Capital, Labour and Innovation: these three and the greatest of these is

Innovation

Michael Kahn

Panel discussion on Industrial and Innovation Policy

At TIPS, 30-31 October 2008

SA’s economic miracle – has the emperor lost his clothes?

Why does Innovation Matter?

1. The significant ‘other’ in the production function – changes in productivity of capital and labour insufficient explanation

2. Innovation is the key driver of economic growth (and hopefully of well-being)

3. Where do innovation activities occur? How to promote these? Links with industrial policy?

‘Knowledge’ (Innovation?) and GDP

Source: KDI and K4D

Juntas and Innovation

…. there was no shipbuilding industry in South Korea until the 1960s. When the country’s dictator, Park Chung-hee, summoned Chong (of Hyundai) and told him to produce oil tankers, for which there was a sudden demand, Chong went straight to Greece and scooped up two contracts to build 260,000-tonne tankers, promising his customers delivery within two years, sooner than anyone else. He had neglected to mention that at that moment he lacked even a shipyard. He then waved the order in front of Barclays Bank, which lent him enough money to build a modern yard. No one in South Korea knew how to do that, so Chong dispatched 60 engineers to Scotland to learn. The ships were delivered before the deadline.

Economist, 25 September 2008

What counts as Innovation?

1. Introduction into a market of a new or significantly improved good or service; or the implementation of a new or significantly improved production process, distribution method, or support activity for those (OECD/Eurostat)

2. Financial innovation; public sector innovation; social innovation?

3. Globally appropriate? Path dependence?

?????? !

!!

INNOVATION

DEVELOPMENT

RESEARCH

Washington consensus, ‘BeST’ and innovation systems

1. Private sector role minimal

2. State financing and direction

3. Latecomer effects

4. Deep capacity building creates ability to produce goods for markets over sustained period

5. Export orientation

6. All the other good things: openness; regulation

7. The private sector as driver of innovation…

Innovation systems

UNIVERSITIES

BUSINESS + R&D NGOs

GOVERNMENT RESEARCH INSTITUTES

UTILIIES

Laws & regulations

Standard

s

Cultura

l-polit

ical

Financial system

Associations

External environment

SKILLS

Triple helix: BUS; HE; gov

FDI

What is Innovation Policy?

1. A coordinated set of policies across government that harmonize framework conditions toward innovation activity

2. The 4 Ks:– Knowledge workers– Knowledge infrastructure– Knowledge transfer– Knowledge measurement

SA approach to Industrial Policy

1. Grow and diversify manufacturing exports and ‘tradable’ services

2. Intensification of industrialization toward a Knowledge Economy

3. Labour absorbing industrialization4. Inclusion of previously marginalized;

African expansion

Services contribute 70% of GDP

Not sharply focused

1. Capital/Transport equipment and metals2. Automotives and components3. Chemicals, plastics fabrication and

pharmaceuticals4. Forestry, pulp and paper and furniture

(NIPF: 3.2)

Inadequate state support for investment,

upgrading , innovation and technology (NIPF: 1.4)

GDP

1% !!!

GERD/GDP

Check the clothes

NEGATIVE/ZERO LOW MEDIUM

 Socio-Economic Objective

Business

R 000 %Division 1: Defence 777,139 8.4Defence 777,139 8.4Division 2: Economic development 7,233,003 78.3Economic development unclassified 0 0.0Plant production and plant primary products 279,937 3.0Animal production and animal primary products 67,619 0.7Mineral resources (excluding energy) 779,765 8.4Energy resources 470,735 5.1Energy supply 239,018 2.6Manufacturing 1,846,199 20.0Construction 756,166 8.2Transport 446,162 4.8Information and communication services 895,714 9.7Commercial services 1,329,972 14.4Economic framework 16,243 0.2Natural resources 105,475 1.1Division 3: Society 839,908 9.1Society unclassified 0 0.0Health 799,201 8.6Education and training 12,913 0.1Social development and community services 27,794 0.3Division 4: Environment 113,821 1.2Environment unclassified 0 0.0Environmental knowledge 39,233 0.4Environmental aspects of development 28,327 0.3Environmental and other aspects 46,261 0.5Division 5: Advancement of knowledge 279,295 3.0Advancement of knowledge unclassified 0 0.0Natural sciences, technologies and engineering 275,446 3.0Social sciences and humanities 3,848 0.0Total 9,243,165 100.0

PBMR

Is the gorilla in the room

IL SG, AU

PT, GR, SLRU, PL, AG

MX, CL, ZA

CN, TK, BR, RO

An innovation system is as strong as its weakest link

♥ 4th: patents “Chemistry: Fischer-Tropsch Processes”♥ 12th: patents “Specialized Metallurgical Processes”♥ 17th: patents “ Liquid Purification or Separation compositions”♥ 18th: patents “Conveyors: Power Driven”♥ 20th: patents Chemistry of Inorganic Compounds”♥ 5th: Plant Breeder’s Rights♥ 6th: Number of scientific publications/GDP/Capita♥ 6 Universities generate scientific citations in top 1% by vol: clinical medicine, biology and biochemistry, chemistry, engineering, environment/ecology, geosciences, materials science, plant & animal science, and social science

SA’s Ten Year Plan for Innovation

1. Five ‘grand challenges’: biotech and nanotech; space S&T; energy (hydrogen; fuel cells); climate change; human & social dynamics

2. Human Capital Development3. Knowledge infrastructure

Not so much a Plan as a re-working of the R&D Strategy of 2002

Clothed in techno-nationalism

DTI …..Concentrate on the “D”Support product and process innovationExploit IP generated by Science Councils

DST …. Science for scientistsComplex R&D tax incentive; excludes service sectorHostile IP lawFDI, but ‘no foreign clinical trials’Inadequate HR policy

“…the government should invest in areas of the highest socioeconomic return, i.e. Grand Challenges.”