Unity Bar Lecture: INNOVATION AND ECONOMIC PROGRESS: ISSUES FOR BARBADOS (SPEAKING NOTES)

The following are my speaking notes from today's presentation at the Unity Bar lunchtime lecture.

INNOVATION AND ECONOMIC PROGRESS: ISSUES FOR BARBADOS (SPEAKING NOTES)

What is innovation and why is it important?

• In any economy, innovation is part of the process of becoming competitive and keeping the advantages that gives. If you look at definitions (e.g., Websters Dictionary), you get:

1: the introduction of something new;
2: a new idea, method, or device.

• So, newness is key. Note, that innovation is not about science and technology, and it comprises ideas, ways of thinking and doing.

• Economists see many things in terms of value creation and distribution in an economy, and innovation is treated in that way. Economists tend to say, therefore, that new ideas are much lessened if they are not implemented as things that increase wealth (or welfare) of the society. Positive application of an idea is key. [We are not keen on new ways to make people worse off. So, should look unfavourably at certain financial innovations such as involved in the sub-prime mortgage crisis.]

• In the minds of many people, including economists, innovation is often/sometimes seen as an aspect of management, i.e., more related to the micro-economic level of economic activity, rather than as a fundamental basis for economic development, i.e., macroeconomic consideration.

• Thinking within the economics discipline has changed since Joseph Schumpeter developed his ideas in his classic 1942 book 'Capitalism, Socialism and Democracy' and put innovation into the forefront as a macroeconomic considerations.

What do economists think about innovation?

• The economics discipline now has a branch described as 'innovation economics'. It is an economic doctrine that reformulates the traditional model of economic growth so that knowledge, technology, entrepreneurship, and innovation are positioned at the center of the model rather than seen as independent forces that are largely unaffected by policy. Innovation economics is based on two fundamental tenets: that the central goal of economic policy should be to spur higher productivity and greater innovation, and that markets relying on price signals alone will not always be as effective as smart public-private partnerships in spurring higher productivity and greater innovation.

• This is in contrast to the two other conventional economic doctrines, neoclassical economics and Keynesian economics.

• For Schumpeter, institutions, entrepreneurs, and technological change that were at the heart of economies and economic growth.

• Innovation economists believe that what primarily drives economic growth in today’s knowledge-based economy is not capital accumulation, as claimed by neoclassicalists, but innovation.

• The major drivers of economic growth are productive efficiency and adaptive efficiency. The focus in innovation economics is the study of how societies create new forms of production, products, and business models to expand wealth and quality of life.

• In contrast to neoclassical economics, which is focused on getting the price signals right to maximize the efficient allocation of scarce resources, innovation economics is focused on spurring economic actors – from the individual, to the organization or firm, and to broader levels, such as industries, cities, and even an entire nation – to be more productive and innovative.

• Spurring evolving and learning institutions is the key to growth.

• In innovation economics, “social technologies” of institutions, culture, norms, laws, and networks that are central to growth.

• Innovation economists view innovation as an evolutionary process.

Current push on innovation in Barbados

• Innovation should be current in the minds of many people in Barbados. On April 11, VOB had the topic on its Sunday Down to Brass Tacks as 'Science Technology & Innovation - are we doing enough?' The discussion came immediately after the annual Innovation Awards. Much of the discussion focused on science and technology aspects of innovation.

• Press reports noted widely comments from Minister of Innovation, David Estwick, who is responsible for government policy on innovation (plus a range of economic affairs) (see http://www.nationnews.com/news/local/estwick-innovationcopy-for-web). He was quoted to have said the following:

"The school system must be seen as an environment which nourishes and encourages creativity and innovative thinking. Innovation must become a way of life for our people.".

"What is needed is a system that facilitates and develops strategies for research and technology development and application in the public and private sectors, as well as the university."

"Most of us are aware of climate change . . . droughts, floods and heavy rains. These conditions can have an adverse effect on the agricultural sector and hamper food production," and noted that “farmers should be trained and provided with newer technologies in order to cope.”

• The Minister also reiterated Government's commitment to consolidating the various venture capital windows in Barbados into one agency, which would in turn support businesses in commercialising existing or new ideas.
  

