Innovation, Entrepreneurship, Economic Growth and Sustainable Development

Policies and structures that foster engagement, innovation and entrepreneurship for sustainable development

Professor Jenny Darroch; August, 2016

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Historical Context

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Historical Context

• Economic growth is due to endogenous forces, not external forces.

• Innovation economic growth (P. Romer, 1990)

• Better human capital , more physical capital economic growth (Mankiw, D. Romer, Wiel, 1992)

• National Innovation Systems (Nelson,

Freeman, Lundvall, early 1990s).

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National Innovation Systems

Emphasis:

• Institutions - provide formal and informal constraints

• Infrastructure and connectivity

• Macro-economy – is it stable, certain?

• $ invested into R&D, FDI inflows

• Number of STEM graduates

• Number of researchers

• OUTPUTS: patents and publications; GDP growth/changing composition


Over Time New Variables are Added (e.g., GCI)


Theme Principle

Health Better physical, mental, social well being leads to higher income

Product and service market efficiency • Need to allocate resources in best way.• Competition good

Labor market efficiency Match workers to jobs so that their talent is used to the fullest potential and then grow the talent e.g., by training

Financial markets • Works efficiently,• Access to money, including venture

capital

Market size Sum of domestic and foreign markets. Larger markets – more willing to take risk

Finding good data is challenging

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Many Questions Have Been Tabled



Innovation

• Why is innovation so narrowly defined?

• Do we count innovations by measuring only patents and publications?

• Do we assume that the only innovation that matters needs R&D $, STEM graduates, scientists?

• Current thinking: Move beyond closed, internal, localized.

• Current thinking: Other types of of innovation matter. Measure?

• Innovation vs. commercialization

Innovation

• Who should fund innovation –government or private sector?

• Current thinking: government

• Current thinking: investment in innovation should be global and diversified – “innovation diplomacy” [appendix]


National Benchmarks Result in Averages

• Most studies create national benchmark and then compare at national level

• What about context?

• Current thinking: also examine regional, local, sector, technology/platform innovation systems


Economic Growth is Slowing

• Why has GDP growth slowed?

• Education levels are uniformly improving

• R&D investments have continued (more or less)

• Productivity gains are slowing

• What else should we focus on?


A Closer Look at Human Capital…People Matter

• With NIS, people were placed “outside” the system

• Now people are “inside” the system

• People as “multipliers”

• How do we create an innovative mindset? Celebrate innovation?

• How do we create an entrepreneurial culture?

• Is all entrepreneurship “good”?

• Developed countries vs. developing countries


Knowledge Flows

• How do we get “actors” to collaborate more?

• How do we encourage innovation clusters and/or ecosystems?

• Should collaboration be national and/or international?


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Many Issues Still Require Attention


Local Context Matters [Glo-cal]

• Don’t feel obliged to feed into a globalized corporate innovation network.

• Not all research requires large $, STEM graduates, researchers

• Focus on innovations that provide local solutions – e.g., to support infrastructure development or provide access to fresh drinking water.


Context Matters: Leverage Natural Capital

• Pay attention to your natural capital as a starting position.

• Tradeoffs: economies with large natural capital either:

• diversify into pharma, ICT

or

• specialize, be a niche player, develop a small but defendable position and vertically integrate around this


Innovation: Good and Bad

• Is all innovation good?

• Tradeoffs/questions:

• Sustainable growth vs. productivity growth to grow GDP

• Organizations want to innovate to destabilize vs. People and communities value stability

• As innovation goes up does quality of life go down?

• Not all entrepreneurs are innovative. What is the role of entrepreneurship?


Growth Driven by Diversity and Inclusion

• ICT has flattened the world.

• ICT facilitates inclusive growth

• Pursue “innovation diplomacy” - but preserve national integrity

• Question: What are the consequences of e.g., multi-national corporations setting up offshore R&D facilities or investing in offshore facilities?

• Value diversity. E.g., ask what can developed countries learn from other economies. What does innovation look like here?


GDP as a Measure of Success

• With so much FDI, should we measure economic growth using GDP or GNI?

• Does GDP disguise other concerns, such as income inequality?


Other Measures


• Reframe: isn’t economic growth the means to the end?

• Use e.g., the Human Development Index (or similar) as the the dependent variable that matters.• HDI: enlarge the choices

people have and allow people to influence processes that shape their lives.

• “For too long, the world has been preoccupied with material opulence, pushing people to the periphery.”

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Questions For Discussion


Questions for Discussion

• What is our context and how should this influence policy choices?

• What are our national goals for innovation, growth, human development, sustainable development, etc.

• What does good look like? How do we measure success?

• What innovation matters for sustainable development?

• How do we organize for innovation – e.g., NIS?

• What are our strengths and barriers?

• How do we foster a culture of innovation and entrepreneurship?

• What other changes should we make?

• What is our plan?


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“The only thing we know about the future is that it will be different.”− Peter F. Drucker

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Unused Slides


Appendix. E.g., from the US Department of State

• What tools can the United States use to promote innovation and collaboration across borders to help solve pressing global challenges such as climate change, food security, and public health?

• How can we better promote innovation through U.S. foreign policy? And conversely, how can promoting innovation help us achieve foreign policy goals like fostering economic development, reducing youth unemployment, and empowering women and girls?

• And, how can the Department of State align “innovation diplomacy” to support the U.S. economy, exports, and jobs; the competitiveness of U.S. companies; and the value of U.S. foreign direct investment?


Basic Model: Drivers of Economic Growth (GDP pc)

Innovation: Enhances productivity

Innovation:Leads to more produced capital

Human capital underscores a knowledge based economy


Economic Growth (GDP)

Basic Model: Drivers of Economic Growth (GDP pc)


• Exports – economies export surplus’

• International competitiveness

• Transition toward exporting high tech products

• Measure FDI outflows• Economic complexity index

Economic Growth (GDP)

Innovation: Enhances productivity

Innovation:Leads to more produced capital

Human capital underscores a knowledge based economy

Productivity

• If innovation fuels productivity, by allowing us to extract more from factors of production….

• What about non-renewable and renewable factors of production?

• Do we want to extract non-renewable resources more quickly?

• Do we want to encourage more intensive farming methods that harm the environment?

• Should we reframe productivity?


Innovation, Entrepreneurship, Economic Growth and Sustainable Development

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