capabilities, freedoms and innovation: exploring connections
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Capabilities, freedoms and innovation:exploring connectionsMichele Capriati aa Dipartimento di Scienze Politiche (Department of PoliticalSciences), University of Bari, Piazza C. Battisti, 1, 70121, Bari,ItalyVersion of record first published: 25 Feb 2013.
To cite this article: Michele Capriati (2013): Capabilities, freedoms and innovation: exploringconnections, Innovation and Development, 3:1, 1-17
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Capabilities, freedoms and innovation: exploring connections
Michele Capriati*
Dipartimento di Scienze Politiche (Department of Political Sciences), University of Bari,Piazza C. Battisti, 1, 70121 Bari, Italy
The following review aims to explore some of the connections between the capabilitiesapproach and innovation economics to discover affinities and possible integrations. Webegin the paper by presenting a brief overview of the two lines of enquiry: the relationshipbetween innovation and growth and Sen’s contribution to the capabilities approach andhuman development. Then, we start exploring the various interconnections between humandevelopment and innovation. This paper shows that these two lines of economic analysisand practice, which follow very different intellectual and practical paths, have manyinteresting connections in the common ground of economic development. The coreconclusion of this review is that the capabilities approach and the human developmenttheory can provide a normative framework for the development of the social andinstitutional context in which innovation systems (ISs) develop and that ISs approach canoffer a strategy for growth which is conducive to the expansion of capabilities.
Keywords: systems of innovation; human development; capability approach; economicdevelopment
1. Introduction
In his renowned essay, The Rise and the Decline of Development Economics, Hirschman makesthe following statement:
Our sub-discipline had achieved its considerable lustre and excitement through the implicit idea that itcould slay the dragon of backwardness virtually by itself or, at least, that its contribution to this taskwas central. We now know that this is not so. (Hirschman 1981, 23)
Development economics made its appearance in the forties and it then acquired considerablescientific and political credibility after Second World War. However, by the 1980s, significantinternational political changes had brought about the marginalization of Keynesian thought andpolicies, resulting in the rise of neo-classical orthodoxy.
During these years, the neo-classical mainstream was challenged by, amongst others, twoalternative branches of research: innovation economics and human development theory. Thetwo schools followed different intellectual and practical paths. The first focused mainly on themost advanced economies, while the second concentrated mainly on developing economies.Both, however, share a dissatisfaction with the neo-classical paradigm.
Sen’s theory developed from the framework of welfare economics: it challenges its utilitarianassumptions (Sen 1982) and puts forward a conceptual apparatus rooted in capabilities and humandevelopment, which strongly criticizes the market-oriented policies of the last three decades(Sen 1984, 1985).
© 2013 Taylor & Francis
*Email: [email protected]
Innovation and Development, 2013Vol. 3, No. 1, 1–17, http://dx.doi.org/10.1080/2157930X.2012.760898
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Since Schumpeter ‘founded’ innovation economics (Schumpeter 1936), this line of researchhas focused on neo-classical economics’ failure to grasp capitalism’s ever-changing nature(Nelson and Winter 1974). Recently, the theory of innovation systems (ISs) has emphasizedthe role that institutions (aside from the market) and knowledge play in fostering growth and inno-vation (Lundvall 2007b).
These two approaches have different goals. The capability approach (CA) aims to expandagents’ functionings and it is rooted in the normative notion of equity; research on IS focuseson improving efficiency of firms and, consequently, of the economy in general. The integrationof these two approaches has a strong potential. As we shall explain below, the CA, takes theincrease of production and income – i.e. the output growth – to be an important, yet notunique, means to foster human development. Thus, the analysis of the mechanism fuelling econ-omic growth is not at the centre of the work on CA. Conversely, research on IS is mainly focusedon resources and, in particular, on the mechanisms fuelling process of innovation (mainly derivedfrom the observation of developed countries). Focusing on this issue, this theoretical approachpresents challenges in fully developing a normative apparatus that links ISs to the wider social,cultural, institutional and political context. This aspect is particularly salient when the conceptof IS is employed for public interventions in developing countries.
This is why comparing these two lines of research on the common ground of developmenteconomics promises to benefit both sides. The following review aims to explore some of the con-nections between the capabilities approach and innovation economics, in order to discover affi-nities and possible integrations.
We begin the paper by presenting a brief overview of the two lines of enquiry: the work on therelationship between innovation and growth (Section 2) and Sen’s contribution on the capabilitiesapproach and human development (Section 3). In Section 4, we start exploring the various inter-connections between human development and innovation and in Section 5 we present the possi-bility of triggering a ‘virtuous circle’ between human development, innovation and growth.Section 6 concludes with some general remarks.