• Pointing to Government's commitment to innovation via the creation of a Ministry of Innovation, he called for innovative thinking in traditional sectors like agriculture and manufacturing, which would involve the embracing of new technologies.
  

• Minister Estwick was also reported (in The Barbados Advocate , April 13, p7) to have said that Government intends to offer appropriate tax credits to companies that pursue research and development of innovative projects targeted towards manufacturing or agro-processing activities.

• Further, the Director of the National Council for Science and Technology (Dr Lennox Chandler) announced in mid-April that the NCST will be developing a national innovation strategy for Barbados this financial year. He noted that innovation is happening but not operating to the level it should. He stated that “all over the world over 90 percent of the innovations have their genesis in science and technology...” [I do not know the basis of that conclusion, but feel that it comes from a very narrow view of what innovation means.]

• So, at the highest level of government we appear to have an understanding of many elements that are needed to push innovation as a policy agenda item, and a degree of political commitment to back up that understanding. Also, there is a sense of the need for an environment in which innovation can flourish.

Measuring innovation across countries

• However, a good amount of innovation is already going on in Barbados, but it is useful to see that in some broader international context.
  

• There are several international benchmarking studies of the innovation performance of countries, the Global Innovation Index (GII) being one. Other examples are Richard Florida´s index for the Creative Class and the Innovation Capacity Index (ICI). The traditional approach to measuring innovation has been to look at parameters like patents per million of population, publication of scientific journals, research and development expenditure, etc. The latest GII report adds other parameters that capture innovation in emerging markets and the effects of innovation on social welfare.
  

• I will focus on the Global Innovation Index (GII), as this is clearly the most comprehensive in country coverage and also itself innovative by looking at a wider measure of innovation. [The GII is a global index measuring the level of innovation of a country, produced jointly by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM's nonpartisan research affiliate. NAM describes it as the "largest and most comprehensive global index of its kind". The Global Innovation Index 2009-10 ranks countries on parameters like ‘Institutions’, ‘Human Capacity’ and ‘Business Sophistication’ to arrive at a global ranking for nations on innovation.]
  

• The GII report presents the latest findings and highlights the best policies and practices for promoting innovation readiness. That suggests that countries can learn from each other in seeing how innovation has been brought to bear in making their economies grow.
  

• One statement from the report that I would echo and stress is that 'Innovation can therefore — and often must — be disruptive to catalyse the process.' [We can ask 'What does that imply for Barbados, which has hailed itself as a place built on stability and maintaining status quo?']

• One trait of successfully innovating countries is clear: In the face of adversity, they deliberately play to their strengths and act boldly with an eye on new opportunities.

• The GII study underscores the fact that successful countries today are not necessarily large geographically speaking or richly endowed with natural resources, nor ones able to project military power internationally. [This argues that Barbados' size and limited resources are not real impediments to its being highly innovative.] Increasingly, they are ones that have managed to expand opportunities for their populations through the full exploitation of the opportunities afforded by the world economy through international trade, foreign investment, and the adoption of new technologies. [In this vein, we have to ask 'Has Barbados expanded opportunities in this way?']

• Innovation will be likely distributed globally rather than being a prerogative of the western world. For example, in a continent like Africa locally emergent innovations might bring greater prosperity than Western solutions.

• Iceland (320k people on 40k square mile island) is the surprise leader in the latest report, despite the tough economic situation it has faced since two years. Sweden and Hong Kong (7 mill people on 426 sq miles) follow in 2^nd and 3^rd positions. Switzerland is 4^th. Denmark is 5th and Singapore is 7th: how these small countries have pushed innovation will be looked at more closely, later. Among the best innovators from last year, USA (11^th), UK (14^th), Germany (16^th) have fallen in ranks.

• Barbados ranked 50th overall out of 132 countries, with Trinidad 55th and Jamaica 70th. In the Americas, it ranked 5th (of 25), with Trinidad ranked 7th , and Jamaica 11th.

Some comments on the details of the GII

• Distinction between enablers and outputs while measuring innovation in an economy. Enablers are aspects that help an economy to stimulate innovation and outputs are the results of innovative activities within the economy.

