Today’s post is by Gerardo Corrochano, Director of the Innovation and Entrepreneurship Global Practice, and Director for Financial and Private Sector Development (FPD) for the Europe and Central Asia (ECA) Region of the World Bank. It is co-published by the World Bank.
We are surrounded by innovations – the outcome of innovative activities. Some affect us more than others. Some are more visible than others. In reading this blog post on a computer or a portable device, you can see how this innovation has made your personal and professional life more productive (although not necessarily easier).
You might not have heard, however, about other kinds of innovations – like the eco-friendly and affordable cooking stoves that reduce exposure to toxic gases for people in Mongolia, substantially increasing their health and lowering costs. All kinds of innovations improve people’s lives from Ulaanbaatar to Washington, increasing social well-being and driving economic growth.
Governments can support innovation through the effective use of public policy. Innovation has steadily climbed its way to the top of policymakers’ agendas in recent years, in developed and developing countries alike. This is illustrated by the importance given to innovation in such strategies as the European Commission’s “Europe 2020” growth strategy, China’s 12th Five-Year Plan (2011 -2015), or Colombia’s National Development Plan (2010-2014). Yet despite the growing consensus around innovation as a driver of sustainable growth, governments face considerable difficulties in identifying, designing and implementing the best-suited policy instruments and approaches to support innovation.
Defining good policies is a walk on a tightrope. Much like the barriers that constrain innovators inside an economy, policymakers face high costs of retaining and retrieving valuable information and best practices to help define their policies. To address this issue, the World Bank – in collaboration with the Organisation for Economic Cooperation and Development (OECD) – has developed a new tool destined to enhance the capacity of policy practitioners around the world to support innovation through better policies.
The Innovation Policy Platform (IPP) is a one-of-a-kind web-based interactive space that provides easy access to open data, learning resources and opportunities for collective learning on the design, implementation, monitoring and evaluation of locally appropriate innovation policies. The IPP contains a wealth of practical information on a wide array of innovation-related topics, such as financing innovation, technology transfer and commercialization, and innovative entrepreneurship. The IPP is intended to enable North-South and South-South policy learning and dialogue through a wide array of case studies, policy briefs and collaborative working tools. The IPP aims to create a dynamic community of practice. It is now available to the public and can be accessed at www.innovationpolicyplatform.org.
Moreover, the World Bank is piloting new approaches to innovation policy that directly target the poorest of the poor. In Vietnam, we have launched an inclusive innovation project, which will provide pro-poor technologies in traditional herbal medicine, information and communication technology, and agriculture and aquaculture.
As these examples show, the World Bank is interested in innovation in a broad sense, aiming to advance our twin goals of eliminating extreme poverty and building shared prosperity. Our support to client countries ranges across policy for innovation systems, technology transfer and diffusion, financing and linkages, and inclusive innovation. Looking ahead at the next decade, the Bank’s engagement in the field of innovation will continue to respond to the ever-increasing needs of our client countries. We are now seeing just the early stages of the trend toward building stronger innovation-driven economies, and this trend is sure to gain momentum. The IPP will be a vital asset in helping reduce information costs, facilitating the spread of practical expertise to help policymakers draft smart innovation policies.
Finding new sources of growth right now is tough. And in a time of rising inequality, to do so equitably and fairly is even tougher. Innovation – which fosters competitiveness, productivity, and job creation – can help, but with budgets stretched to the limit how can governments boost innovation in their economies?
Tax incentives for business R&D is a good place to start. As of 2011, 27 of the OECD’s 34 members provided tax incentives to support business R&D – more than double the number in 1995. By 2011, over a third of all public support for business R&D in OECD countries came through tax incentives – a share that jumps to more than half when the US – with its large direct procurement of defence R&D – is excluded. Other economies – including Brazil, China, India, Singapore and South Africa – have also instituted new tax provisions to stimulate investment in R&D.
As they have proliferated, R&D tax incentives have become more generous. Over the period 2006-2011, about half of the 23 countries for which complete data are available increased their generosity, with R&D tax support rising by almost 25% in some countries. This probably underestimates the shift towards greater generosity because the economic crisis caused a decline in both profits (and hence taxes) and R&D. This growing popularity of R&D tax incentives as a policy instrument is due to a variety of reasons including being exempt from EU and WTO “state aid” rules, and the fact that tax expenditures tend to be “off budget, ” meaning they escape the scrutiny that applies to direct expenditures.
