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Innovation Policy for Developing Countries

S. T. K NaimConsultant COMSTECH,

Islamabad

3-Day Regional Consultative Workshop on “National Innovation System and Intellectual Property”

7-9 October 2013, COMSATS, Islamabad

Innovation Challenges for Developing Countries

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1. Target and Priority • Poverty reduction / addressing inequalities

• Provision of social infrastructure in poor areas

• Encouraging innovation to increase agriculture productivity to support innovation in socially and economically backward areas

• Innovations to create Employment Opportunity

• Technology competence: Aircraft in Brazil, IT and Pharmaceuticals in India

Contd…

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2. Institutional weakness • Institutions comprise both formal rules and laws

and informal norms and codes that shape economic behaviors

• Both knowledge producing and market institutions are less developed in developing countries

• Market institutions: Labour market regulations, competition policy, corporate laws

3. Less effective Governments • Inefficient bureaucracy and non-transparent

governments: Corruption, political patronage, results in cartels and rent seekersBad-governance and non-accountability results in distorted incentives and waste of funds Contd

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4. Economic activities• Exports are concentrated in few commodity

based products.• Manufacturing is dominated by consumer

goods for basic subsistence (food and clothing) • Private sector not engaged in new to the world

or new to the market innovation.

5. Economic sector is dominated by informal business • Supply push – Firms entry and exit is frequent • Supply push: Firms enter with low competence

and low productivity and exit soon

Contd…

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• Demand pull: Missing incentives (R&D subsidies incentives for new equipment and training) and support mechanism are needed to encourage new to the market innovation

6. Foreign firms operate at high productivity levels• They are valuable source of knowledge,

networking, marketing and management skills, exports contracts etc. (example of China, Singapore, Malaysia)

• FDI need to be regulated to build absorptive capacity of national joint partners and local suppliers.

(Example: OEM – contract manufacturing)

Contd…

Policy does not address system problems

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• Long term development vision and political will• Non coordination of development policies• Inconsistency of policies • Policy research is not institutionalized • Supply oriented STI policy • Less developed knowledge producing institutions

(lack of human competence)• Under performance of intermediate institutions

such as Metrology Standards and Quality • Linkages between industrial clusters and

institutions of higher education Contd….

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• Market Institutions • Deficient regulations, rules, contracts,

corporate laws.• Management and Technology problems at Firms

• Limited inter or intra-firm collaboration due to absence of trust and regulations

• Low Firm level competence and weak linkages with universities and TNCs

• Weak linkages with suppliers and consumers

• Venture capital

Based on Altenburg, Tilman, on “Building inclusive innovation systems in developing countries: challenges for IS research”

1. No standard one time policy can be recommended for all countries

2. STI Policy is context specific and path dependent

3. Even best practices in STI may be difficult to adopt in different cultural, socio-economic and political conditions

4. STI Policy is an experimentation and learning process

5. It is important for all countries to establish institution for policy research and training

Setting STI Policy for Developing Countries

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Systemic Process for Policy DevelopmentAnalysis of Innovation System

• Analyze system of innovation as a whole, identify key actors: Universities, Public Research Organizations, Firms, Institutions, Policies

• Identify weaknesses of the system in terms of Knowledge, Competence, Technology, Linkages, Public Policies and Regulations

• Analyze the economy in terms of development blocks which comprise primary, secondary and tertiary production as well as the relevant parts of the knowledge-producing institutions. Analyze market perspectives for these blocks and localize weak links. 9Contd…

• Focus on technology policy keeping users in mind and prioritizing areas of activity which could result in employment creation and poverty reduction.

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Source: (Lundvall, 1999) Technology Policy and Learning Economy, (Innovation Policy in a Global Economy)

1. Missing institutions (STI and DUI)

2. Under performing institutions

3. Linkage problems (social capital)

4. Flawed incentives and policies

5. Limited international collaboration

6. Information and coordination failure

(what may be a problem in one system may not be present in another)

System Failure as Rationale for Policy

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50s – 60s (Linear Models)

1. Public research institutions

2. Funds for public research

3. Tax incentives to firms

4. Higher education

5. Intellectual Property Rights

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First Generation of Innovation Policy(Production of Scientific Knowledge,

Supply oriented policy)

70s – 80s

1. Foresight or technology forecasting

2. Public funds for strategic sectors

3. Public procurement

4. Standardization

5. Bench marking industries

6. Protection to infant industry

7. University/industry linkages 13

Second Generation of Innovation Policy(Commercialization of Sectoral Technical

Knowledge, Shift towards Technology Policy)