• Five enabler pillars that are included in the GII: Institutions, Human Capacity, General and ICT Infrastructure, Market Sophistication and Business Sophistication. The Enabler pillars define aspects of the conducive environment required to stimulate innovation within an economy.

• Two output pillars, which provide evidence of the results of innovation within the economy: Scientific Outputs and Creative Outputs and Well-Being. The overall measure of innovativeness of an economy is obtained by taking a simple average of the scores along the input and output pillars.

• An Enabler has the following elements under it: 1) Leadership, 2) People 3) Policy and Strategy 4) Partnership and Resources and 5) Processes. The elements that come under ‘Results’ are: 1) People Results, 2) Customer Results, 3) Society Results and 4) Key Performance Results. The ‘Enablers’ feed into the ‘Results’ and vice versa.

• If we compare all the regions [for all the pillars], the average score for Europe is the highest followed by Asia, America and Africa. This may be quite natural, given that Europe has the maximum number of developed and developing well-to-do economies. The American continent comes 3^rd, though it houses traditional innovators like USA (11^th), Canada (12^th), and strong emerging economies like Brazil (68^th) and Mexico (69^th). However, it falls in continent-wise rankings due to the poor performance of other economies in the region. [This implies that sub-regions like the Caribbean weigh down on the whole region. So, we may wonder how Barbados could be driven by innovation when it is in a less innovative region.]

Lessons from successful innovating countries

• Facilitating governments clearly set the climate for innovation, not by blocking innovation but by encouraging key factors and inputs that facilitate it. [Look at areas where Barbados is weaker in innovation, where we will see that this area is a major failing.] For example, governments have to step in to formulate efficient rules regarding patents, copyrights and handle the problem of piracy. This is one of the fields where government actions can yield positive result.

• Governments should also outline clear policies for encouraging innovation in the form of tax credits, research and development funding and policy changes. [Barbados is on the way to doing this.] [But we should note also fiscal regimes that would favour introduction of new items.] They can make it easier for companies trying to import foreign technology and ideas by making the entire process of commercialisation of ideas easier and efficient. [But you can see that this is already creating the scope for tensions in a local economy, with the clear threat that may come from the introduction of foreign competition.]

• They should also diffuse the technology throughout the economy. Governments that neglect such strategies and attempt to spur innovation in specific industries through the use of subsidies and the application of external tariffs fail to realise the negative consequences of such policies. For a country to compete internationally in today’s times it has to incorporate information technology in all aspects of its social and economic life. Governments should make huge investments in building up the national digital and IT infrastructure.

• It is necessary that a country builds up a strong base of world class educational institutes where talent can be nurtured. This talent pool is the driver of innovation and research activity in the economy. Another way to achieve a pool of highly talented work force is to open the country to high skill immigration. [Barbados may have good educational structures, but the talents being developed are not those that drive innovation.]

• Innovation requires an environment conducive to taking risks in order to flourish. A country needs to cultivate an ambiance such that it allows its entrepreneurs to reallocate capital to more productive areas whenever planed ventures do not work out as envisaged. [Barbadians are renowned for being risk averse, so do we have to accept that the national 'character' puts limitations on innovation?]

• An ecosystem of creativity with mentorship goes a long way in creating critical mass of innovative clusters. (e.g., Silicon Valley) A well-developed education system is crucial for all countries that wish to innovate. Continued excellence in mathematics and science, foreign languages and engineering will reach greater importance to cut across disparate talent pools. [Does UWI's focus militate against some of the driving trends towards innovation?]

• Another interesting trend is the absorption and application of existing knowledge in new innovative ways to transform life and economy at the grass roots level (e.g., exploiting modern mobile technology to control and operate irrigation pumps from a distance; micro-finance).

• Rethinking partnerships–between industry, universities, governments to create more innovative clusters, to create more open innovation models, to create solutions for a sustainable future by facing the challenges of climate, environment–are essentially innovations that can no longer be carried out in silos or in isolation. [Again, are government and UWI too isolated in their interactions with other parts of the economy/society?]
  

Lessons from small developed countries

• Denmark (5.5 mill people, 16k sq miles), ranks 5th: Small countries like Denmark face a big challenge as these nations must seek to compete head-on with the research power of, say, the US and China - in contrast to what Sweden has done.

