The Three Strands of Innovation

IN HIS 2002 BOOK, High Noon, economist and former World Bank vice president Jean-Francois Rischard stressed that in order to address urgent, global issues, the world needed “imagination and a different type of thinking”—and needed it within two decades, not five or ten.

Eight years later, global challenges have become even more overwhelming and innovation even more imperative, says Rischard. Between the exponential growth of the two key forces—global population and the new world economy—and the slow and linear movement of human institutions and human mindsets is a broadening “management gap.” Addressing global “hyper-change and hyper-complexity” requires improvement of human management capacity through four drivers: more innovative individuals, more innovative entities, more innovative nations and more innovative planetary management.

Development Outreach spoke with Rischard about the third driver—innovative nations.

DO: How does a country develop policies that promote innovation?

JFR: The key concept for me is not so much innovation or innovation policy, but rather transforming what you have into a knowledge-based economy.

About a dozen countries—including Finland, Ireland, Malaysia, Chile, Singapore, and Korea—made huge leaps forward in the late 1990s by doing three specific things. First, they dramatically increased the quantity and sophistication of knowledge throughout their societies.Second, they boosted the size and diversity of their service sectors. Third, they pursued systematic, multi-year, knowledge-based economy campaigns that had distinctive characteristics, both in terms of content and process.

This content had five pillars—you have to have all of them to succeed. The first pillar is education and life-long learning, which countries like Singapore, Korea, and Finland lifted to a very high level of quality. Secondly, they enabled a lively “innovation ecology” that would foster the “creative class” and business innovation, on top of science and technology-led innovation. The third pillar is a quality business environment. The fourth is an advanced information and communication technology infrastructure—these days that means bandwidth. And the fifth pillar is a model government and change-friendly values within the population.

It is a much bigger deal than just focusing on R&D or on science and technology.

DO: How does a country create the “innovation ecology”?

JFR: As the governments of successful knowledge economies understood better than others, in today’s world the right innovation ecology will foster three distinct strands of innovation. In addition to classical innovation from researchers and scientists, equally important is that coming from two other groups: the creative class and the business world.

Creative class members do not necessarily have PhDs or even diplomas in anything. They are often young people, probably wearing jeans, creative enough to invent a new software game that makes millions of addicts. They come up with new ways of using data, folding furniture, new ways of organizing marketing campaigns. They write movie scripts or theatre plays. There are an estimated 150 million of these creative-class types in the world, one-third of them in the US.

Those who provide business process innovation probably have MBAs. They re-think supply chains; they reinvent entire business models for, say, computer makers or clothing manufacturers.

Most governments make the mistake of only focusing on the classical source of innovation in designing innovation policy—research and development budgets, incubators, techno parks, university spin-offs. In doing so, they miss out on the other two strands of innovation that today are as important if not more important, and which require different policies.

For example, to attract the creative class to your country or to your city you must provide highly attractive living and working conditions. You must support the creative industry sector—and in general the sector of sophisticated services—with the best possible broadband, informatics, and communications facilities. Dubai did a great job at attracting creative class types by designing the city and the special zones to meet these kinds of needs. And finally, you must have a school system good at boosting creativity at the primary school and secondary school levels, not just the higher education focus needed to breed the usual kind of innovation.

To foster the third strand, you need to attract as many enterprises, big and small, from all over the world into your country as you can. You must have excellent foreign direct investment support, start-up support, and small and medium enterprise support, a fluid business environment with low transaction costs, superb infrastructure and logistics.

The requirements for the first and second strands may often be easier to meet than for the third strand. You get there one step at a time, chipping away at obstacles. Many countries are strained just to meet the needs of the first strand.

DO: Of the five pillars you identified as specific to successful knowledge-based economies, which is the first one that a country should address?

JFR: To do a good job at this, you must eventually be good at all five pillars. But they have different profiles. An education system cannot be reformed overnight—it takes more than half a decade for sure. An innovation ecology takes five or six years to develop, even though some components move faster then others—attracting the creative industries and the creative class, for example. Dubai did that in a few years. But creating a deep-down science and technology culture and research platform takes many years, and for some developing countries it may not be possible.

In terms of the business environment pillar, a government can move very quickly. We saw Saudi Arabia and Georgia improve their business environments in just one year, moving into the top league of the World Bank Doing Business ratings. Another area where improvements can be made quickly is the creation of a top-rate information communication technology infrastructure and usage pattern. That can be done in three or four years, as we saw in Korea, Malaysia, and Estonia.

The fifth pillar of model government and change-friendly national values is a much slower moving process; it has to do with whether people are change-friendly or not, the degree of openness to the rest of the world, and whether the government is actually a role model for the whole exercise and not hopelessly inefficient. It is difficult to quantify, but certainly without this pillar it will be hard to progress in the other areas. Finland, Singapore, New Zealand would be the obvious models for the finer points about values and model government standards. Some of the countries I am talking about used to be quite conservative, by the way, and had many cultural barriers to innovation.

But while all the champion countries moved in all this areas, they all took some out-of-the-box process steps to make a lot of changes very fast and very deep. They made profound transformational changes not in 25 years, but in less than a decade. They aimed very high, almost crazily high. For each, there was a deliberate, organized, conscious strategy to change. An Irish minister summarized it this way: “ambition is an asset.”

For instance, Estonia put into its constitution that people were entitled to digital access. When the Finnish economy was collapsing in the early 1990s, instead of undertaking an austerity program, the Finns tripled the budget for research and development and contributed to the take-off of a huge Nokia-centered cluster. The Irish lowered the tax rate for corporations to 10 percent. Chile studied several forms of fish farming and then enabled farmers all over Chile to go into salmon farming from scratch; today Chile is the second largest exporter in the world in salmon. Dubai considered what it would take to attract creative industries and sophisticated services, and went for it with determination.

In short, there was boldness and speed, as well as nationwide mobilization. These governments communicated their goals of becoming knowledge economies very well. They roped in many stakeholders, and they ran public awareness campaigns. In this way, they applied principles of change management, normally associated with private enterprises, to nations.
 

Jean-François Rischard served as the World Bank Vice President for Europe from 1998 to 2005, and for private and financial sector development in developing countries in 1994-1998.

Audrey Liounis has written for publications such as Emerging Markets and Fortune Magazine. She worked at the United Nations before joining the World Bank in 1999.

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In addition to classical innovation from researchers and scientists, equally important is that coming from two other groups: the creative class and the business world.Jean-Francois Rischard