2. Innovation and growth
Growth is strongly influenced by an economic system’s capacity for innovation (Fagerberg,Srholec, and Verspagen 2010). Innovation consists of the introduction of activities of exchangeand the production of new or improved products and processes or ways of doing things. It isan aspect of all human activities, at all stages of development (Lorentzen 2011). Much of thecurrent debate uses the term innovation in a very narrow way, employing it only to refer to inno-vations which are ‘new to the world’ (Furnam, Porter, and Scott 2002); however, this narrowapproach unduly neglects the cases in which innovations represent a change for the market inwhich they are introduced or for the firm adopting them.1
Under the narrow reading, the innovation process is rooted in science, technology and inno-vation (STI) activities whose intensity is measured in terms of resources devoted to R&D and bythe number of patents. In the wide reading, the process of innovation is also rooted in the ability toadapt and absorb technologies; accordingly, it also includes doing, using and interacting (DUI)activities and it concerns the introduction of changes which affect the markets in which theyare implemented, as well as learning of both individuals and firms (Jensen et al. 2007; Lundvall2007b). Innovation, interpreted this way, does not only concern the business of the more highlyadvanced economies, but it also constitutes the driving force behind growth of those less devel-oped countries (Fagerberg and Godinho 2005). So what does this capacity depend on? From ahistorical point of view, Abramovitz (1986) highlights the importance of a set of conditionsthat he calls ‘social capabilities’. These include technical qualifications and a general level of
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education; experience in the organization and management of large companies; a capital marketable to mobilize the resources necessary for innovation; stability of the government and its abilityto define and guarantee the respect of rules which will enable growth; honesty and trust(Abramovitz 1986).
The idea that innovation prompts change thanks to the interactions between technologicalpotential and social capacity, has led to the development of various systemic analyses based onthe concept of a national innovation system (NIS) (Freeman 1987; Lundvall 1992; Nelson1993; Edquist 2005; Lundvall 2010; Soete, Verspagan, and Ter Weel 2010), defined as ‘thenetwork of institutions in the public and private sectors whose activities and interactions initiate,import, and diffuse new technologies’ (Freeman 1987, 1).
In particular, under Lundvall’s formulation of the concept, NIS has acquired a wider meaning:
The National system of innovation is a social system. A central activity in the system of innovation islearning, and learning is a social activity, which involves interactions between people. It is also adynamic system, characterized both by positive feed-back and by reproduction.2 (Lundvall 1992, 2)
Lundvall’s wider approach is characterized by a stronger attention to the non-formalized ways ofspreading technologies (DUI innovation) and the social and cultural aspects which affect agents’behaviour. This makes it especially fit for the design of more general development policies (Lund-vall et al. 2009) as we shall see in Sections 4 and 5.
The fact that these paths of innovation and growth are the result of complex relationshipsbetween institutions, business and societal systems suggests that each national system is the his-torical result of these interactions and, therefore, one must be aware of the fact that each systemcan attempt numerous approaches to development. There is no one single path, perhaps indicatedby the country’s leaders, but rather numerous paths that exploit knowledge, as well as social andinstitutional relationships (Freeman 2002).
So, in the case of regions with low or medium development, innovation depends not only onthe transfer of avant-garde technologies from more advanced areas, but, above all, on theircapacity to create an institutional, technological and educational system with the ability to usethem efficiently, modify them, adapt them and produce them autonomously (UNDP 2001;Leach and Scoones 2006; Lundvall et al. 2009; STEPS Centre 2010).
As mentioned above, an IS can be defined as a whole, including private and public organiz-ations that interact in order to generate and diffuse knowledge conducive to innovation (Freeman1987; Lundvall 1992, 2010; Carlsson et al. 2002; Edquist 2005). However, the process of inno-vation is strongly characterized by proximity. In fact, a growing number of studies have demon-strated that in an era of global competition in which success depends on the ability to produce newand better products and processes, tacit knowledge is the most important basis for the creation ofinnovation (Pavitt 2002; Lundvall 2007a, 2007b). In fact, during a phase in which, thanks to thewidespread availability of information and communication technologies (ICT), access to explicit/codified knowledge has become quite simple. The creation of distinctive capabilities and competi-tive products depends on the production and use of tacit knowledge (Asheim and Gertler 2005). Itis difficult to exchange tacit knowledge over long distances, since this type of knowledge isheavily dependent on the social and institutional context in which it is produced. Additionally,the line of analysis that highlights the centrality of learning processes in activating change (Lund-vall 1992; Lundvall and Johnson 1994) has shown that the latter is the result of a complex socialinteraction. This interaction includes the flow of knowledge of various subjects: companies(clients, suppliers and competitors); research organizations (universities, public and privateresearch centres) and public agencies (centres of technological transfer, development agenciesand company incubators).
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Nevertheless in the case of developing countries, how can good institutions and close relation-ships between companies enhance innovation and growth? Which innovations and systems ofcitizens’ participation should underpin the choice and design of paths of innovation? Is itenough to wait for the evolution of an economy and a society to run its course and lead to thecreation of ‘ISs’? Or is it, rather, possible that the adequate social strategies might create the pre-condition needed for the establishment of ISs?
