PRO-POOR INNOVATION:

MARKET AND NON-MARKET DETERMINANTS. APPLICATION TO SA

INCLUSIVE INNOVATION MILTON KEYNESJULY 6-8, 2013

DAVID KAPLANUNIVERSITY OF CAPE TOWN

WIDE USE OF THE TERM

IFIs DONORS ACADEMIA RESEARCH ORGANISATIONS BUSINESS

MANY VARIETIES OF THE TERM

3 MAIN TERMS: PRO-POOR INNOVATION INCLUSIVE INNOVATION FRUGAL (JUGAAD) INNOVATION.

DIFFERENCES BUT A COMMON DENOMINATOR

“serves extreme affordability users”

WHY THIS SUDDEN CONCERN?

EARLIER PEDIGREE – SCHUMACHER. LIMITED

GLOBAL DEVELOPMENT CONCERNS – MDGs; SUSTAINABILITY

GROWTH OF EMERGING MARKETSGROWTH OF POOR CONSUMERS IN EMsGLOBAL FIRMS RESPONSE – NORTH AND SOUTH

GROWTH OF EMERGING MARKETS

GROWING SHARE OF EMs 1987 EM SHARE OF GLOBAL GDP 16% 2011 “ “ “ “ “ 31%.

SET TO CONTINUE APACE 2/3 OF GLOBAL GROWTH WILL BE IN

EMERGING MARKETS

GROWTH OF POOR CONSUMERS AND DISPOSABLE INCOME IN EMs -

CHINA 1978 2007

RURAL NET HOUSEHOLD INCOME 137 4140

URBAN DISPOSABLE HOSEHOLD INCOME 343 13785

COLOUR TVS PER 100 FAMILIES (RURAL) 0.8 94.4

COLOUR TVS PER 100 FAMILIES 17.2 137.8

INNOVATION RESPONSIVE TO DEMAND – NORTHERN FIRMS

UNILEVER (ASIA AND RECESSION HIT EUROPE) RENAULT-NISSAN (FRUGAL ENGINEERING) SIEMENS (AFFORDABLE HEART MONITOR) GE “IF GE DOES NOT MASTER REVERSE (FRUGAL)

INNOVATION, THE EMERGING GIANTS COULD DESTROY THE COMPANY”

INNOVATION RESPONSIVE TO DEMAND – SOUTHERN FIRMS

RISE OF SOUTHERN FIRMS 2006 BRIC FIRMS IN FORTUNE 500 - 15 2008 “ “ “ “ - 62.

RISE OF INNOVATIVE SOUTHERN FIRMS BUSINESS WEEK 2010 50 MOST INNOVATIVE

COMPANIES; MAJORITY OUTSIDE OF THE USA. PRINCIPALLY IN ASIA

GROWTH OF SOUTH- SOUTH TRADE

% DC IMPORTS FROM DC1995 42. 2010 56.

% DC IMPORTS OF K GOODS FROM DC1995 35. 2010 54.

% DC IMPORTS OF HIGH TECH. KGOODS FROM DC

1995 25. 2010 53.

GROWTH OF SOUTH – SOUTH INVESTMENT

% SOUTH SHARE OF GLOBAL OUTWARD FDI 1995 15. 2010 27.

INCREASINGLY CONCENTRATED IN MANUFACTURING AND SERVICES

K GOOD EXPORTERS AND HOME COUNTRY FDI CONCENTRATED IN A FEW EMERGING MARKETS.

WHY SOUTHERN FIRMS MAY HAVE THE ADVANTAGE

PATH DEPENDENCY EXPLOITING INSTITUTIONAL VOIDS

MUCH OF THE FRUGAL INNOVATION ON PART OF NORTHERN FIRMS BEING DONE IN THE SOUTH WITH SOUTHERN PARTNERS

PRODUCT AND PROCESS INNOVATIONS

PRODUCT INNOVATIONS – SUCH AS THE NANO

PROCESS INNOVATIONS – RESPONDING TO DIFFERENT RELATIVE FACTOR PRICES.

MOST CRITICAL HERE IS GREATER LABOUR INTENSITY CREATING MORE EMPLOYMENT OPPORTUNITIES FOR POOR PEOPLE

GAINS TO THE POOR

CONSUMER GAINS MORE APPRORIATE PRODUCTS BETTER FUNCTIONING PRODUCTS –

ATTUNED TO THE ENVIRONMENT

PRODUCER GAINS MORE EMPLOYMENT INTENSIVE PROCESSES NEW FIRM ENTRY MORE DYNAMIC FIRMS

WHY MARKET LED INNOVATION IS LIMITED

FIRMS RESPONDING TO DEMAND

RISING INEQUALITIES UNDERPIN DEMAND FOR NON-POOR GOODS AND PRO RICH INNOVATION:

POOR AS PASSIVE RECIPIENTS OF INNOVATION

LIMITATIONS OF MARKET LED INNOVATION

PRO-RICH INNOVATION: CHINA SOON THE WORLD’S LARGEST MARKET FOR LUXURY GOODS.

