Innovation systems Innovation systems can be defined as ‘the network of institutions in the public

Innovation systems Innovation systems can be defined as ‘the network of institutions in the public

and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies’, or ‘the elements and relationships which interact in the production, diffusion and use of new, and economically useful, knowledge.’ 18

Focusing on innovation systems thinking and research is often done by the leading creative and technical sectors of society. This high-tech concentration is often on platform technologies like biotech, information and communication technologies (ICTs) and, increasingly, nano-technology – and their application to the production of goods, especially for export sectors. Innovations and innovation systems are however equally important for (and in) the ‘bottom of the pyramid’ (Prahalad, 2006). For example, poor Thai farmers discovered, on their own initiative, how to grow organic rice with lower cost and labour input

ECONOMIC GROWTH

than green revolution varieties, and got a little help from regional universities on using organic inputs from forests. Mobile phone networking is another innovation that has led to large changes for many poor populations in terms of the expansion of markets, social business and public services. Examples include: individuals arranging microfinance and insurance by mobile phone and the increase in personal security measures. In fact, an entire range of economic services has begun to emerge – finance, insurance, marketing and distribution (farmers and fishers connecting with markets, reduced middleman margins), employment services (drivers, casual workers), personal services,

public tele-health and education services. 19 These developments are important, and have a lot to do with the diffusion of ICTs, a key globalization driver and knowledge carrier:

Telecommunication infrastructure (and the pricing of services) is of particular importance. Telecommunication plays a variety of crucial roles in the public and private sector. It can aid education, transparency initiatives, and the delivery of government services. It can also raise productivity by disseminating price information to farmers, fishermen, and other producers. Telecommunication promotes widespread access to financial services. It also enables trade in services (a rapidly growing area of commerce) and links to global supply chains. (Commission on Growth and Develop- ment, 2008, p36)

Building innovation systems is necessary to strengthen and broaden the processes of development. Key actors are: the private and non-profit sectors at all levels, government and education institutions (especially tertiary). While the public subsidy of specific industrial outputs violates considerations of efficiency and international trade, societies can and do subsidize or invest heavily in inputs, particularly people – in a wide variety of ways, including education and health services for individuals, research and development (R&D) funding, tax and other incentives, support for start-up commercial ventures and public goods production. The judicious management of intellectual property and an ability to balance public and private interests have also become increasingly important to innovation.

But countries have different strategies and are at different stages. China, for example, is in the process of moving some 500 million people from agriculture and rural employment to largely urban manufacturing. It is dominating world production and the export of consumer goods, lending money from trade surpluses back to importing countries so they can continue to import, and developing high-tech sectors for subsequent stages of development. Chile is just embarking on a second round of developing its innovation and education systems, gradually raising R&D activity to the 1–3 per cent of GDP level typical of wealthier countries, and raising tertiary education access from 30 per cent to 60–70 per cent of the entire population.

90 TOPICS

Most countries, including poor ones, are engaged in both high-tech and ‘bottom of the pyramid’ R&D aimed at solving their more immediate problems and helping to generate economic growth.

In an increasingly multi-polar global economy, with China and a few other (primarily East Asian) economies dominating consumer goods trade, sources of comparative advantage for less advanced economies remain constrained. At the same time, exporting offers major growth potential beyond domestic demand growth. Agriculture export would be a better option for many poor countries were it not so heavily protected by wealthier countries. Resource industries – petroleum, minerals and gems, forestry, horticulture and wine, and fisheries, for example – offer enormous potential for countries that are able to manage their revenues well, but otherwise resource revenues can be a curse. Industries producing for domestic demand are also important, such as non- traded goods and services, including those at the bottom of the pyramid.