Download Knowledge Revolution

Challenge of the Knowledge Economy:
Towards a Pragmatic Innovation Agenda
Carl Dahlman
Knowledge for Development Program
March 16, 2004
Santiago, Chile
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Structure of Presentation
1. The Knowledge Revolution
and Implications for Latin
American Competitiveness
2. Objective of seminar: Towards
a pragmatic innovation agenda
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1. The Knowledge Revolution
Ability to create, access and use knowledge is
becoming fundamental determinant of global
competitiveness
Seven key elements of “Knowledge Revolution”
Increased codification of knowledge and
development of new technologies
Closer links with science base/increased rate of
innovation/shorter product life cycles
Increased importance of education & up-skilling of
labor force, and life-long learning
Investment in Intangibles (R&D,education, software)
greater than Investments in Fixed Capital in OECD
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The Knowledge Revolution -2
Greater value added now comes from investment
in intangibles such as branding,
marketing,distribution, information management
Innovation and productivity increase more
important in competitiveness & GDP growth
Increased Globalization and Competition
•Trade/GDP from 38% in 1990 to 57% in 2001
•Value added by TNCs 27% of global GDP
Bottom Line: Constant Change and Competition
Implies Need for Constant Restructuring and Upgrading
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GDP/Capita Growth: Korea vs Argentina
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Implications for Latin America
With very few exceptions, Latin America’s growth
performance has not been very strong over the past 20
years
It is risking falling further behind because it is not
successfully tapping into growing global knowledge or
exploiting its potential
Countries need to develop strategies to use existing and
new knowledge to
Improve performance in traditional sectors
Exploit opportunities for leapfrogging
Develop competitive new sectors
Countries needs to
Assess where they stand
Develop concrete action plans
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%
Shares of World GDP - Constant US$ (1960 - 2002)
40
High income: OECD ex. US & Japan
35
Sub-Saharan Africa
30
United States
25
High Income: Non-OECD
(Black)
20
Japan
Middle East & North Africa
(Light Blue)
South Asia
Europe & Central Asia
(Grey)
15
10
Latin American & Caribbean
East Asia & Pacific
5
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
%
4
East Asia and LAC: Shares of World GDP (1980 - 2002)
3.5
EA NIEs
3
China
2.5
Brazi
2
Other LAC
1.5
Upcoming
EA NIEs
Mexico
1
0.5
1980
1985
1990
1995
2000
20
%
East Asia and LAC:
Shares of World Merchandise Exports (1980 – 2002)
10
EA NIEs
8
6
China
Upcoming
EA NIEs
4
Mexico
2
Other LAC
Brazil
0
1980
1985
1990
1995
2000
2002
Selected Countries: Real GDP 2002
Average RGDP per capita
Growth 1965-2002 (%)
8
Selected Countries: Real GDP 2002 (Bil of 1995 US$)
China
$1207
7
South
Korea
$680
6
Singapore
$113
Hong Kong
$173
5
4
Brazil
$810
3
Finland
$169
Chile $85
2
Mexico
$375
1
Argentina
$250
0
0
5,000
10,000
15,000
20,000
Real GDP per capita 2002
25,000
30,000
35,000
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Selected Countries: GDP 2002
Selected Countries: GDP 2002 (Bil of International $)
Average GDP per capita
Growth 1990-2002 (%)
12
China
$5732
10
8
South
Korea
$784
Singapore
$97
Chile $149
6
Hong Kong
$178
4
Mexico $879
2
Finland
$134
Argentina
$401
Brazil
$1312
0
0
5,000
10,000
15,000
20,000
25,000
GDP per capita 2002
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Benchmarking Countries
 KAM: 76 structural/qualitative variables to
benchmark performance on 4 pillars
 Variables normalized from 0 (worst) to 10 (best) for
121 countries
 www.worldbank.org/kam
 Multiple modes offering wide range of graphic
representations and functionalities (1995 - Most
Recent, comparison options)
 Aggregate Knowledge Economy Index (KEI) –
average of performance in 4 pillars: economic
incentive and institutional regime, education, ICT
and innovation
 Weighted and unweighted version – Innovation
Variables
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LAC and the World: Knowledge Economy Index
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2. Towards a Pragmatic Innovation Agenda
What do we mean by innovation?
The diffusion of a product, process, or practice which is
new in a given context (not in absolute terms).
Technological innovations often go hand in hand with
organizational ones
Innovation promotion often goes with enterprise
upgrading
Therefore distinguish two broad types of innovation
Local improvements through adoption of existing foreign
technology
Development of technologies new to world
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Innovation in Developing Countries
In developing countries the first type is
the most relevant, the second is more
rare, except for the most advanced
developing countries
Developing countries will get a bigger
economic impact from raising average local
practice to best world practice than from
creation of their own new knowledge
They will also get a bigger impact from
raising average local practice to best local
practice, therefore the tremendous
importance of domestic diffusion
Sources of Domestic Innovation
Imports of capital goods, components,
products or services
Copying or reverse engineering of
foreign products and services
Products and services brought to and
produced in country by foreign
investors
Technological efforts of domestic or
foreign firms, not all of which is based
on formal R&D
Bias Towards Formal R&D Efforts
Policy makers in developing countries tend to
focus on formal R&D and on publicly funded
research efforts
They tend to focus on glamorous high
technology sectors
They tend to focus on industry, to a lesser
extent on agriculture, and very little on
services
They also tend to focus on R&D inputs and
outputs, not so much on entrepreneurship
and management
Challenges
But, as noted earlier, focus of policymakers
are not the most important elements of the
innovation system in developing countries
R&D not the main source of innovation
High tech sectors are tiny part of developing
economies
Service sector is largest share of economic activity
Successfully applying knowledge requires
entrepreneurship, management, organizations,and
also depends on economic and institutional regime
Need a better conceptual framework and
policy tool kit that
differentiates across countries
Provides made to measure policy advice and
specific project design
Differentiated Strategies
Acquiring
Creating
Disseminating
Catch-Up
Most critical:
-lots of
knowledge in
pubic domain
-also large stock
to be purchased
Therefore need
good global
scanning and
acquisition ability
Less relevant or
feasible, but still
need R&D
capability to
acquire and
adapt.