3. CA and human development
An answer to the previous questions may come from the idea of development put forward by theCA.
The capability approach is a broad normative framework for the evaluation and assessment of indi-vidual well-being and social arrangements, the design of policies, and proposals about socialchange in society. The core characteristic of the capability approach is its focus on what people areeffectively able to do and to be; that is, on their capabilities. (Robeyns 2005, 94)
This approach distinguishes between capabilities and functionings, that is ‘between the realizedand the effectively possible; in other words, between achievements on the one hand, and freedomsor valuable options from which one can choose on the other’ (Robeyns 2005, 95).
According to the CA, material and non-material goods are merely instrumental to the enjoy-ment of individual capabilities and functionings. The enjoyment of individual capabilities andfunctionings depends on opportunities determined by social context and availability of means(Figure 1). Thus the conception of individual well-being and freedom proposed by the CA pro-vides the theoretical foundations of the economic theory of Human Development.
For Sen (1999a), development is a process of expansion of the real freedoms enjoyed by humanbeings. In this approach, ‘expansion of freedom is viewed as both (1) the primary end and (2) themain means for development’ (Sen 1999a, 36). These two aspects can be defined as the ‘constitutiverole’ and ‘instrumental role’ of freedom in development. In the first case, freedom is taken to have asubstantial role in the enrichment of human life; it includes elementary capabilities such as avoidingthe deprivations that jeopardise a normal life (hunger, malnutrition, avoidable disease and premature
Figure 1. A stylized non-dynamic representation of a person’s capability set and her social and personalcontext.Source: Robeyns (2005, 9).
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death) and all the freedoms associated with education and political participation. Conversely, theinstrumental role of freedom concerns the way ‘different kind of rights, opportunities and entitle-ments contribute to the expansion of human freedom in general, and, thus to promoting develop-ment’ (Sen 1999a, 37). An important characteristic of this analysis is that ‘different kinds offreedom interrelate with one another, and freedom of one type may greatly help in advancingfreedom of other kinds’ (Sen 1999a, 37).
In Development as Freedom (1999a, ch. 2), Sen identifies five families of instrumentalfreedoms:
(1) Political freedoms, which include formal rights to elect political representatives, but alsoa wider notion of civic participation, including the ability to criticise and keep an eye onthe representatives, and the possibility for free discussion.
(2) Economic facilities, understood as the possibility given to individuals to use economicresources to consume, produce and exchange. This dimension includes the quantityand distribution of income, the structure of the markets, the presence of high barriersto entry, the ability to access credit.
(3) Social opportunities, these are the social structures, such as education and health care,which influence the tangible freedom to live better (in good health, without contractingavoidable diseases, or dying before one’s time) and to participate effectively and activelyin economic, social and political activities.
(4) Transparency guarantees, that are the structures that enable members of a society toachieve mutual trust. Transparency and trust are essential to the functioning of societies.The lack of transparency can lead to negative relationship networks, which generate ashadow economy, criminality and corrupted public administration.
(5) Protective security for the most vulnerable people or the victims of serious deprivation.To avoid social insecurity, it is necessary to have a network of social protection thatprevents these situations from falling into a state of misery. This includes socialsafety nets, the pension system, social welfare, accident insurance, families andchildren.
Sen highlights the fact that
each of these distinct types of rights and opportunities helps to advance the general capability of aperson. They may also serve to complement each other. Public policy to foster human capabilitiesand substantive freedoms in general can work through the promotion of these distinct but interrelatedinstrumental freedoms. (Sen 1999a, 10)
Instrumental freedoms, in addition to being connected to each other, are also directly dependenton institutions (particularly political ones), insofar as institutions have the power of deciding howto use resources to achieve economic and social goals.
4. The interconnections between freedom and innovation
As indicated above, the CA focuses on expanding disadvantaged people’s freedom to enjoy valu-able beings and doings; for this approach, then, the extension of material wealth is a means to,rather than a goal of, development.
It should be clear that we have tended to judge development by the expansion of substantive humanfreedoms – not just by economic growth (e.g. of the gross national product), or technical progress, or
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social modernization. This is not to deny, in any way, that advances in the latter fields can be veryimportant, depending on circumstances, as ‘instruments’ for the enhancement of human freedom.But they have to be appraised precisely in that light – in terms of their actual effectiveness in enrichingthe lives and liberties of people – rather than taking them to be valuable in themselves. (Drèze and Sen2002, 3).
This means that the CA does not specifically recommend any particular strategy for growth. It does,however, define a set of possible options, insofar only some strategies are compatible with humandevelopment. For instance, interventions for ‘advances in technical progress’ can be more or lessrespectful of local communities, available resources and national culture. On the other hand, aspointed out above, the idea of innovation that implicitly underlies the IS approach assumes thatthese strategies are influenced by cultural and historical contexts (path dependence), the role of insti-tutions, political choices, individuals’ and firms’ ability to interact and mutual trust (social capital).These factors are thus essential to the formation of ISs (Lundvall et al. 2009).
