15 days ago

Rationalising optimum innovation ecosystem

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For driving economic growth out of innovation, there has been a race in less developed countries to develop the innovation ecosystem lately. Notable building blocks of the national innovation ecosystem are (i) research universities, (ii) R&D centres, (iii) a rich pool of researchers and research students, (iv) R&D grants and granting institutions, (v) incubators, (vi) venture capital funds, and (vii) technology or high-tech parks. The argument has been that once all those building blocks are in place, new knowledge flow will lead to ideas of product and process innovation. The incubation of those ideas will lead to forming startups, consequently scaling them up into high-tech firms. For justification, all those high-tech clusters in the USA, Taiwan, and many other countries are referred to. Besides, many of the 80 indicators of the global innovation index are also linked with the innovation ecosystem.  However, how far should the national innovation ecosystem be developed to bloom ideas into large-scale firms, creating wealth from idea flow? Hence, rationalising the optimum innovation ecosystem has been an issue.

Justifying the value of a national innovation ecosystem requires minimal reasoning. A natural argument has been that plants will grow if the ecosystem is appropriate. It is also not impossible to develop all those building blocks. To get insights, let's dissect a few innovation ecosystems. 

One notable high-tech innovation success story has been the Silicon Valley of the USA. Of course, the valley has a rich combination of all those building blocks. However, was the valley's ecosystem as prosperous as it is today to start forming all those notable high-tech firms? Besides, upon having such a rich ecosystem, which seems to be non-replicable, why has the valley lost its silicon edge to a much inferior ecosystem of Taiwan? Besides, why has Dutch ASML become the only provider offering silicon processing critical machines from a relatively unknown place in the world?

Let's look into lessons from less developed countries. After independence, in an effort to create an innovation ecosystem, India started setting up a network of national laboratories--Council of Scientific and Industrial Research (CSIR). Recently, it started 37 laboratories and institutes, 39 outreach centres, and 3 innovation centres. Its operating budget appears to be $1 billion to fund the work of a collective staff of over 14,000, including 4,600 scientists and 8,000 technical and support personnel. In patent filing, the record does not look bad either. Since its inception, CSIR acquired more than 14000 patents worldwide. Besides, India has a rich network of IITs. However, its implications on creating an innovation economy in India do not appear to be noticeable. In following the footsteps of India, a few other less-developed countries also pursued developing national laboratories. Unfortunately, their success seems to be far less than that of India. Despite this reality, there has been a new race of incentives for increasing science and engineering graduates and publications. Unfortunately, as many as 80 per cent of engineering graduates in many less developed countries fail to get engineering jobs. 

Despite the necessity of a national innovation ecosystem, it does not take much argument that aspiring less developed countries cannot develop the national innovation ecosystem as rich as their role models. Besides, innovators of less developed countries must outperform their affluent counterparts to create an innovation economy. How can they do so with a poorer innovation ecosystem? Does it mean that if the result of winning in the innovation race depends on the relative richness of the national innovation ecosystem, less developed countries will never be able to drive economic growth out of innovation? If that is true, what is the point of suggesting less developed countries to investment in building an innovation ecosystem?

How have South Korea and Taiwan succeeded in developing an innovation economy? Did they do so by outperforming advanced countries in building their innovation ecosystems? In the 1960s, neither South Korea nor Taiwan had a noticeable innovation ecosystem. Even today, in pertinent indicators, the innovation ecosystem of both South Korea and Taiwan is far poorer than that of the USA and many European countries. Despite this, why have these two economies succeeded to outperform the USA and Europe in certain areas of innovation?

Furthermore, even in the 1890s, America's innovation ecosystem did not have all those often-cited building blocks and R&D culture. Instead of focusing on building an innovation ecosystem, their starting point was pursuing inventions and refinements through a flow of ideas. In order to improve the quality and reduce the cost with the cumulative effect of the flow of ideas, they needed systematic R&D. Subsequently, they felt the necessity of all other building blocks. Hence, it's not unfair to say that they pursued innovations instead of building the innovation ecosystem and waiting for innovations to bloom. Along the way, they developed needed ecosystem building blocks for continued refinement and reinvention. For example, before 1899, there were no corporate R&D jobs in the USA, let alone critical building blocks like research universities and R&D laboratories. It all started with the urgency of improving the life of Edison's light bulb. Although, through tinkering and craftsmanship, Edison demonstrated the light bulb, he could not make it function for more than 3 hours. Hence, he recruited science graduates to investigate the underlying causes and develop technologies to address them systematically. Fortunately, Edison's R&D endeavour succeeded in increasing the filament's working life, leading to the profitable diffusion of the light bulb. This demonstration inspired corporate America to invest in R&D, creating the demand for researchers and research institutions. Subsequently, World War I and II surfaced the importance of technological advancement. Consequently, American government started developing the ecosystem building blocks to meet the demand for leveraging technology possibilities. 

Ironically, despite the recent surge of startups, seed funding, and innovation grants, less developed countries have had no visible innovation success stories. Hence, there is an argument that the underlying cause is the lack of an innovation ecosystem. However, despite the greatness, no idea succeeds at the beginning. Often, they begin the journey at a loss. They need a flow of ideas. Surprisingly, instead of leveraging whatever the R&D capacities these countries have to create that flow, risk capital has flowed as a subsidy to scale up the loss-making beginning. On hindsight, unless the knowledge to manage the growth of ideas to create economic value is acquired, no amount of innovation ecosystem is enough to build an innovation-led economic growth path.

Upon learning all these lessons, what could be the pathway for less developed countries to build an optimum ecosystem to leverage innovation for economic growth? It's fair to say that instead of racing to create an innovation ecosystem with the belief that it will flower innovations, the strategy should be to demonstrate a pathway of creating economic values through a systematic flow of ideas. Besides, instead of believing in great ideas and offering subsidies to scale up loss-making beginning, the focus should be on creating a scale effect through the cumulative effect of a flow of ideas. Such a systematic idea flow creation will demand R&D and other building blocks of the ecosystem. Hence, instead of being supply-led, the focus should be on creating the demand for an innovation ecosystem. Once the profitable pathway out of innovation through a flow of ideas is shown, the ecosystem will grow as per the need to maximise the return on investment. 

M. Rokonuzzaman, Ph.D is academic and researcher on technology, society and policy.
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