A new OECD report shows that in a relatively short period of time, R&D tax incentives have become among the most widely used policy instruments to promote innovation. Some have asked “is this too much of a good thing?” and in this era of tight public budgets “are governments (and citizens) getting value for money?” The answer depends on the exact design of the R&D tax incentive.
Most firms engaging in R&D are multinationals that can use cross-border tax planning strategies that result in tax relief that may exceed what was originally intended. This in turn may cause an unlevel playing field vis-à-vis purely domestic firms that do not benefit from these same tax planning strategies. This may also disadvantage young firms that have been the disproportionate source of net job growth and tend to be the origin of radical new innovations that spur growth.
Evidence from 15 OECD countries over 2001-11 suggests that young businesses, many of which are among the most innovative, play a crucial role in employment creation regardless of their size. Over this period, young firms (less than or equal to five years of age) accounted for almost 20% of total (non-financial) business sector employment but generated about 50% of all new jobs created. And, during the economic crisis the majority of jobs destroyed generally reflected the downsizing of large mature businesses, while most job creation was due to young enterprises.
Some will argue that R&D tax incentives are preferable to direct support policies so as to avoid picking winners. But this isn’t an either/or situation. A mix of incentives could be the smartest path forward. Recent OECD analysis shows that well-designed direct support measures – contracts, grants and awards for mission-oriented R&D – may be more effective in stimulating R&D than previously thought, particularly for young firms that lack upfront funds. Direct support that is non-automatic and based on competitive, objective and transparent criteria can stimulate innovation.
It’s the policy package that matters. Tax incentives should be designed to better meet the needs of domestic companies and young, innovative companies that do not benefit from cross-border tax planning opportunities. There should be a balance between indirect support for business R&D (tax incentives) and direct support measures to foster innovation. And governments should ensure that R&D tax incentive policies provide value for money.
Do this and growth might be a bit less elusive than we think.
Andrew Wyckoff talks about innovation, growth and jobs:
Today we publish the first of two articles by Edmund Phelps, 2006 Nobel Laureate in Economics, Director of the Center on Capitalism and Society at Columbia University, and Dean of the New Huadu Business School at Minjiang University. Professor Phelps’ new book, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change, is published this month by Princeton University Press.
The epic story of the West is the development in the 19th century of a mass prosperity the world had never seen and its near-disappearance in one nation after another in the 20th. Mass Flourishing is a history linking this story to the rise and fall of homegrown innovation. It is also a text on the nature and sources of prosperity. It has two components. The material part is growth of productivity and wages. The non-material part is flourishing – successful exercise of creativity and talents. To flourish people have to engage a world of challenges and opportunities. The economy’s dynamism and the resulting experience of business life are central to our wellbeing.
Mass prosperity came with the mass innovation that sprung up in 1815 in Britain, soon after in America and later in Germany and France. It brought sustained growth to these nations – also to nations with entrepreneurs willing and able to copy the innovations. It also brought flourishing to large and increasing numbers of people – mass flourishing. There were experiential benefits: routine work, dull and lonely, gave way to careers that took twists and turns and jobs that were rewarding. There were also developmental benefits: As people used their imagination to create new things and their ingenuity to meet challenges, they found self-expression, self-realization and personal growth in the process.
What brought mass innovation to a nation was not scientific advances, its own or others’, but economic dynamism: the desire and the space to innovate. The nation had to cultivate the right drives, build the needed institutions and not throw up barriers. High dynamism brought a high rate of innovation under decent market conditions, and, barring a string of bad luck, the ideas it conceived and tried out. America enjoyed the richest flow of innovations in part because working people in all kinds of jobs were conceiving and pursuing new ideas – grassroots dynamism. From the 1830s to the early 1960s Americans were in a frenzy of creating, tinkering, exploring and testing – gripped by a “rage for the new” in Lincoln’s phrase.
The impetus for high dynamism, my book argues, was the modern values arising in Jacques Barzun’s Modern Era – roughly from 1490 to 1940 – particularly the values we associate with individualism and vitalism. They include thinking for oneself, working for oneself, competing with others, overcoming obstacles, experimenting and making a mark. The courage to express one’s self by creating or exploring the unknown and the gumption to stand apart from community, family and friends are also modern values. Many of them have known authors: Pico, Luther, Montaigne, Voltaire, Hegel, Kierkegaard, Nietzsche and Bergson. Hegel speaks of “acting on the world” and Bergson of “becoming.”
The thesis is that these values stirred a desire to flourish; they shaped a modern conception of the life to aim for – the good life. A prevalence of these values in a nation tends to generate an economy that offers work gratifying those desires – an economy that delivers flourishing.