The core idea presented in this paper is that the CA and the human development theory canprovide a normative framework for the development of the social and institutional context inwhich ISs develop; and that IS can offer a strategy for growth which is conducive to the expansionof capabilities. In the following paragraph, we will explore some of these interconnections.
4.1 Innovation, technologies and capabilities
Innovation influences human development by providing individuals with an increased amount ofgoods, services and technologies, as well as improving their quality and range. It thus contributesto the expansion of capabilities and, as such, it improves opportunities for well-being. Many thin-kers (Kleine 2012; Oosterlaken and van den Hoven 2012), particularly philosophers of science,have recently pointed out that it is extremely important to highlight the relation between technol-ogy and human capabilities.
This is so for two main reasons; firstly, technology is an important factor in expanding valu-able human capabilities. Prefab homes facilitate that people quickly get ‘adequate shelter’ in adisaster area,…Cars and bicycles expand people’s abilities ‘to move freely from place toplace’ … Telephones contribute to expanding people’s capabilities ‘to engage in various formsof social interaction’ (Oosterlaken 2011, 425–426). Secondly, the CA offers a useful tool forthe evaluation of the impact that technologies have in development projects, as, for example,in the evaluation of ICT projects or to assess healthcare technologies or biotechnologies (Coeck-elbergh 2011; Oosterlaken 2011).
These passages mainly focus on technology understood as ‘a set of material artifacts orsystems of such artifacts’ (Oosterlaken 2011, 426) and focus on the relationship between technol-ogy and social and individual change. This line of enquiry has highlighted a very important point,that is the need to critically evaluate the processes of technological transfer:
many of the past cases of failed technology transfer to developing countries are a perfect illustration ofthe fact that technologies do not expand human capabilities without the required interdependencieswith people, social structures and other artifacts being present in the recipient country. (Oosterlaken2011, 431)
Nevertheless, thewider processes underpinning innovation are not reducible to the availability and useof technologies. In developing countries, technology rarely results from an autonomous process ofinnovation, but is rather the result of transfer frommore developed countries. The use andmodificationof technologies can offer a good opportunity to start a learning process that leads to the spread ofinnovation and the growth of specialized knowledge (Lundvall 2007b).
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Arocena and Sutz (2012) provide an important contribution to the understanding of therelationship between innovation and inclusion in developing countries. They assert that ‘thedirect attack of all types of poverty problems becomes a legitimate part of what research and inno-vation policies have to deal with. If that is so, the emergence of “inclusive” innovation systems, itsdifficulties notwithstanding, becomes possible’ (Arocena and Sutz 2012, 150) Their perspectivewidens the possible interactions between innovation and inclusion: moving beyond the notion of‘technology artifacts’ and they stress that
The more direct connections between knowledge generation and innovation efforts, and themultiple problems of social exclusion, offer new opportunities for specific policies that stimulate inter-active learning processes aimed at solving such problems, thus backing the emergence of Inclusive Inno-vation Systems that seem necessary for development as freedom. (Arocena and Sutz 2012, 156)
4.2 Human capabilities and learning capabilities
Much work on IS revolves around the concept of interactive learning processes and the idea oflearning capabilities.
all economies are learning economies, in the sense that economic life always forms a basis for someprocesses of interactive learning, which results in the production and introduction of new knowledge…. In the learning economy the organisational modes of firms are increasingly chosen in order toenhance learning capabilities: networking with other firms, horizontal communication patterns andfrequent movements of people between posts and departments, are becoming more and more impor-tant. (Lundvall and Johnson 1994, 5)
This approach emphasizes the role that learning capabilities play in improving the wider set ofhuman capabilities:
The learning capability is thus one of the most important of the human capabilities and it is con-ditioned by national institutions and forms of work organization. It does not only have an instrumentalrole in development but also, under certain conditions, substantive value. When learning takes place insuch a way that it enhances the capability of individuals and collectives to utilize and co-exist withtheir environment, it contributes directly to human well-being. Furthermore, to be able to participatein learning and innovation at the work place may be seen as ‘a good thing’ contributing to a feeling ofbelonging and significance. (Lundvall 2007b, 36)
Thus, the very idea of innovation as a learning process implicitly contains a reference to therelationship between innovation and individual freedom. This is so from both empirical anda normative perspective: from the empirical point of view, this approach highlights the positiveeffect that learning results have on individual freedoms; from the normative perspective, itimplicitly assumes that individual freedoms are the ultimate goal of the process of innovation.
Innovations introduce technical and organizational knowledge into the economy. We can think ofthem as ‘learning results’ contributing to the removal of ‘unfreedoms’ like ignorance, lack of learningopportunities and lack of economic opportunities and we can think of them as contributing to theenhancement of substantive freedoms like the capability to work, communicate, learn and to partici-pate democratically in political processes. They are important means in the process of development.(Lundvall 2007a, 114)
It is worth stressing that this point is particularly highlighted by the NIS’ version of the evolution-ist approach to innovation processes, since linear-model approaches have mainly emphasized theimportance of investment in R&D and the guiding role of high-tech industries, neglecting the con-nections with wider learning processes.
