Innovation under the Radar

Raphael KaplinskyScience Policy Research Unit,

University of Sussex

Diffusion of Innovation in LICs, High Level Conference, 2nd November 2015

Avrge rate of profit

1st round innovation

2nd round innovation

3rd round innovation

Innovation rent

THE SCHUMPETERIAN INNOVATION SCHEMA

Rate of profit

Time

Innovations new to

• World• Sector• Country• Sub-national region• Enterprise

Innovation metrics (which often determine policy)• ABOVE THE RADAR• Input measures (R&D as % GDP, number/ratio of

scientists and engineers, nature and size of NSI, etc)• Output measures (patents, unit-prices-market share)• Bogota Manual indices on product innovation, etc)• TFP• THESE TEND TO BE BASED ON MACRO DATASETS

Innovation metrics (which often determine policy)

• BELOW THE RADAR• Kaizen (continuous improvement)• Adoption of particular sorts of equipment• Organisational change

• Within the enterprise – eg JIT/TQC• Within the chain – functional repositioning

• THESE TEND TO BE BASED ON MICRO, CASE-STUDY DATASETS

Inducements to Innovation

• Demand• Factor prices and character of

infrastructure• Path dependency and firm trajectories• Regulatory environment

Past Innovation Trajectories

• Capital intensive• Scale intensive• Grid intensive• High income products• Externalise environment costs• Etc• That is, they have been inappropriate for

operating conditions in LICs

Capital and scale intensive

Labour intensive, small scale

Inefficient Efficient

Taxonomy of innovation

Capital and scale intensive

Labour intensive, small scale

High wageslow cost of capital

Large marketVibrant entrepreneurship

Inefficient Efficient

Global innovation patterns, circa 1970

Capital and scale intensive

Labour intensive, small scale

High wages, low cost of capital

Large marketVibrant entrepreneurship

Low wages, high cost of capital, Small marketWeak entrepreneurship

Inefficient Efficient

Global innovation patterns, circa 1970

Capital and scale intensive

Labour intensive, small scale

High wages, low cost of capital

Large marketvibrant entrepreneurship

Low wages, high cost of capital,

Large market vibrant entrepreneurship

Inefficient Efficient

Global innovation patterns, circa 2010

So what disrupts and drives new technological trajectories?• Southern drivers of demand

• Levels of income• Infrastructure

• Global diffusion of innovative capabilities• Global diffusion of entrepreneurial capabilities• New technologies

• ICTs• Nanotechnologies• Renewables

• New patterns of trade

So who are these innovation actors?

• Above the radar:• Northern firms

• TNCs in the search for the Bottom of the pyramid• Northern Middelstand (SME) firms• Southern TNCs (Huawei)

• PPIs (eg GAVI)• Below the radar

• Indigenous firms• NGOs and community based organisation• Southern firms (predominantly through trade in the first instance)

A Prescient view from the 1970s

“..closely related to the problem of technical choice is the problem of capital-goods production… It is unlikely that the capital-goods-producing sectors of developed countries will respond to demand for such goods in underdeveloped countries. Capital goods-producing industries in the more advanced of the underdeveloped countries will have to take a lead in producing the appropriate capital goods and indeed exporting them to other underdeveloped economies”

Ahluwalia, M. S. (1974), “The Scope for Policy Intervention”. in Chenery, H., M. S. Ahluwalia, C. L. G. Bell, J. H. Duloy and R. Jolly, Redistribution with Growth, Washington DC: The World Bank.

Conclusions on South South trade in technology

• Southern machines increasingly dominate each of these markets

• Southern machines are “technically efficient” – choice is a function of relative prices

• Southern machinery is less durable – have shorter lives and break down more frequently

• At current relative prices, there are cases in which northern machines have higher IRRs

Inclusion effects

• In some cases (sewing, spares provision) southern machines are less grid and infrastructure dependent

• Southern machines work at smaller scales• Southern machinery produce “lower quality” output• In the Ugandan sewing sector, southern machines

are adopted intensively by women• Southern machines have much lower acquisition

costs

Exclusion effects

• Southern machinery produce “lower quality” output

• Southern machines require more care to operate – they are “skill intensive” in a particular (and unexpected?) way

• Southern machinery often have adverse environmental and health and safety impacts

Three take-aways

• To what extent are there new technology trajectories?

• Do these follow from the changing global geography of innovation, production and consumption?

• Open the black-box’s lid• “Look below the radar”