The thesis can be tested. A measure of a nation’s flourishing is the reported job satisfaction in household surveys. Interviewee responses to questions about what they look for in a job suggest a measure of the prevalence of modern values. If the thesis is right, we should expect that a people embracing modern values will forge careers and seek jobs that are interesting, involve initiative, offer change and present challenges such as competition. The book reports the finding that nations scoring high in these modern attitudes do tend to score high in job satisfaction. They build economies with the dynamism to deliver the jobs that satisfy them.
This finding suggests that people get the institutions that enable the careers and jobs they want, to a degree, at any rate, and getting them may take a long time. Institutions and government have a role, even if they explain little when attitudes are taken into account. Modern values, if strong, ensure there will be a popular demand for the individual rights that make it possible to innovate and to earn a living in innovative ventures. It might be thought that modern values are not a necessary condition for high dynamism. It is true that some of Britain’s freedoms pre-date the Modern Era, for example, the rights proclaimed in the Magna Carta of 1215. But that document was more a symbol than a binding constraint on the ruler until the late 1600s, when it came into play as a foundational document on rights.
In the high noon of the Modern Era, some nations where values were prevailingly modern went from mercantile economies to modern economies – the first economies of dynamism. They helped large and growing numbers pursue the good life.
Edmund Phelps interviewed by CNBC
Today’s post is by Moy Eng, Senior Advisor and former Executive Director at the Community School of Music and Arts
Art for Art’s Sake? The Impact of Arts Education is a gift. Whether one is an artist, educator, policy maker, or philanthropic organization, it offers a comprehensive, cogent review of research studies, and identifies both evidence and gaps in our knowledge. It examines the question of whether arts education helps to develop attributes for the workforce in innovation-directed economies, and lays out the next steps for potential research. Perhaps most importantly, the authors remind us that the primary justification of arts education should be in the intrinsic value of the arts and the important habits of mind that they promote.
This study tempers what is at times a highly charged topic. When the question of public subsidy for arts education and its impact arises, assertions about the arts’ role in developing creative, innovative, and more empathetic schoolchildren emerge. Not unlike a heightened interest in the role of arts in economic and community development in the 1980’s and early 1990’s in New York City. Arts advocates would assert its powerful impact on economic development and cite studies regarding its leverage ratios, for every dollar spent on a ticket to an arts event attracted three other dollars. As the issue became more popular and more studies were commissioned, the “artistic dividend” appeared to notably increase and one began to question the genuine leveraging potential and methodology of the economic studies.
The authors of the OECD study look methodically for evidence, and at best a causal relationship, that illustrates the impacts of arts education for schoolchildren. A second prong of the authors’ scrutiny is the question of what, if any, benefits formal arts learning brings to other domains such as mathematics, language, the sciences and social studies. As befits these three respected researchers, especially Ellen Winner – whose work at Harvard University’s Project Zero I’m familiar with -, their collective eye is rigorous and measured in its assessment, laying out the facts and identifying studies which have or have not demonstrated plausible evidence on the question(s) researched. For example:
“Music education strengthens IQ (intelligence quotient), academic performance, word decoding and phonological skills and there is preliminary evidence that music education might facilitate foreign language learning. While there are a number of studies showing a positive impact of music education on visual- spatial reasoning, the sole longitudinal study on this question detected no persistent influence after three years of music, which suggests the need for caution. There is also no evidence that music education has any causal impact on mathematics scores, even though mathematicians may be attracted to music.” Pg 18
As illustrated above, the reader will discover, as I did, that there is strong evidence that arts education has a positive impact on the development of certain selected skills. Yet, there is far too little research on the impact of arts education on outcomes affecting creativity, problem solving, and behavioral and social attributes, such as persistence and motivation.
A second notable aspect is the breadth of the review. I admire the fact that the research team assessed more than 200 studies covering a sixty-year period (1950-2013). They also incorporated the engagement of and feedback from selected OECD staff members and the Center for Educational Research and Innovation (CERI) governing board, as well as attendees at the OECD-France workshop, “Innovation for Education: the Role of Arts and STEM Education”, held in Paris in 2011.
The authors’ research recommendations are a clear call to strengthen our foundational knowledge of the habits of mind that each discipline may engender and their impact on learning outcomes, research on those habits of mind that may transfer to other subjects, and the methodological frameworks through which future research is conducted.
