Innovation Policies for Inclusive Growth: the Capability ApproachDr. Irmgard NüblerInternational Labour OrganisationResearch Department

Prepared for the Eleventh Session of the UNECE Teams of Specialists on Innovation and Competitiveness PoliciesThe Fourth Industrial Revolution – reshaping innovation policies for sustainable and inclusive GrowthGeneva, Palais des Nations, 1 November 2018

The debate on innovation, growth and developmentCommission for Growth and Development 2008The Growth Report : Strategies for Sustained Growth and Inclusive Development. Economists still lack a good understanding of the link between education and economic growth

International Labour Conference: 2008Report on: Skills for improved productivity, employment growth and developmentEducation and skills development is challenged with

• enhancing productivity of firms • increasing employability of workers, and • supporting diversification and transformation of the economy to create more and better

jobs and higher employment

The ILO centennial initiative on the future of work: Technological change, Innovation, industrial development and job creation is not automatic. A complex process which needs to be shaped.

Capabilities to innovate: a knowledge-based approach

Each society has developed a distinct knowledge base which determines the capabilities to innovate and diversify

1. The particular mix of general, technical, vocational knowledge sets determines the newproducts, the new industries and the technologies which could feasibly be developed?The more diverse, sophisticated and complex the knowledge base the more feasible opportunities for the economy Knowledge base determine the feasible path of economic development, and the products, clusters and industries the country can develop

2. Socially shared knowledge and belief systems shape choices and behaviour of entrepreneurs, workers, consumers within this society Culture, attitudes, mindsets, entrepreneurial spirits, determine the educational, occupational, technological and investment choices and behavior

3. The capabilities to manage change, shape innovation processes in a high performing process need to be acquired through experience. Such procedural knowledge can only be acquired through experience. Institutions are the carriers of such dynamic capabilities a society.

Research at the International LabourOrganisation

Methodologies to identify and measure capabilities in the social knowledge base:1. Educational attainment structure

2. Technological knowledge clusters

3. Institutions

Educational attainment structures as carrier of capabilities to innovate and transform the economyTypology of EAS:Share of no schooling, incomplete primary, complete primary, lower secondary, upper secondary, post secondary education

Educational attainment structures as measure for capabilities to innovate

Educational attainment structure (EAS):Missing middle Share of upper secondary at least 20 percent lower than post-secondary education

0

10

20

30

40

50

60

Brazil (AYS 4.88) Colombia (AYS 5.27) Bolivia (AYS 5.58) Ecuador (AYS 6.41) Chile (AYS 7.55) Peru (AYS 7.58) Argentina (AYS 8.83)

High

est l

evel

att

aine

d (%

of p

opul

atio

n ag

ed 1

5 an

d ov

er)

Latin American countries

No schooling Primary Incomplete Primary Lower Secondary Upper Secondary Post Secondary

Educational attainment structure (EAS):Strong middle (bell shape)

0

5

10

15

20

25

30

35

40

45

China (AYS 6.35) Malaysia (AYS 6.8) Sri Lanka (AYS 6.87) Singapore (AYS 7.05) Taiwan (AYS 8.76) Hong Kong (AYS 9.41) Korea (AYS 10.8)High

est l

evel

att

aine

d (%

of p

opul

atio

n ag

ed 1

5 an

d ov

er)

Asian countries

No schooling Primary Incomplete Primary Lower Secondary Upper Secondary Post Secondary

Share of lower and/or upper secondary education larger than post secondary education

Source, Nübler, I., 2019 forthcoming, Capabilities for innovation and productive transformation, ILO, Geneva.

Data: Barro-Lee 2000

Educational Attainment Structures

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Croatia Bulgaria Romania Moldova Turkey Tajikistan Kazachstan

No Education Primary Incomplete Primary Complete Lower Secondary Upper Secondary Post-Secondary

Source: Barro & Lee, 2000

Industrial and technological development: middle income countries in Asia and Latin America

CHN

CUB FJI

ROM

RUS

LKA

BWA

HRV

CZE

HUN

MYS

MEX

POL

SVK

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Tech

nolo

gica

l Adv

ance

Inde

x

Industrial Advance Index

Strong Middle EAS

0,44

0,35

BOL

BRA

BGR

COL

ECU

SLV

JOR

PER

ZAF

SYR

THA

ARG

CHL

CRI

MUS

URY

VEN

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Tech

nolo

gica

l Adv

ance

Inde

x

Industrial Advance Index

Missing Middle EAS

0,44

0,35

2. Technological knowledge clusters

P6

P7

P8

Core competences of a TKC: e.g. precision (Black Forest); design (Milano); Occupational, technical mix

Product Space Vietnam 2009Leather

Fish and Seafood

Garments

Cotton/ Rice/Soy & Others

Home & office

Electronics

Construction Material & Equimpment

Food Processing

Machinery

Vietnam (1990)

Leather

Fish and Seafood

Garments

Cotton/ Rice/Soy & Others

3. InstitutionsSocietal knowing how to do (Procedural knowledge)

Socially shared belief systems shape choices and behaviour

Institutions as the memory of society and carriers of capabilities

Extractive vs. Inclusive InstitutionsDaron Acemoglu & James Robinson (2012): Why Nations Fail

Extractive institutions in which a “small” group of individuals do their best to exploit the rest of the populationInclusive institutions in which “many” people are included in the process of governing,

enabling innovation and continued economic growth

Examples

Enlightenment and the idea of intellectual property as natural right (John Locke) • Change from selective granting of monopolies under the British Crown

(17th century) to general access to the protection of intellectual property (US Patent Act, 1790; France, 1791; Germany, 1877; Switzerland, 1888)

• Patent filing accessible to all citizens based on a belief in human and civil equality

• Inclusive Institutions require strong state that can enforce the inclusiveness: Anti-trust Laws (Standard Oil, 1911)

• Bill Gates vs. Carlos Slim: innovation vs. rents«Made in Rwanda» - changing consumers’ mindsets for quality and indigeneous innovation

ConclusionThe knowledge base of a society determines the capabilities to innovate, develop new industries and create jobs.Education and training policies face a dual role:

1. Develop capabilities to innovate Enlarge and enrich the knowledge base in society Increase diversity and complexity If industrialization is a goal, develop strong middle educational attainment structure This strategy also an agenda to achieve more equality in income and wealth,

2. Supply the skills and competences needed in firms, industries and economy (matching)• Productivity and competitiveness of firms• Productive jobs• Employability of workers in existing jobs

• This requires a comprehensive learning strategy which includes education and learning in schools, families, communities and workplace

• Governments are challenged with promoting learning and for objectives and coordinating with industrial, innovation and trade policies to translate capabilities education into innovation, diversification and good jobs.

Thank you

Irmgard NüblerResearch Department International Labour OrganisationGeneva

Email: nubler@ilo.orgSkype: Irmgard.nublerTwitter: IrmgardNubler

"... the doing of new things or the doing of things that are already being done in a new way”Entrepreneurial Spirit, J. Schumpeter, 1911

„What we are about to consider is that kind of change arising from within the system ... Add successively as many mail coaches as you please, you will never get a railway thereby.“

The Theory of Economic Development, J. Schumpeter, 1912

Craftsmanship consists in “the desire to do a job well for its own sake”. The Craftsman, R. Sennett, 2008

“Social variables, not attached to particular individuals, are essential in studying the economy or any other social system” Kenneth Arrow, “Methodological Individualism and Social Knowledge” , American Economic Review, 1994

Source: United States Patent and Trademark Office

First ever U.S. Patent, granted to Samuel Hopkins in 1790 for a method to produce “potash”