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The current literature on IS has thus highlighted an important connection between innovationand development, stressing how ISs can help improve individual capabilities by fostering learningprocesses. We shall now see how, joining these insights with Sen’s work on the nature of humancapabilities, we can enlarge our perspective even further and uncover yet new relations betweenlearning and human development.
As we have seen above, recent work on IS focuses on how innovation affects human devel-opment. However, the nature of human development also gives us reason to explore the oppositedirection and investigate how changes in human capabilities can affect processes of innovation.
The first point to emphasize is that the set of capabilities is highly cohesive: capabilities ofdifferent kinds are strictly interconnected and mutually supportive.
While economic prosperity helps people to lead freer and more fulfilling lives, so do more education,healthcare, medical attention, and other factors that causally influence the effective freedoms thatpeople actually enjoy. These ‘social developments’ must directly count as ‘developmental’, sincethey help us to lead longer, freer, and more fruitful lives, in addition, to the role they have in promotingproductivity or economic growth or individual incomes. (Sen 1997, 1960)
Access to health, for instance, has a deep impact on learning capabilities and improving agents’ability to actively take part in the process of innovation. In order to fully appreciate the relationshipbetween innovation and human development, therefore, it is important to endorse a holistic perspec-tive: considering the ways in which different capabilities affect each other, we will then be able tobetter appreciate the ways in which the ability for innovation is affected by human development.
Secondly, it is extremely important to be aware of the fact that the enhancement of some capa-bilities can be achieved in a context in which other capabilities are disregarded. The set of humancapabilities is large and varied: while, as pointed out above, capabilities are strictly intercon-nected, the improvement of a certain type of capability will not by itself be sufficient toenhance others types of capability. As it has been shown by the growth of some Asian countries(for instance China, Liu 2009), it is possible to considerably increase an economy’s knowledgestock, while keeping a strict control on low levels of democratic participation. Similarly, manygrowth processes have excluded women from the distribution of individual and social benefits.This recent history tells us that it is thus possible to expand learning processes and knowledgestock and even build ISs, while diminishing individual freedom or excluding groups of citizens.Hence knowledge-stocks and learning processes are crucial for human development, but are notsufficient to extend the overall set of capabilities. This is a second reason why, when consideringthe relation between innovation and human development, we cannot only focus on learning capa-bilities, but rather we ought to focus on the whole set of human capabilities.
4.3 Innovation and equality
The CA puts forward a normative framework aiming to promote access to well-being and thus ahigher level of equity among individuals. For the CA, inequality goes beyond the mere inequalityof income: it fundamentally concerns inequality in the distribution of other intrinsically valuablevariables (Sen 1992).
Inequalities of income can differ substantially from inequality in several other ‘spaces’ (i.e. in term ofother relevant variables), such as well-being, freedom and different aspect of quality of life (includinghealth and longevity). (Sen 1999a, 93)
Building a less unequal society with respect to these variables is thus a development objective inand of itself.
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So what is the significance of equality for innovation processes? Since Schumpeter’s initialwork, innovation processes have been intrinsically linked to the creation of inequalities; the crea-tive destruction that characterizes the evolution of capitalism and alternating economic cycles,with resulting structural adjustments, entails that new actors continuously take the place of oldones, creating unemployment and inbalances between firms and sectors (Schumpeter 1964;Freeman 2011).
The opening up of new markets, foreign or domestic, and the organizational development from thecraft shop and factory to such concerns as US. Steel illustrate the same process of industrial mutation– if I may use that biological term – that incessantly revolutionizes the economic structure from within,incessantly destroying the old one, incessantly creating a new one. It is what capitalism consists of andwhat every capitalist concern has got to live by (Schumpeter 2010, 73).
Can such a process work without bearing the costs of the negative effect that it produces?Schumpeter himself faces this problem with regard to unemployment:
Whether lasting or temporary, getting worse or not, unemployment undoubtedly is and always hasbeen a scourge…Nevertheless, I hold that the real tragedy is not unemployment per se, but unem-ployment plus the impossibility of providing adequately for the unemployment without impairingcondition of further economic development: for obviously the suffering and degradation – thedestruction of human values – which we associate with unemployment, though not the waste of pro-ductive resources, would be largely eliminated and unemployment would lose practically all itsterror if private life of unemployed were not seriously affected by their unemployment. (Schumpeter2010, 61)
Similar arguments have been put forward with regard to economic growth, to the effect that it hastraditionally been argued that the initial stages of growth are necessarily associated with a wor-sening of income distribution (Kuznets 1955; Kaldor 1956). Yet, recent studies based on abetter statistical data have disproved these theories (Pettinato 2002).