For this long-time “soloist in the choir” on the importance of arts education, I think that Art for Art’s Sake? The Impact of Arts Education is an exceptional new resource. For my policymaker and philanthropic colleagues, I strongly suggest that you read and take note. There appears to be an opportunity for us to collaborate and invest in long overdue and seminal research studies in arts education.
Report co-author Stéphan Vincent-Lancrin talks about Art for Art’s Sake? in French to Anne-Lise Prigent
Report co-author Stéphan Vincent-Lancrin talks about Art for Art’s Sake? in English to Patrick Love
Arts education in innovation-driven societies by report co-authors Stéphan Vincent-Lancrin and Ellen Winner on the educationtoday blog
By some estimates, poverty has been reduced in recent years from 1.3 billion people in 2005 to fewer than 900 million in 2010. That’s about half a billion people in just five years – a truly impressive achievement. The talk is now of aiming for poverty eradication in the global development framework that will replace the Millennium Development Goals when they ‘expire’ in 2015. This, however, is likely to be a tricky challenge for at least two reasons. First, China and India can take credit for most of the recent reduction of poverty. As they largely achieved this without help from the international development community, it raises the question whether an international focus on direct poverty reduction will generate the greatest benefits. Creating an enabling environment centred on equitable investment, peace and security and sustainable development may be more productive – and contentious.
Second, estimates from experts like Andy Sumner and Homi Kharas suggest that a significant number of the remaining poor live and will live in fragile environments. This is problematic for effective poverty reduction because their governments have not necessarily demonstrated great commitment to this objective, while international aid to such countries is often not fit for purpose (consider the 2011 survey on monitoring the Paris Declaration on Aid Effectiveness, the 2011 monitoring report of the Fragile States Principles or the New Deal for Engagement).
Hence, a global, political push for poverty eradication through the post-2015 framework is likely to benefit from parallel bottom-up social innovation and mobilization. Modern technology can be a real game changer in this regard and two initiatives currently on-going in India and East-Africa have great potential.
India is setting up a biometrical system that will enable direct cash transfers to the country’s poorest. In one fell swoop this will eliminate layers of overhead and corruption by ensuring benefits reach intended recipients directly through a fairly foolproof system. Costs have been kept low by combining an open policy in selecting devices and software, and stimulating competition between private vendors.
Another example of modern technology at work is M-Pesa (mobile money in Swahili), the world’s most developed mobile-phone based money transfer and payment system. It uses national ID cards or passports as its basis to easily deposit, withdraw, and transfer money. It’s widely in used in Kenya and Tanzania in particular.
Now imagine linking a person’s identity – as established and stored in a biometrical database – with an internet-enabled, mobile-phone based platform that hosts (financial) services and information at global scale. Such a system would allow both accurate transfers at the level of individuals, including peer-to-peer, and authentication of beneficiaries. With internet-enabled mobile phone penetration rates rising fast everywhere, even remote corners of the world are reachable. This kind of technology can also be put in the service of development in fragile and conflict-affected countries, in at least two ways.
One application could be to use such mobile-phone enabled databases to share royalties resulting from natural resource extraction directly and more widely with local communities. A major problem with natural resource extraction in many fragile environments is that a significant part of the revenue that states receive gets stolen by those in power. Local communities don’t tend to see much of it, which results in a sense of injustice, marginalization, and occasionally, violence.
In fact, the Centre for Global Development is already exploring an Oil2Cash scheme that would see resource-rich governments make direct cash transfers to the accounts of individual citizens via modern technology. Apart from the merits and demerits of direct cash transfers, this scheme faces an important obstacle: why would governments that can currently spend this revenue at their discretion suddenly want to share it with their citizens? An alternative might be to make energy companies responsible for distributing part of the revenue directly to citizens that live in the relevant area. This probably requires creating a global norm – enforceable through national legislation – that ensures every exploration contract concluded in a fragile environment features a clause stipulating that energy companies will set up appropriate mechanisms to transfer a certain percentage of the revenues. The challenge here is of course how to make it stick globally and avoid creating competitive advantage for countries that do not sign up.
One option is to use the momentum of the new post-2015 development agenda to build on existing initiatives like the UN’s Global Compact and the Extractive Industries Transparency Initiative to create a global natural resource charter that, among other things, commits oil companies to share part of exploration revenues directly with local communities – corporate social responsibility in direct action. Another option is to follow in the tracks of regulatory efforts to improve due diligence of mineral supply chains, which faces similar collective action dilemma’s, build on its experiences and learn from its lessons (for OECD work click here).