• Danish model teaches us that innovative societies do not have to invent lots of things themselves: in fact, this news must come as rather a relief to many smaller countries around the world. What aspiring wealthy states have to do is to rapidly identify clever inventions by others and sense where they can best be fitted into current society.

• Danish model requires an educated workforce and educated consumers. It requires a population willing to communicate needs with each other, to learn about technology all their lives. There must be good relations between managers and staff, so that the latest changes do not pass decision-makers by.

• Denmark has all these things, because the structure of its society is flat: there are no great income and class differences, no great hierarchies in the workplace.

• Singapore, ranks 7th. Its impressive success had come in large part from a technology-centered, engineering, top-down kind of social development. In 2002, the “Remaking Singapore” initiative was launched to turn Singapore into a world center of creativity, innovation, and design. These new capacities are associated with a human-centered, social science, bottoms-up model. A hub for the electronics, semiconductor, pharmaceutical, and bio-tech industries every year Singapore gives 100 scholarships to science and engineering students, funding their doctorate programs in foreign universities. The $650 million program, launched in 2000, is now seeing its first PhDs return to Singapore, where they work in government research labs or local universities for several years.

• Government commitment to education is one reason many large drug makers have made Singapore a base for their manufacturing and research. In Singaporean fashion, the government is redesigning the education system to promote creativity among the young. But risk of new generation migrating to US, Canada, Australia, and government is main initiator of new entrepreneurial ventures.

Barbados' innovation strengths and weaknesses

• Some in Barbados have asked 'Why, with all the knowledge available of what needs to be done to foster innovation, was it not being done? Was the fault with policy makers in different ways?' One basic answer is that innovation is taking place, but is perhaps not as much as is possible or is not driven by science and technology . However, the GII data for Barbados indicate that the basis for innovation is not broad and has key weaknesses to offset some important strengths.
  

• The GII country details show that Barbados is very strong in its ICT infrastructure (ranked 1^st, largely on its leading the world in broadband access per 100 inhabitants (1^st). It is also strong in core social areas such as political environment (17^th), human capacity (18^th) and quality of education institutions (24^th).

• But, it is significant that Barbados is very weak in areas that help business development: Business sophistication (66^th), Business conditions provided by public institutions 68^th), Market sophistication (94^th) Knowledge application (106^th), Investor/creditor conditions (110^th), Openness to foreign competition (121^st), Creative outputs and well being (131^st).

Some implications for Barbados

• The weaknesses in business development affect much more that innovation.
  

• What can innovation can do to raise productivity, not just of labour but of all parts of production? What is Barbados willing to do to bring new products and ideas to bear to make workers more productive, make financial investments more productive, make machinery more productive, and make land more productive? It is useful to remember that combinations of these elements may be needed to get the improvement desired, such as new ways of working with existing machines, new financial instruments that could help businesses, getting different machines to work with existing land and crops, etc. [We have heard many comments that financial support is a major constraint to starting business, but we need to look too at the unfriendly business environment created by government. It may not be obvious but the nature of corporate structures in Barbados works against innovation, as these are largely family-owned businesses with interlocking directorships.]

• In the case of economies based largely on service delivery, such as Barbados, it is a mistake to focus too heavily on science and technology as the basis of innovation, because the intelligent application of labour (people) can pay huge dividends. Barbados could be more efficient if it used current technology well (e.g., by automation and computerisation), but it can become more efficient by doing things smarter or differently.

• Using tried technology in a new setting—i.e., Barbados—may be the way to go in many sectors, e.g., generalising recycling as part of a strategy to reduce use of landfills, or projects to use recycled tyres for energy production. Offering to foreigners high quality medical care and wellness as a core element of a tourism strategy. [Policy to encourage widespread use of solar panels for water heating was indicative of drive to shift toward sustainable/renewable energy use, but it was not followed by other bold moves in the same direction.] [Interesting that some tried technologies which have been widely applied elsewhere meets resistance or limited take-up in Barbados, e.g., ATM/electronic banking, where Barbadians seem to want to hold onto old ways that involved face-to-face transactions.]
  