These new studies have shown that, on the contrary, income inequality:
(1) inhibits design and implementation of efficient social policy, triggering bad economicpolicies – with ill effects on growth, human development and poverty reduction;
(2) may undermine equality in civic, social, and political life; it may also generate itsown self-justifying political tolerance, suggesting self-perpetuating high inequalityequilibrium;
(3) can slow down poverty reduction, which in turn can inhibit economic performance trig-gering a vicious circle. (Pettinato 2002, 27)
Moreover, a substantial body of studies (World Bank 2006, and the enormous bibliographyincluded) shows that greater equity also has a significant influence on the processes of growthand development.
Equity is complementary, in some fundamental respects, to the pursuit of long-term prosperity. Insti-tutions and policies that promote a level playing field – where all members of society have similarchances to become socially active, politically influential and economically productive – contributeto sustainable growth and development. (World Bank 2006, 2)
Unsurprisingly, the IS approach takes equality to be needed for the functioning of learning pro-cesses based on DUI.
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In a neo-liberal discourse inequality is seen as a factor that promotes entrepreneurship and initiative. Ina learning economy discourse, it might be seen as something that makes it more difficult to buildsocial capital and trust that is the basis for interactive learning…One mechanism through whichequality promotes innovation is through its positive impact upon the active participation in organiz-ational learning in working life. (Lundvall 2011, 35)
Hence, from the perspective of IS, an excessive level of inequality impairs innovation processes inthe following ways:
(1) It is conducive to low regard for human resources, which are the centre of the learning andinteraction processes.
(2) It leads to low social cohesion and impoverishment of social capital.(3) It blocks effective social mobility; a closed and elitist society struggles to find the energy
necessary to fuel a process of innovation.(4) It leaves space for lobbyist control of institution, and it constrains institutions’ ability to
foster learning and interaction processes.
As far as the last point is concerned, it is worth adding that in situations in which the level of econ-omic and political inequality is particularly high, elites often have the power to controlinstitutions.
The central processes that determine resource allocation – through capital markets, through the pol-itical system and through social circumstances – are influenced by the distribution of wealth in impor-tant ways. More unequal societies tend to develop larger groups of people who are excluded fromopportunities others enjoy – be they a better education, access to loans, or to insurance – and who,therefore, do not develop their full productive potential. Both theory and empirical evidencesuggest that these incomplete realizations of economic potential are of concern not only to thosewho care about equity per se. They also affect aggregate economic potential, and therefore aggregateoutput and its rate of growth. (Ferreira 1999, 13)
Conversely, institutions and policies that are able to favour a higher level of inclusion can fosterthe enlargement of the knowledge stock, learning and interaction processes (Freeman 2011;Arocena and Sutz 2012).
4.4 Innovation public institution and democracy
As we pointed out above, the processes of innovation promote economic growth and the relatedproductive, social and institutional changes. Importantly, this leads to an increase in publicresources which become available through taxation and that subsequently can be used forsocial policies (health care, education and social security) which further strengthens individualwell-being. Yet political institutions do not always consider social policies to be a priority.
A classical question in the development literature is what role the state should play in the promotion ofeconomic development. Seen from a historical perspective, there is strong evidence that there is a needfor the mobilization of autonomous forces outside the market to create economic development. Someof the development pessimism in certain regions, not least Africa, reflects that in many countries, thestate is in the hands of vested interests with little motivation to create the necessary institutional settingfor learning and innovation. Here ‘radical social innovations’ brought about by social movementsmight be necessary to overcome the stalemate’. (Lundvall 2007a, 117)
The CA’s claim that the expansion of individual and social capacities goes through a process ofempowerment becomes especially important when development seeks to reconcile efficiency and
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the expansion of freedom. Today’s strategies of innovation for development are mainly based ontechnology transfer and ISs which are designed and experimented in more advanced countries.3
These policies have rarely allowed local economies to develop an autonomous IS which couldspeed up growth and prompt development. This has happened mainly because of the extremeweakness of political institutions.
In order to set up original paths of growth and development, it is essential to understand thatinnovation cannot preclude from citizens’ participation. Hence, democracy cannot be taken as astep which follows growth and the expansion of material resources (Sen 1999b); rather, democ-racy is a precondition, not a result, of growth.
A country does not have to be deemed fit for democracy; rather, it has to become fit through democ-racy. This is indeed a momentous change, extending the potential reach of democracy to cover billionsof people, with their varying histories and cultures and disparate levels of affluence. (Sen 1999b, 4)
The achievement of the full application of democratic principles is in and of itself an objective ofhuman development.
We can distinguish three different ways in which democracy enriches the lives of the citizens. First,political freedom is a part of human freedom in general, and exercising civil and political rights is acrucial part of good lives of individuals as social beings. Political and social participation have intrin-sic value for human life and well-being. To be prevented from participation in the political life of thecommunity is a major deprivation.