A second application of modern technology to reduce fragility could lie in the area of disaster management. Several recent reports suggest that the frequency and intensity of natural disasters are increasing. While some of the largest, most deadly and most costly disasters have affected highly developed countries with the means to recover (such as Japan and the US), many affect populations living in fragile environments that are far less resilient to deal with their catastrophic consequences. The coastal zones that will absorb most of Africa’s population growth over the next decades are especially vulnerable.
It should be possible to register these populations in a biometrical system – akin to what India is piloting – so that when disaster strikes, global peer-to-peer transfers can be made directly to empower individuals to start rebuilding their own lives. In 2011 Kenyans already mobilized €171,000 in two days through M-Pesa contributions for the “Kenyans for Kenya” fundraiser set up to respond to famine and deaths from starvation in its Turkana District. Image what such a system might accomplish at a global scale by way of a ‘social protection floor’ in cases such as the Haiti earthquake or the recent droughts and famines in Ethiopia, Kenya and Somalia.
While such systems require significant one-off investments, do not solve more structural barriers to development, and still have to be made to work politically, they hold promise to move away from traditional rich-to-poor, Official Development Aid flows and can capitalize on a global world in which development is a rapidly changing notion and social empowerment on the rise.
It’s Valentine’s Day (wasn’t it Saint Valentine’s Day at one time?) and here at this most romantic of international organisations we’re happy to see lovers the world over celebrating causes so close to our red velvet heart as trade and innovation (or flowers and chocolate, to use the technical terms). On this special day, let’s leave the cynics to their grumbling and enjoy being nice to somebody by sharing the fruits of technology transfer, competition, economies of scale and opportunities for learning, as described by Nobuo Kiriyama in the latest OECD Trade Policy Working Paper.
History provides some vivid illustrations of what Nobua is talking about. In the era of the Silk Road, China’s competition policy regarding the silk trade was simple: anyone caught trying to export silkworms, cocoons or eggs was executed. This crude but effective barrier protected Chinese manufacturers until around 200 BCE when Chinese immigrants to Korea started production there too. A hundred years later, a princess smuggled eggs to India in her hair. A hundred years after that two monks smuggled eggs on the orders of the Byzantine emperor and the industry gradually became established in the West.
Silk shows that new technology doesn’t have to be imported readymade, and that knowledge transfer can be more important (it also raises questions about whether and by how much the economy as a whole benefits from protecting intellectual property).
Chocolate is another interesting case. The link to international trade is obvious – cacao beans can’t grow in most places and have to be imported by manufacturers. But there’s a link to migration too. Spain was the first European country to develop a chocolate industry, but the persecution and expulsion of the Jews in the late 15th and 16th century forced many Jewish chocolate makers to flee, with some of them setting up business around Bayonne in southern France or in Belgium and Switzerland, still famous for high-quality products today, while Spain was left behind. (Another OECD report on entrepreneurship and migrants argues that modern migrants may be a source of job creation provided they have adequate support to gain access to capital, learn the language and deal with regulation.)
The flowers you offer your sweetheart tell a whole story too (including about you if you bought them at the last minute from a service station as you were filling up the car). Chances are they came from Kenya, India or another developing country. Exporting firms in these countries are usually more productive than non-exporting ones, and have to innovate for a number of reasons, for example to meet hygiene or other standards in potential markets or to make sure the products get to the market in a saleable condition. In doing so they learn from their clients as well as their partners.
You may have noticed that none of these examples actually talks about inventing a new product. Innovation covers this too of course, but these days it more frequently means something else – for example crossing a hard drive and a music player to create an MP3 device or crossing different genetic traits to try to produce angora chickens. Coca Cola for instance has been highly innovative throughout the company’s history without inventing a new drink. Removing the cocaine was an example of product innovation while selling it in cans or from machines were marketing innovations.
Innovation can also mean applying a technology in a new way. The introduction of mobile phones to ﬁshers in India led to an increase of 8% in the proﬁts for the ﬁshers and a decline of 4% in consumer prices as the ﬁshers could use their phones to call several nearby markets from their boats to establish where their catch would fetch the highest price. Fish, phones and innovation seem to go together. The ﬁrst call ever placed on a commercial GSM phone was on 1 July 1991 when Harri Holkeri, governor of the Bank of Finland, telephoned the mayor of Helsinki to talk about the price of Baltic herring.
So if you’re tongue-tied when you call your Valentine tonight, try discussing the price of kippers. For more policy advice, see below.