• Doing the same thing with a new audience, e.g., establishing road tennis or draughts matches—where Barbadians have uniqueness or special skills to offer—as 'shows' for tourist attractions (akin to The Bahamas taking its annual junkanoo festival and packaging it year round as a tourist spectacle). In some senses, this can be seen as better marketing, but that is still innovative.

• But, it is also important to understand that innovation brings risks (and we need to see these in the broadest sense), not least because it may make current ways of operation and existing goods or services obsolete and in the end threaten livelihoods of some to improve the livelihoods of others, and not necessarily in the same time or the same degree. So, applying innovation may meet resistance as it also means a willingness to see (perhaps significant) social (and political?) change, and changes in the established economic order. At issue, is whether the society is really built on encouraging and embracing change and newness, in particular, seeing social and economic mobility. [For Barbados, this leads to thinking about the contentious issue of political power in the hands of the demographic group that does not hold most economic power, and how that division has hampered the progress of the black majority in the country.]

• This is not said primarily to spark controversy, remembering that innovation is disruptive, but to highlight what is an important feature of social organizations. They are often zero-sum games, where one person or group can win only if another loses, or at least one may need to guard against that being the case. [The US is famed for allowing significant social mobility through economic activities based on innovation. This has also been the basis of the so-called 'economic miracles' in south East Asia, and it can also be seen in the rapid transformation of certain former Soviet Union countries. We can look at the Caribbean in a contrasting way as a region that only has a limited amount of social mobility.] [We also have to understand how social movement of people can accelerate the risk of over-turning existing socio-economic and political arrangements.]

• What is the incentive for those who have social, political and economic power to encourage innovation, if they are not able to capture or exploit the gains themselves in some way? In a small geographical and economic space there may be more pressure to suppress innovation as the chances of it upsetting the status quo are much greater.

• Important to see innovation as not just part of the role of the private sector. Public sector agencies, need to innovate too, and new ways of thinking, administering, and delivering public services can offer significant productivity gains for both the public sector and those in the private sector who benefit from the service delivery. But, applying technological progress to service delivery should make us mindful that if productivity increases that may mean the demise of existing job positions. Public sector reform that is only talk and no change--i.e., perpetuating inefficiencies--can actually be a great brake on innovation and productivity, as it reduces credibility of policy statements and initiatives, which too often have a history of 'words without deeds'. [Examples: Duplication of information about citizens across government departments. Immigration data that is not used to track temporary workers and visa status violations.
  

• To what extent are policy initiatives second- even third-best solutions because politicians and civil servants are locked into a certain mindset and use information inefficiently? [Pictures of long lines of people waiting to file income tax returns; stories of interminable waits at Licensing Authority and Immigration Department are vivid reminders that in some areas of public service delivery the country does not appear to have made much progress.]

• One way people get around the constraint of seeing their innovation come into play is to leave the country and get their chance abroad. That's an immediate loss for the nation, though over time the value may still accrue to the country through financial flows from the materialisation of the innovation and also the 'identity' element that may go with it. [In that regard, one can look at the marketing of Rihanna as a major innovation—taking a Barbadian and making her into an international star, which opens the door to others who are prepared to go that route. In fact, the novelty factor may be in not insisting in pushing a national image.]

• Smallness may put a heavier premium on selectivity in terms of areas for innovation. It may be impossible to develop feasible research and development activities across the board. But it may be possible to focus on some areas where there is a sort of 'comparative advantage' on a national or regional basis, so tropical focus may be relevant. It may be very natural for the small country to look outward to get maximum value from implementing ideas [variation on the theme of exporting].

• Barriers to entry by innovation may exist within an economy: these may be consciously and blatantly maintained or 'institutionalised' and subtle. [One may look at the protectionist attitude to competitive entrants to the Barbadian market as opposition to innovation, e.g., Subway, Island Grill, who have different products and different sales styles, which could threaten seriously market share of current operators.]

• Going forward, can Barbados and Barbadians find a way to think differently about itself/themselves and where it wants to go? What does it say that a society applauds lawyers and doctors above engineers and chemists? How do people respond to new approaches? Some would argue that the physical and economic limitation on small countries may constrain innovation because resources available to fund certain types of education or activities is limited. [This may be true in some senses, but keeping in mind that newness is key, size should really have little impact.]