1990-20131. Investing in both STI and DUI form of

learning 2. Improving organizational performance and

learning (standards and quality control)3. Incentives for University-industry extended

to inter-firm cluster linkages and linkages with global production networks (GPNs)

4. Reforms of financial and market institutions 14

Third Generation of Innovation Policy(Coordination, Collaboration and Network

Learning)

Contd…

5. Tax incentives for firms working in the area of social innovation or strategic areas

6. Improving access to information

7. Competition policy

8. Corporate laws

9. Consumer protection

10.Social capital for regional development

(B.A. Lundvall and S. Borras, Science, Technology and Innovation Policy , Ch: 22)

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Innovation Policy (Key Instruments)

Focus: Overall innovative performance of the economy – economic growth

Instruments: Improving individual skills and learning abilities

(through general education system and labour training)

Improving organizational performance and learning (i.e. ISO 9000 standards, quality control, etc.)

Improving access to information: building information society

16Contd…

Innovation Policy

Instruments: Environmental regulation Bioethical regulation Corporate law Competition regulations Consumer protection Improving social capital for regional development:

clusters and industrial districts Intelligent bench marking Intelligent, reflexive and democratic forecasting

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Innovation Policy for developing countries

Institutional Requirements: Economic restructuring requires a political

advocate who is a confidant of President Example: South Korea, Singapore

Coordination Councils

For vertical and horizontal coordination between ministries, private sector

Changes in legislation and regulation to eliminate un-necessary transaction cost

18Contd…

Innovation Policy for developing countries

Coordination councils are needed at national and sectoral levels to advise an subsides or skill upgradation

Policy Research Institutes, think tanks for evidence base policy briefing

Transparency and Accountability

Innovation policies should be viewed as growth policy to expand opportunities for all

Promotion of activities or incentives should be transparent

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1- Design Principle for Innovation Policy

1. Incentives for new activities with potential to foster new areas of specialization

2. There should be criteria for success or failure Criteria for success should depend on productivity

increases and not on employment creation

Project audits by consultants or export performance

2- Incentives should not last for ever

Every public supported projects should have a clear statements of what constitutes success and failure and should include a sun-set closure

20Contd…

3- Activities not sectors should be supported (Policy Research)

- Public funds should subsidize firm level training, feasibility studies for non-traditional agriculture

- Adaptation of foreign technology, risk and venture capital

4- Subsidize activities for providing spillovers

- Support activities which has informational or technological spillover

- Negotiate technology transfer with MNCs

21Contd…

5- Bureaucratic Competence

Locate an organization with bureaucratic competence

6- Monitoring of Implementation Implementation agency must be given

autonomy with accountability

Close monitoring and coordination of the promotion activities by a cabinet level politician

Vice President or President or Prime Minister himself

22Contd…

7- Promotion Agency must maintain Channel of Communication with Private Sector

8- Some activities will fail, promotion activities need to have capability to renew themselves

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Public Policy for InnovationDeveloping Countries

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Increased productivity and welfare through broadly based innovation

Improving the investment climate, especially sharpening competition

Knowledgecreation and

commercialization

Knowledgediffusion and

absorption

• Increasing private R&D efforts• Improving the allocation and efficiency of public R&D• Strengthening commercialization of knowledge

• Pro-poor innovation strategies • Promoting and diffusing indigenous grassroots innovations• Helping informal sector better absorb existing knowledge

Inclusiveinnovation

• Spurring enhanced global knowledge flows• Improving the quality, diffusion, and absorption of metrology, standards, testing, and quality services• Strengthening absorptive capacity of micro, small, and medium enterprises (SMEs)

24(contd…..)

Public Policy for InnovationDeveloping Countries

Support mechanisms

Skills andeducation

Innovationfinance

Informationinfrastructure

• Addressing basic skills (improving primary and secondary education, and informal sector skills)• Building worker and manager skills• Increasing number of highly skilled engineers and researchers (improving university systems)

• Expanding ICT infrastructure in urban and rural areas• Developing ICT infrastructure for high-end research institutions and other

applications

• Providing financial support for early- stage technology development• Deepening early- stage venture capital• Promoting pro-poor finance• Strengthening finance for technology absorption by SMEs

Source: Unleashing India’s Innovation, The World Bank 25

THANK YOU

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