Second,… democracy has an important instrumental value in enhancing the hearing that people getin expressing and supporting their claims to political attention (including claims of economic needs).Third the practice of democracy gives citizens an opportunity to learn from one another, and helpssociety to form its values and priorities. Even the idea of ‘needs,’ including the understanding of‘economic needs’, requires public discussion and exchange of information, views and analyses. Inthis sense, democracy has constructive importance, in addition to its intrinsic value for the lives ofthe citizens and its instrumental importance in political decisions. The claims of democracy as a uni-versal value have to take note of this diversity of considerations. (Sen 1999b, p. 8)
Democracy provides an essential starting point for setting up ISs insofar as it strengthens individ-ual freedoms and enables actors to ‘to learn from one another’. Moreover, it also plays a crucialinstrumental role in enabling institutions to adequately address innovation. Innovation generatesrisks and uncertainties which must be regulated by the public operator (see below). Innovationmust be governed, in particular when it comes to the effects that technological choices havethe environment and the social capital of different local contexts. All this requires more partici-pation and greater democratic control: citizens must be encouraged to participate fully in theircommunity and in the discussion of innovation policies (Arocena and Sutz 2000, 2012; Leachand Schones 2006; STEPS 2010).
The issue of democracy and its impact on innovation is linked to a wider point about the effectthat institutions, in general, have on innovation. Recent studies have shown how institutions arethe main factor in determining the differences in a country’s level of prosperity (North 1990,2005; Knack 2003; Cimoli et al. 2009; Acemoglu and Robinson 2010). They, in turn, dependon the distribution of power, de facto and de jure, between different groups in a society whichare in conflict over the distribution of resources (Acemoglu and Robinson 2010).
Hence, the points previously made about equality are strictly connected with the functioningof institutions. An inegalitarian society is despicable in itself, but also because its institutions arelikely to be ‘hostage’ of groups which will use public resources to their advantage, thus perpetu-ating inequality.
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Moreover, an unequal distribution of a country’s resources crystallizes the balances of powerwhich determine the quality of the institutions and their ability to pursue policies that favour inno-vation and growth. The tendency for these balances to self-perpetuate can create a vicious circlewhich, by inhibiting a society’s new forces, depresses the processes of innovation and social andcivic change. As a result, virtuous processes of growth and innovation can only be obtainedthrough the dismantling of elitist institutions and the affirmation of democracy as a universalvalue.
4.5 Innovation social capital and social security
Innovation processes are strongly benefited by networks of trust between economic agents.As pointed out above (see Figure 1 and instrumental freedom in Section 3), capabilitiesare influenced by the social contexts in which agents live and by the level of trust in theirrelationships.
In social interactions, individuals deal with one another on the basis of same presumption of what theyare being offered and what they can expect to get. In this sense, the society operates on some basicpresumption of trust…. When that trust is seriously violated, lives of many people – both directparties and third parties –may be adversely affected by the lack of openness. Transparency guarantees(including the right to disclosure) can thus be an important category of instrumental freedom. Theseguarantees have a clear instrumental role in preventing corruption, financial irresponsibility andunder-hand dealings. (Sen 1999a, 40)
Social capital can be defined in two ways, both of which are relevant to innovation. The firstemphasizes social capital as a cultural phenomenon which denotes the extension of the civicengagement of the members of a society, the existence of social norms which promote collectiveactions and the level of trust in public institutions (Putnam 1993); under this interpretation, socialcapital has the properties of a public good and it is at the basis of the functioning of democracyand of the control of institutions (see above). Under the second interpretation, social capital refersto investments in social networks carried out by individuals (Bourdieu 1986). Social capitalunderstood in this sense is a private good, which allows the individual to benefit in terms ofstatus and ‘symbolic capital’. Under this definition, social capital can have positive economicexternalities since it is able to facilitate collective action.
In both cases, social capital facilitates changes in the economic sphere and in processes ofinnovation. Civic participation allows for a more thorough control and a greater verification ofthe operation of institutions (see above), it improves the definition of formal rules and contributesto a greater accountability on the part of the government. Participatory policy choices and moreclosely controlled institutions make it possible to design innovation strategies that are more effi-cacious and which address citizens’ needs (Streeten 2002). Interpersonal networks based on trustcan facilitate the economic transactions between individuals, reducing the transaction costs andeasing the spread of information. Networks of trust play a crucial role in the spreading of knowl-edge and in fuelling the process of innovation.
We will argue that the production and efficient use of intellectual capital is fundamentally dependingupon social capital. In a successful learning economy rooted in social cohesion and trust, it is easier toengage in interactive and apprenticeship learning resulting in the passing on of elements of tacitknowledge from individual to individual and from generation to generation. This is more difficultin a context without trust and with long distance among professions and in hierarchies. Thus, under-mining trust and social capital undermines the reproduction and use of intellectual capital. A devel-opment strategy that focuses only on production capital and intellectual capital is not sustainable.(Lundvall et al. 2009, 30)
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Finally, it is also worth stressing that trust among people can be undermined by the risk of socialmarginalization and exclusion (Edwards and Glover 2001). As pointed out above, the structuralchange resulting from innovation favours the emergence of new activities and, at the same time,condemns the existing ones to a slow decline. The increase in structural unemployment thatresults can cause a process of selection in the work force and the exclusion of less qualifiedworkers, who find it increasingly difficult to find work in the new sectors in expansion. Theabsence of interventions by the government – through income support, active work policy inter-ventions, professional retraining courses – can cause progressive social marginalization and formsof disintegration of the social fabric (Fukuda-Parr 2003).
