Promoting innovation


Prof. Atta-ur-Rahman,
FRS, Ni, HI, Si, TI

The three major players in the development of a knowledge economy are universities, industry and the government. All three thrive on the extent of merit-based competiveness that should be in-built into the systems and on the efficiency of interaction among all three players. The development of a knowledge economy requires a thorough understanding of the dynamic interplay between research, invention, innovation, and economic growth. Such an understanding allows them to be modulated according to national needs and challenges.
The global innovation landscape is not static;. In the past three decades only we have witnessed nation after nation achieve economic and social development through structural adjustments of their economies and adopting a path of promoting education, in particular higher education, acquiring and adopting foreign technology for production of high valued goods and services and having diversified their economies from resource based to knowledge based. Public-private partnership and public incentives for encouraging partnerships between local and international firms have played a key role in achieving this transition.
If Pakistan’s economy is to grow and survive in an increasingly competitive global market then it too has to transition towards an efficiency driven, innovation and knowledge based economy. This requires not only a major role by the private sector but also public incentives to encourage collaborations between local businesses and universities, between regional businesses and foreign multinational firms. Almost all developed countries have realized the benefits of what has come to be known as collaborative advantage.
Industrial clusters in high and medium technology goods should be set up under CPEC and the industries established within them should be offered incentives linked to efficient production, value addition, and process and product innovation and for growth in productivity. Incentives for skill development courses for industrial workers and for hiring of high quality engineers should be given priority. Government can also offer incentives in the form of Technical or Engineering Centres that provide design, testing and standards related services.
Having a robust national innovation policy and an effective framework for implementation has become a key prerequisite for national progress. Countries with robust innovation policies and a leadership committed to implement them are progressing rapidly, leaving others far behind.. Therefore, a national policy should focus on creating demand for innovation and indigenous technology capability building.
An important feature of a national innovation policy is that it stimulates demand for innovation through suitable incentives and regulations. These include tax incentives for promotion of private R&D, stimulating firm level learning, or salary incentives for hiring of skilled engineers. Incentives have also been used to promote inter-firm collaboration to achieve scale economies and establish linkages with global production networks by both developed and East Asian countries including China and India. Regulations for promotion of international manufacturing and productivity standards, for protection of Intellectual Property and settlement of disputes through fast commercial courts are some important policy instruments for promotion of innovation. Competition creates demand for innovation and therefore competition both in import substitution and export industry needs to be encouraged through implementation of competition laws.
There are important pro-poor innovation lessons that can be learnt from China. In 1998 China started producing electric bikes indigenously with just 12 producers who produced over 56,000 units per year, whereas conventional bike production stood at 42 million in the same year. The policy instruments favored predominantly the efficient, low cost and environmentally friendly commuting solution for the masses that obviate the huge public investments in mass transport systems and subsidized the electric bike market. As a result, in 2010, within 12 years, China was able to dominate the electric bike market, where 2000 producers were manufacturing 30 million units of electric bikes, 80% of which were sold domestically. From component manufacturing to mining of Lithium – the major component used in manufacturing the batteries for the bikes – domestically as well as in other countries like Chile, Argentina and Australia, the Chinese government channelized their investments in the sector through China Investment Corporation. Currently, due to timely and well-planned policies at national level, China has emerged as the leading producer, consumer and more significantly an exporter of electric bikes in the world.
In addition to an incentive based approach, we need to encourage technology-based entrepreneurship by revisiting our procedures for Ease of Doing Business. Pakistan ranks very low in global ranking of Ease of Doing Business. Singapore and Malaysia rank very highly. Both Singapore and Malaysia have used Foreign Direct Investment (FDI) as a major source to acquire new technology. For developing countries, the key to compete in the global economy and to bridge the technological gap with developed countries is the successful integration of modern technology into domestic production and management processes. The different means to acquire technology and tap into global knowledge flows mainly include the deliberate transfer of technology by procurement, licensing and turnkey projects and through FDI. Multi-National Corporations (MNCs) not only bring in superior technology to the host country but they also create learning opportunities for domestic firms resulting in increased TFP (total factor productivity). FDI can add value to the host economy, both directly through job creation and tax revenues, and indirectly by technology and productivity spillovers to local firms. A policy framework conducive to inter-firm interaction, joint ventures and learning is needed. This could be in the form of discouraging ‘green-field investments’ where MNCs are allowed to have 100% ownership of the local firms. The emphasis should be on joint ventures with some degree of local ownership.
Demand for innovation is also created through priority setting or identifying areas for specialization as no country has the resources or capabilities to compete in all areas. India’s focus on ICT services industry and China’s specialization in the manufacturing industry are just two examples from many. Finland is ranked as number one in global innovation ranking. Its fast catch-up strategy is based on selecting Telecommunications as an area of specialization. Supporting local firms with public R&D expenditure, provision of high quality scientists and engineers, encouraging inter-firm collaboration and mergers within local and with international firms resulted in the emergence of Nokia as a Multinational firm. In 2010 Nokia’s sales were EUR42.4 billion and its research and development expenditure were EUR 5.8 billion. Nokia had established its manufacturing facilities in 10 countries, its R&D units were established in 14 countries and most of these units were located close to leading universities and research organizations in host countries.
Our knowledge, technology, innovation and entrepreneurship gap with regional competitors is widening. We are grouped among the technologically marginalized, knowledge and innovation deficient countries in the global rankings. This is an insult to a nation of 200 million people that have the potential to advance, share and contribute to the global technical knowledge. The ICT technologies are making people of Pakistan aware of the global developments whereby they are increasingly realizing that their backwardness, hunger, disease and poverty need not be eternal and that the solution to address these problems lies in education, acquisition of scientific knowledge and technology based entrepreneurship. Our policy makers must realize that this awareness can exponentially increase the discontentment of the masses, which can lead to an impending Arab Spring like Tsunami.

— The author is the former Federal Minister for Science & Technology and former Chairman of Higher Education Commission.