Ask any economist, businessman, whomsoever, what we have to do to develop the economy and at least once you will hear we have to innovate. By that it is generally thought that we have to invent, create some novel product/service/process, some intellectual property, even patent it, and use this to create novel exports.
If innovation is so fundamentally important how do we do it? Is it sufficient to have R&D departments at our universities, choose some areas to work in, and voila, inventions/innovations will march out of these institutions into our production units and then into the competitive global market?
But we have now a world class university in UWI, one engaged in research, producing MPhil and PhD graduates, but the inventions are not flowing into our production companies. More so, we are witnessing the massive emigration of our graduate labour force to the developed countries. The obvious question then; is there more to innovation than R&D centres at our universities? There is indeed and the key element is agglomeration.
Still, let us look at some of our attempts at economic development and their failures. Recall that we decided to build an export economy, particularly in cars, by import substitution wherein we stopped the import of cars, imported completely knocked down (CKD) kits from the major manufacturers in the world, which we assembled first for the local market, with the hope that when we got good at assembly we would begin to make parts locally and eventually compete in the global market – even with the CKD manufacturers.
This failed miserably in Trinidad and Tobago, where we experienced a protected local market with locally assembled cars that were very costly and many performed badly. The idea of making parts locally, parts that were specially designed for the particular cars, without the required knowledge and innovation, was impossible without the help of the producer of the CKD kit, which was not forthcoming.
The key thought here is that though the manufacturer sold us the kits, they did not transfer the design knowledge, the innovations that they had created to build the cars. Our skills were simply basic assembly – screwdriver and spanner skills. Indeed we repeated this performance at Pt Lisas, built turnkey plants to use the cheap natural gas, hoping that globally competitive downstream industries would naturally follow – they did not.
But, to return to innovation and agglomeration. Let me give an example. Say, at UWI, there is one professor on her own with two undergraduate project students working in renewable energy trying to find a novel and more efficient way to power equipment/vehicles. She has no one besides her two students to talk to, to share ideas even in neighbouring areas of her direct concern. All she has is the dated published literature and her own ingenuity.
If she is lucky she may just come up with something, even a patent. The innovation is to get this invention into the market. But again there is no local industry with the vision that can benefit or exploit the new knowledge. The opportunity exists to license the patent abroad, which does little for our economic development effort. A real option exists for our researcher to emigrate.
Consider now the renewable energy group at MIT or this industry in Silicon Valley, US. There are many researchers in this and allied fields in contact with each other. So face to face discussion of ideas is normal and fundamentally important. Indeed innovation becomes easier and cheaper if it is being done in an environment that boasts of past successes and an agglomeration of researchers.
Hence, distance away from where the action is inhibits the success of loners. Further, according to Isaac Newton: “If I have seen a little further it is by standing on the shoulders of giants.” Innovators will not be able to get up onto the shoulders of the giants if they are too far away. Our UWI researcher has no giants nearby.
The value of innovation is not simply the knowledge of the patent. The other bit is that it advances the general state of knowledge in the environment, creates spillovers and makes it easier to innovate further. This knowledge is a public good upon which new knowledge is built. Because of this knowledge environment each innovation lowers the cost of future innovations.
That is why major innovation centres can pour out innovations almost at will, compared with developing countries, even if they, the latter, understand that to be globally competitive they have also to innovate. The other downside of innovation in developing economies is that our researchers understand the value of agglomeration and the gifted ones leave us for the MITs, the Stanfords of the world; these centres are magnets to the world researchers.
But we have to innovate to grow and develop our economy. What then are our options?
Two celebrated economists, Paul Romer and Richard Baldwin, offer us the alternative to building from scratch such an innovative economy. In this approach and given the new globalisation, developing countries can by off-shoring do certain tasks in the global value chain of companies of the developed countries.
As opposed to the CKD model, these offshore manufacturing plants, as part of the global value chain, are given the new technologies, the innovations and are managed and supervised by the home company; hence the environment is transported to us locally where we can stand on the shoulders of giants of the developed world. Our researchers with the public knowledge acquired, and within a national innovation system can create the spill-overs in the same industry, which can spawn novel local companies.
This is in synch with Paul Romer’s thesis that it is the endogenous efforts of the developing country, the use of these spillovers, which drives economic development. This is the means of China’s economic miracle that has made it into the manufacturing centre of the world – now with the greatest number of patent applications per year in the world.