Innovation creates and destroys jobs and increases the risk of the marginalization of those whoare not able to participate in the advantages of the change. Therefore, state intervention to protectsocial and individual risks generated by innovation is crucial for stimulating change. If thoseinvolved know they can rely on a system that guarantees a social safety net, they will be morewilling to participate in the change – investing savings, changing work qualification, changingwork site – taking individual risks with less apprehension.
5. Innovation and freedom: the virtuous circles
Our exploration so far has highlighted an interesting, yet not exhaustive, set of interconnectionsbetween CA and IS approach. These links seem to show that there are several common fields andthat the conjunction of the two strands of literature might uncover virtuous circles of interaction.
The interpretation of development in terms of virtuous and vicious circles and cumulative cau-sation has a long history (Myrdal 1957). The idea of virtuous and vicious circles has been repeat-edly applied to the processes of human development and economic growth: in particular thisapproach has been followed in Ranis, Stewart, and Ramirez (2000) and Ranis and Stewart(2006). The UNDP (2001) and, recently, Arocena and Sutz (2012) have outlined these relation-ships and the resulting virtuous and vicious circles between innovation/technology and humandevelopment. In particular, the former study has focused on the use of technologies, while thelatter has concentrated on the relationship between policies for innovation and social policies.
Moreover, the above-mentioned empirical and historical analyses offered by Ranis andStewart show how developing countries which have concentrated their resources on healthcare,education and social policies are more likely to enter in virtuous circles growth-human develop-ment. This positive relation is also confirmed, for developed countries, by the European case.Indeed, in many cases countries with greater innovative performance also have the highestlevels of social spending (see, for instance, Lundvall 2002 for Denmark and Castells andPekka 2002 for Finland).
The above review has thus highlighted connections which, using Figure 2, we can be summar-ized as follows:4
(1) Policies investing in welfare (education, health and social security), aiming to widen thedemocratic participation and to strengthen equity, can increase human capabilities andinstrumental freedom.
(2) The improvement of human capabilities and instrumental freedom can lead to a strongerdemocratic control over policy-makers, to the good functioning of institutions and to astronger awareness to the priorities that most influence human development.
(3) Investing in the improvement of human capabilities (both individual and collective) con-tributes to an increase in learning capabilities which, in turn, are also expanded by thedoing, using and interacting (DUI) component of ISs.
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(4) In this scheme, ISs5 are fuelled by (appropriate) policies of research and innovation (STI),by the strengthening of productive and social networking, and by the knowledge stockcreated by learning processes.
(5) The strengthening of ISs fuels the innovative and technological output and, subsequently,the competitiveness of an economic system and the human capabilities themselves.
(6) The resulting growth of material wealth increases individual means both directly, throughincome, and indirectly, through the resources made available for (adequate) public pol-icies by taxation.
5 Conclusion
This paper aimed to explore whether two lines of economic analysis and practice, which followvery different intellectual and practical paths, can be joined together for mutual benefit. Thereview outlined above shows that the theory of national ISs and the CA have many interestingconnections in the common ground of economic development, which can be summarized inthree general points:
(1) Innovation and technology should be more organically included in the CA paradigm.(2) With regard to the analysis of IS in developing countries, it is essential to focus on the
empowerment of people, democratic checks on institutions and policies (not only forresearch and innovation), and on the formation of social capital.
Figure 2. Connections between human capabilities, growth and innovation.
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(3) Learning processes should be included in a wider picture of the improvement of humancapabilities.
These are only some general points which emerge from a very short review. Undoubtedly, afurther exploration of these distinct yet congruent approaches would uncover yet more ways inwhich they can interact in the extremely fertile theory and practice of development economics.
Notes1. Notice moreover, that this reading is closer to Schumpeter’s use of the term (Schumpeter, 1936).2. A review of the definitions of NIS can be found in Lundvall et al. (2009) and Soete et al. (2010). These
writings also consider other specifications of the approach, concerning regional, sectoral and technologi-cal systems, which is not possible to consider in the space of this paper.
3. See Lundvall et al. (2009) and Arocena and Sutz (2000).4. The diagram only represents some of the links highlighted by the review and it is thus neither exhaustive
nor analytically complete.5. In schematizing systems of innovation, we extracted public institutions, even if some of them are,
indeed, constitutive of innovation systems (as for instance public research laboratories, universities,agencies for innovation, etc.); similarly, we extracted the learning processes, which constitutes theiressence, in order to better highlight the connection between these components and other elements ofthe diagram.
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