A three-day roundtable on Innovation for Balanced and Sustainable Growth was held at the Asian Development Bank Institute from 24 to 26 November 2010. This event involved the participation of policy makers from science and technology, and economic planning ministries from developing Asia. It was organized in partnership with the Organisation for Economic Cooperation and Development, which today sees itself as a knowledge pool and hub for global policy dialogue and analysis.
Innovation is a high priority subject for the OECD, and covers measurement, analysis and good policy practices, international cooperation, and country-specific studies and policy advice. OECD Ministers, at their meeting in May 2010, endorsed an "OECD Innovation Strategy", which provides a broad, cross-cutting framework for development of innovation policies. This is a very useful complement to the ADBI's research and capacity building and training activities to promote long-term growth and competitiveness in developing economies in the Asia-Pacific region.
The topic of the opening session was innovation today. Innovation is of course a fundamental economic investment and driver of economic growth and development. But it is also key to addressing many global issues, like food security, clean water, healthcare and the projected rise in CO2 emissions. Patenting activity is on the rise for eco-innovation. Innovation today is much more than R&D and extends to business models, organizational changes and other intangibles.
Innovation is not just confined to the manufacturing sector or large firms. Service sectors are becoming more innovative, as are smaller, new firms. Innovation can involve incremental changes or major break-through. Today, the process is more open and networked than ever before, and increasingly involves cooperation across borders. Innovation is also becoming very multidisciplinary, with the arts and creative industries making growing contributions. The Internet enables much greater participation in innovation. User-based innovation is a new trend. And emerging economies themselves are becoming important players in the innovation arena, although knowledge and technology still remain unevenly distributed globally.
The second session delved more deeply into issues concerning innovation for balanced and sustainable growth. Innovation can contribute to recovering from the global economic crisis, and rebalancing the economy. It can enable sustainable growth based on productivity growth, and help diffuse growth and its benefits more widely. The innovation agenda of both high and middle income countries is converging. An ever growing number of developed and emerging economies are adopting more articulated and ambitious innovation strategies. Economic development in countries as diverse as China, Chile, Korea or South Africa reflects a new understanding of the role of and interplay between the creation and diffusion of technology.
The OECD Innovation Strategy emphasizes four elements: human resources are at the core of innovation; the business environment is key – barriers to entrepreneurship remain a challenge in many Asian countries; both knowledge creation and diffusion are equally important – again, Asia still lags in highly cited research; and the overall governance of science, technology and innovation which is in need of improvement. In light of the global financial crisis, the role of financial innovation in economic growth has been questioned by some observers. It is clear that the institutional and regulatory frameworks for monetary and financial stability need to be strengthened and implemented more robustly.
Making innovation work for development was the focus of the third session. As Paul Krugman once said, productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. But low-income countries in Asia face challenges for making innovation the source of economic development, such as lagging framework conditions and low investment in human and social capital.
In developing countries like Thailand, industrial clusters can play an important role by facilitating more interaction and knowledge sharing among members with the assistance of government, industry associations, and community-networking organizations. The Indian state of Madhya Pradesh is employing innovative methods to promote private investment in infrastructure and connect its people. In Mongolia, the high technology sector is being supported as a pathway to transform the economy from its dependence on agriculture and mining into a knowledge-economy. And while Cambodia does not have an explicit science and technology strategy, many activities are being undertaken, like policy reviews, and development of technology frameworks.
Session four examined the issue of seizing the benefits of the global value chain at the local level. The development of production networks and supply chains has resulted in the "fragmentation" of international trade, especially in East Asia, with trade in parts and components assuming a growing share. This trend was led by Japanese enterprises as they relocated much of their lower value added manufacturing activities in neighboring Asian countries, after the rise in the value of the yen following the 1985 Plaza Accord. In particular, their strategy was to keep the most profitable part of the value chain at home, and move out the least profitable part.
As a result, China is the largest net importer of parts and intermediate products, as well as being the largest exporter of finished IT products, highlighting a new reality of integrated global value chains created by multinational enterprises. In clothes and apparel, production has been moved entirely to China, Bangladesh and Cambodia, although design and planning have remained in Japan. This phenomenon has certainly had a positive effect on Asian economic development. The next step in the development process is to move up the value chain, and capture more value added, by improving framework conditions, skills, attracting foreign direct investment, and undertaking efficient and effective export promotion.
The theme of the last two sessions was green growth, innovation and technological transfer, with session five dealing with business perspectives, while session six addressed policy perspectives.
Business is key to innovation. The usual vision of innovation is disruptive innovation like major scientific breakthroughs (such as electricity or nuclear fusion) and major technological breakthroughs (for example, the combustion engine or hybrid plug-in cars). But the daily driver of innovation is continuous improvement in things like car engine or power plant efficiency, and the power of windmills, or decreasing the power needs for appliances and the costs of solar panel costs. Business is good at technological innovation, and also innovation in business and socio-economic models.
The business sector has certain expectations of government in the innovation area – stable regulations, reasonable incentives which are aligned with policy goals and infrastructure development. Policy goals and incentives will accelerate green growth. The Beijing office of Business Social Responsibility is working with its member countries to develop sustainable business strategies and solutions, and to conduct research to anticipate emerging trends and develop innovative strategies. But the process of business innovative can be very lengthy, risk and costly, as evidenced by the pharmaceutical industry. New drug development takes an average of 10-15 years, and costs approximately US$1.3 billion.
All the investment in long-term research and innovation that will be needed to develop breakthrough technologies and continuous improvements, will not be undertaken by the business sector alone. The public sector and public policy also have an important role. The OECD has also developed a strategy for green growth, which is a way to pursue economic growth and development, while preventing environmental degradation, biodiversity loss and unsustainable natural resource use. The key elements are: removing barriers to green growth, promoting a trajectory shift, supporting the transition, strengthening international cooperation, and measuring progress. Innovation is a key driver of green economies, and clear policy signals can help incentivize eco-innovation.
What is the optimal policy mix for green innovation? There is no silver bullet, and a range of policies is needed – market-based approaches complemented by regulations and standards, R&D investment and labeling. Stable long-term signals are very important for investment, and there is a need for both demand and supply-side policies. In June 2010, the European Union launched a flagship initiative of an "Innovation Union". In this context, green growth and innovation policies will aim at a new generation of green technologies, but also healthy growth. The European Union has set up a Research Framework Program which is open to all countries globally. One example of a projects is the coordinated Asia-Europe long term observing system of Qinghai Tibet plateau's hydro-meteorological processes and the Asian-monsoon system with ground satellite image data and numerical simulations.
In conclusion, participants appreciated this inaugural roundtable on innovation issues, and agreed that the policy dialogue should be deepened on future occasions, particularly by exploring in greater detail both good and bad practices emerging from specific case studies.