POOR HAVE NO VOICE AND NO PARTICIPATION IN INNOVATION

A MORE RADICAL VIEW OF PRO POOR INNOVATION: PARTICIPATIVE INNOVATION/GRASSROOTS INNOVATION “EMPOWERING THE POOR”

SOURCES OF MARKET FAILURE FOR POOR

TWO SOURCES: PRODUCTS WITH LONG GESTATION;

LUMPY INVESTMENTS; STRONG UNCERTAINTY. RESULTING IN POOR APPROPRIABILITY – E.G. PHARMA PRODUCTS

VERY POOR AND THE VERY MARGINALISED WITHOUT SIGNIFICANT DISPOSABLE INCOME. RESULTING IN NO EFFECTIVE DEMAND- E.G. SUBSISTENCE FARMERS; THE SAN

MARKET FAILURE FOR POOR (1)POOR APPROPRIABILITY

PUBLIC FUNDED VIA A PPP E.G. SA LOW COST HOUSING SOLUTIONS BY CSIR AND PRIVATE FIRMS

WHERE MARKET FAILURE IS PARTIC. INTENSE AND SOCIAL NEED GREAT, NEW INSTITUTIONAL FORMS.

GOV. BUSINESS. NGO. PHILANTHROPY E.G. GAVI.

MARKET FAILURE FOR POOR (2)NO EFFECTIVE DEMAND

GOVT AND DONOR FUNDING

HOW IS INNOVATION THAT MEETS THE NEEDS OF THE MARGINALISED (NO EFFECTIVE DEMAND) BEST SUPPLIED: AN EXAMPLE FROM SOUTH AFRICA

SOUTH AFRICA -

NATIONAL RESEARCH PLAN 2002 – makes explicit provision for pro-poor innovation as a key “mission”

OECD REVIEW – mission has not been implemented

SOUTH AFRICA -

POTENTIALLY NEGATIVE IMPACTS OF INNOVATIONExample: small-scale farmers in Kwa-Zulu Natal and traditional plant varieties

Threats to local varieties from innovation inappropriate to their needs (GMO and hybrid varieties)

SOUTH AFRICA

LIMITATIONS OF MARKET-LED INNOVATION

Support needed to develop climate resilient plant varieties but private sector innovation geared towards commercial varieties and lack of public research investment.

Small-scale farmers have little disposable income

APPROACHES

Identifying the needs of the poor is a vital first step

Making the case for increasing public research support to meet the needs of the poor and marginalised (in context of such support dwindling)

Ensuring coherent governance for innovation (Schizophrenic government departments that support farmers and undermine their systems simultaneously)

RESEARCHERS (per million population)– SA AND THE BRICS

2001 2007

BRAZIL 441 658

RUSSIA 3460 3274

INDIA 110 136 (2005)

CHINA 581 1077

SOUTH AFRICA 312 396

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Brazil 1.02 1.04 0.98 0.96 0.90 0.97 1.00 1.07 1.08 -

Russia 1.05 1.18 1.25 1.29 1.15 1.07 1.07 1.12 1.04 1.25

India 0.77 0.75 0.74 0.73 0.74 0.78 0.77 0.76 - -

China 0.90 0.95 1.07 1.13 1.23 1.32 1.39 1.40 1.47 -

South Africa

- 0.73 - 0.78 0.85 0.90 0.93 0.92 0.93 -

R&D as Percentage of GDP; BRICS, 2000- 2009Source: World Development Indicators

STRUCTURAL CONSTRAINTS

HIGH AND GROWING INCOME INEQUALITY – biases market-led innovation away from poor

LOW LEVELS OF NEW FIRM ENTRY – little change in “business model” ;less attention paid to “bottom of pyramid”

LIMITED ENTRY OF FOREIGN FIRMS – from other Southern countries

MEASUREMENT OF “SOCIAL” OR PRO-POOR INNOVATION

NO CLEAR MEASURES – particularly in relation to outputs

NO CLEAR CRITERIA FOR CHOICES – what should the objective be? How to decide between competing objectives

ALLOCATION OF FUNDS – how much is justified?

STRESS ON R&D FOR COMPETITIVENESS – reinforced by absence of measurement indicators for pro-poor innovation

THANK YOU

DAVID KAPLANDavid.kaplan@uct.ac.za