designing policies, building instuitions and
  applying knowledge
• Institutions, Technologies, and Knowledge
• Need strong interaction, linkages, synergies,
  and co-ordination to achieve coherent
  co-evolution leading to an efficient innovation
  system and higher level of technology
  accumulation.

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Major NSI elements

• Incentives
• Appropriate incentives to institutions lead to
  achieve co-evolutionary dynamics between
  institution, technology, and knowledge production
  by linking economic and non-economic agents to
  meet stated goals and objectives.
• Implementation and Learning
• Implementation of strategies, policies,
  programmes,and projects, and should include
  feedback mechanisms (review, monitoring, and )
  leading to learning outcomes.
• Ability to learn - self learning and ability to
  take corrective measures are imperative for
  building technological capabilities and imbed
  innovation dynamics in industrial and
  socio-economic development.

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Institutions, Technology, Incentives and their
Linkages in National Innovation System (NIS)

• Infrastructure
• Science Technology, Intellectual Property
  Rights, Government Policy, ICT, and Culture.
• Investment
• RD Expenditure and Government RD Support,
  Venture Capital, and FDI.
• Knowledge and Talent
• Education and Human Resources development, and
  Labour Flexibility.
• Relations and Linkages
• University-Industry Linkages, Public RD and
  Industry, Globalisation of MNC RD, Transnational
  Networks.

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Unifying model of SI
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Part IVThe Making of African innovation System

• Stimulate and understand inter economic and
  non-economic actor interactions and dynamics,
• Co-evoution of economic and non-economic
  governing institutions, practices and
  understanding (Richard Nelson)
• The interaction of policies, knowledge,
  incentives, instuitions, practices and the
  understanding involved in the process
• System building, to identify significant
  interactions and interfacing of parts,
• Bridge the gap between theory and reality,
• The sources and organisation for stimulating
  innovation, imagination and creativity, learning
  and comptence building
• To understand how routines are formed and
  novelties emerge and prepare and design policy
  frames!

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Making Africas Innovation system

• Integrating Africa or making the Africa nation
  itself is a problem of dynamic innovation
  systems, of creative destruction,requiring
  systemic approaches to understanding and
  creating knowledge in interaction with policies,
  instituitions, system of innovation actors,
  incentives
• Innovation systems are useful to assist in
  stimulating how an African unity can be forged!

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Question is how to build it

• If Africa has to survive in a difficult world, it
  needs to apply new tools to assist its build up
  of its future!
• For example if the main development problem is to
  integrate Africa or to imagine the Africa nation
  and make it, then NSI is useful!

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Why An African NSI?

• A national system of innovation to promote a
  national system of production
• To enable a system creation to produce what
  Africa consumes, and to consume what Africa
  produces
• To create Africa...wide producers and users
  interactions (Lundvall85)
• To embed knowledge creation,innovation, learning
  in Africas institutions,societies
• To inject a total learning and innovation culture
  in Africa
• To retain African resources to stimulate African
  development

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Research Challenge

• The economy of the
• nation
• Systems
• Co-evoutions
• Interactions
• Innovation
• Learning
• Comptence building
• The organisation of productive power

• Africa..nation
• Integration
• Structural transformation
• Forging equitable relation with the world economy
• Agency and independence
• capability accumulation

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Thinking out of the Box for the Box!

• Not all the states in Africa can catch up as they
  are now!
• Not sure even if they can catch up even if
  regrouped as regions
• Important to emerge united to deal with a world
  economy and respond to its many challenges.
• No alternative to learning and the social
  innovation of uniting, if Africans and Africa are
  to attain full dignity and humanity.

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The options

• To try to build the NSI of existing states as
  they are
• Use regional integration..
• Au/NEPAD processes
• Regional poles like South Africa with their
  neigbours.. The Pole and hood concept

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Part VPole and hood.. South Africa with the
rest of Africa!

• Regional pole in relation to the wider region or
  what we call neighbourhood
• Using Systems of Innovation perspective to
  conceptualise the pole with the hood
• Whether this Relation hinders or promotes
  development

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Pole Hood A Conceptual Framework
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South Africa as a Pole and the Rest of Africa as
Hood?

• The opportunities
• The fears
• The possibilities
• Dangers
• Existing
• Weaknesses
• Potential

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Building the Knowledge Link- South Africa with
the rest of Africa

• African universities.. Capacity to educate new
  Ph.d holders is eroding, rasing deep concerns
  about the continents ability to produce new
  generations of academics, educators. (The
  Chronicle of Higher Education25.11.08)

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Reasons for building the link

• Africa produced only 68,945 publications over
  the 2000-2004 period or 1.8 of the worlds
  publications. In comparison India produced 2.4
  and Latin America 3.5 of the worlds
  research.(Pouris Pouris The State of Science
  and Technology in Africa (2000-2004),
  Scientometrics 79, 2009

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Reason for link

• research in Africa is concentrated in just two
  countries- South Africa and Egypt. These two
  countries produce just above 50 of the
  continents publications and the top 8 countries
  produce above 80 of the continents
  research.(ibid)

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Reason for link

• As manifested in patents, (Africas inventive
  profile).. Indicates that Africa produces less
  than one thousand of the worlds inventions.
  Further more 88 of the continents inventive
  activity is concentrated in South Africa

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Inspiration a 10 year innovation plan from South
Africa?

• South Africa has a ten year innovation plan
  (2008-2018)
• Create 210 research chairs by 2010 and 500 by
  2018
• 6000 Phds per year by 2018
• 3000 in SET per year by 2018
• 1.5 of research publications from its 2006 o.5
  rate
• Expected 2100 patent application by 2018 from its
  418 in 2004!
• 24,000 patent application in SA patent office
  from 4721 in 2002!
• South Africa had 8 Nobel Laurates and has at
  least 5 research universities recognised by
  international measures!
• So we have for Africa an important knowledge and
  research ressource!

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Knowledge diffusion

• Training, research, knowledge, invention and
  innovation must be priorities for support by
  state, market and society
• The US analysts claim
• China growth of science engineering PhDs
• 70 of the 23,500 PhD degrees in 2004 are in SE
• between 1995 and 2003, first year entrants in
  science and engineering PhD programs in China
  increased six-fold, from 8,139 to 48,740
• China will produce more SE doctorates than the
  US by 2010

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Africa must learn!

• China is emerging as an innovative nation-
  harmonious society and endogenous innovation-the
  Chinese leadership says for China!
• In 2007, Asia spent US-(PPP) 436.2 billion on
  RD (39 of world total), placing it ahead of the
  US (353 billion and a share of 31).
• With US-(PPP) 175 billion, China is now the
  second largest RD investor, after the US (with
  353 billion), but ahead of Japan (143.5
  billion).

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Concluding Remark

• Africa has been rejected by those who have had
  leadership bestowed upon them to develop those
  places that have already developed. The question
  is can the Africa the builders rejected become
  the cornerstone of the arch?
• Chris Freeman says yes in our book Putting
  Africa First the Making of African Innovation
  Systems, Aalborg University Press, 2003)!
• This positive spirit enjoins us to search for a
  more robust theoretical alternative that is open
  to reinstating in some way the core issues of
  what should be the African quest for structural
  transformation.
• South Africa needs to play an examplary role in
  building the African innovation system.