Is green growth just a fantasy? Knowledge, innovation and the promise of a better life for all

I don't know about you, Steamnocchio, but I have my doubts about this black growth strategy

Steampunk describes a world of airships plying the aether and mechanical computing based on Babbage’s Difference Engine. Artists show great imagination in describing a world where coal is still king, streets are gas lit, and rock oil has not yet been rebranded as petroleum.

They play with the ideas of lock-in and path dependence, a situation where a technology that may be inferior to alternatives still dominates because switching would create too many problems, or be too expensive, or where an early decision limits the options available later, even if the original conditions are no longer relevant.

A new study from the OECD Fostering Innovation for Green Growth looks at these issues too, but with more of a policy focus than say Steamboy or FreakAngels. It may be hard to see what government bureaucracies with their rules and procedures could do to promote innovation other than shut up and leave the innovators to get on with it. In fact, they can do quite a lot. History has plenty of examples of inventions and other innovations that came about thanks to public money.

Traditionally, the means used was to create a prize. For example, hunger and scurvy were provoking more losses than the enemy during Napoleon’s Russian campaign, so the government launched a competition to find a way of preserving food for the soldiers. In 1809 Nicholas Apart came up with the winning entry – canning.

Today, prizes have given way to R&D funding or other systematic efforts to promote innovation, and thanks to public programmes we have the Internet, World Wide Web, and GPS navigation. But you may have noticed I said “inventions and other innovations”. It’s not just about new technologies. Innovation covers new ways of using existing technologies as well as new processes for production and marketing. For example, miniature storage devices and portable music players both existed before they were combined to create MP3 devices, while online music stores represent a marketing innovation.

The paper argues that while “green” innovation is the same as other kinds of innovation in many respects, government policy is needed to address a number of specific issues where the market alone is unlikely to provide a solution. One of the main issues is that if firms and households do not have to pay for the environmental damage they inflict, there will be little incentive to invest in green innovation. Dominant designs can be a barrier too – the costs of supplying the infrastructure needed to replace today’s automobiles with electric or hydrogen-powered vehicles for instance.

Innovation is also the theme of the OECD Global Forum on the Knowledge Economy taking place today and tomorrow. Among all the proposals for unleashing of entrepreneurship, the title of Session 2 is quite innovatively sobering: “Science and innovation policy on a shoestring”.  (You can see a webcast here.)

As the conference presentation says, fostering innovation and scientific breakthroughs is tough even when governments and companies have money to spend. It will be interesting to see what the participants think can and should be done now that budgets are tight, and how developing countries can benefit.

Let’s hope that future audiences of alternative history and fantasy will be as amused or horrified by a world that stayed on the path we’re on just now as we are by steampunk.

Useful links

OECD work on green growth

OECD work on innovation

Aid for trade: $100 billion well spent

Click to browse Aid for Trade

Today’s post comes from Frans Lammersen of the OECD Development Co-operation Directorate

Evidence from a numerous countries, including Korea, Brazil and China, shows that openness to trade is a key ingredient for economic success and improved living standards. By connecting local producers to domestic, regional and global markets, trade helps to fight poverty and enhance the productive capacity of the whole economy. It facilitates the availability of technology, know-how and other services. It helps to make goods cheaper and more widely available. It also weakens the grip of local monopolies. 

But simply opening the economy to international trade is not enough. A trade strategy requires investment in human capital (education, health and nutrition) and rural infrastructure, provision of access to credit, and safety nets and policies to promote economic and political stability. Aid for Trade plays a key role by helping countries strengthen their productive and institutional capacity.

What does this mean in practical terms?

Some African countries, for example, have lower production costs at the factory gate than China, yet they have a very low share of value exports such as clothing. Why? Because in the fashion business, if the clothes are late getting to the shops they don’t sell. Reliable shipments are just as important as low costs.

Better transport infrastructures would help African suppliers expand their sales, as would less complicated administrative procedures. In East Africa, an aid-for-trade programme has helped cut transit times at the border from three days to three hours. The same impressive results were achieved in Central America.

On another front, international trade is governed by a complex set of rules. Countries and firms need considerable knowledge to defend their interests in international negotiations and business deals. Aid-for-trade guidance is helping countries to identify these interests, and to negotiate trade agreements and implement them. 

Aid-for-trade initiatives are also helping to improve local food standards. For developing countries hoping to export, non-tariff barriers – such as the OECD countries’ food safety standards – can be more of an obstacle than import duties and developing country food exporters often find it difficult to conform. Options such as setting up accredited laboratories and training food safety inspectors help local producers sell their products in OECD supermarkets.

Knowledge about distant markets and consumers is often scant among small- and medium-size enterprises in developing countries. By collecting and disseminating this kind of marketing information, aid-for-trade efforts are allowing local producers to become part of global value chains. 

An aid-for-trade focus also allowed a resource-poor small island like Cape Verde make significant social and economic progress, enabling it to become more competitive and graduate from its status as a least developed country.

The OECD and the WTO periodically put a spotlight on aid for trade to examine the results of the almost $100 billion that has been spent between 2006 and 2009. The joint OECD-WTO publication Aid for Trade at a Glance 2011 shows that their Aid for Trade Initiative has achieved considerable progress in a short time.

The publication points to a number of  factors that are critical to delivering the longer-term trade and development objectives: ownership at the highest political level; active engagement of the private sector and civil society; long-term donor commitment;  adequate and reliable funding; leveraging partnerships, including with providers of South–South co-operation; combining public and private investment with technical assistance; supportive macroeconomic and structural adjustment policies; and good governance.

 This is merely the start of a learning process. The OECD publication Strengthening Accountability in Aid for Trade outlines good practice in using aid to achieve trade and development results.  But the challenges of delivering aid for trade effectively are not unique.  Many more follow-up activities are needed to enhance our understanding of aid-for-trade results and their wider applicability. Knowledge-sharing should also look at how to clearly demonstrate that aid for trade is a worthwhile investment that can improve trade performance, generate economic growth and reduce poverty.

Aid for trade is part and parcel of the broader development effectiveness agenda that will be discussed at the Fourth High Level Forum on Aid Effectiveness in Busan, South Korea (29 November to 1 December 2011). Aid for trade offers an example of what can be achieved by applying the Paris Principles on Aid Effectiveness, but also of what remains to be done.

Useful links

OECD work on trade

OECD Insights: International Trade