Critical to focus
limited R&D
efforts on most
relevant areas
Very important:
-extension services
-technical information
-metrology,
standards, testing
and quality control
-specialized suppliers
-growth of most
efficient firms
Countries
Nearer
Frontier or
with Large
Critical
Need to continue
tapping global
knowledge:
-FDI/licensing
-Strategic
alliances
-foreign R&D to
tap knowledge
Refocus public
efforts on
commercially
relevant research
Get private
sector to make
major effort to
create new
knowledge
Dissemination efforts
continue to be critical
But also need to take
knowledge to
production:
-technology transfer
-tech parks/spinoffs
-cluster development
National Innovation System
Needs to include not just R&D
institutions and universities, but most
critically firms and other knowledge
institutions(MSTQ, training, consulting)
Needs to include attention to the
broader economic incentive and
institutional regime, education and
skills, and ICT-hence our K4D
framework
Challenges to Developing Countries
Finding advantageous ways to plug into and
compete successfully in the global system
Getting into global value chains
Moving up these value chains
Taking advantage of global knowledge to
improve welfare
Preventive health
Agriculture
Developing differentiated advantages
Building on local resources
Building on culture and other intangibles
Strengthening non-traded services
Getting rid of innovation myths
About the innovation process: it is not a linear
process from research to market
About the source of innovation: key role of clients’
needs, suppliers’ ideas, etc
About high tech: it is its use which matters (not its
production); needs a technical culture
About the innovator: it is not a single individual,
but a group of people with complementary
functions
About the role of government: it is important
(including in form of direct support)
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How innovation develops
Not a linear process coming from research for
going to the market, but a design centered project
with ideas coming from multiple sources (clients,
suppliers, etc); innovation does not derive from
research, but it is the reverse (particularly in
developing countries)
Innovation is a project brought about by group of
people (not a single individual): the inventor, the
entrepreneur, the godfather, the gatekeeper
(Roberts, MIT)
An organic not a mechanistic view; innovation is
like a flower that needs gardening

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Government Role – Gardening Innovation
Watering (finance, support
to innovation projects)
Removing weeds
(competition, deregulation)
Nurturing soil (research,
education, information)
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Initiating Innovation Policies: Key Actions
To ignite interest show cases abroad (study
tours). To build self confidence, show local
success stories; key role of media (radio/TV)
Understanding issues and potentials by soft
actions (cluster building)
Competitive funding to stimulate local/regional
interest and investment
Building national and cross national innovation
champion networks; getting entrepreneurs and
citizens campaigning for improvement of
business/governance climates
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Developing national programs
and institutions: main issues
There are already many programs for many
different purposes (SMEs, FDI, RD…) which
have a crowding out effect
Agencies: need to have multi function-ones,
private sector-like management (Fundacion
Chile); but usually state agencies are
constrained by bureaucratic rules and tend to
capture or defend territories
Councils (model is ST policy councils of
Finland): they exist in numerous countries but
they are not working; problem of motivation
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National Priorities
Priorities: build on strengths focused on
use of available resources, generate
income for further investment in
education, research and key technology
infrastructure, etc
Climb up gradually the innovation
system steps corresponding to
development levels and related value
chains
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Towards a pragmatic innovation agenda
It is not about just a about high tech.
Long-term agenda: Integration into global knowledge
networks and value chains.
Medium-term priority: promotion of inter-firm and interorganizational linkages
horizontal linkages: cluster agenda
vertical: supplier and buyer development
university-industry linkages
Short-term priority: Articulation of vibrant and vocal
innovation community in the private sector
©Knowledge for Development, WBI
Towards a pragmatic innovation agenda
Learning Capabilities of firms
Research and Technology Development
Very rarely present, mostly large firms
Design and Engineering
Capabilities rarely present in SMEs
Technician and Craft Skills
and Capabilities
Strong skills sometimes present, though
key skills often absent or weak
Basic Operating Skills and
Capabilities
In SMEs, often weak, with limited and
irregular upgrading
R&D
TECNOLOGY
UPGRADING
REVERSE
ENGINEERING
TECHNOLOGY
ACQUISITION
ASSIMILATION
TECHNOLOGY USE
AND OPERATION
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Responding to the challenges of the
knowledge revolution
To respond to the challenges of knowledge revolution , Latin
America needs a dynamic innovation and enterprise
upgrading system: a network of organizations to enhance
firms’ capabilities
 Led by private demand and responsive to private sector
needs;
 Characterized by strong academic-industry linkages;
 Inserted into international knowledge networks
Providing support to technology entrepreneurs, both
financial (early stage venture capital) and technical
assistance; and
 Characterized by continuous evaluation and monitoring.
 Results of evaluation linked to financing of programs.
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Approaches to reform and enhanced national
innovation and enterprise upgrading systems
1. Focus on knowledge entrepreneurship (high-tech
start-ups and spin-offs, venture capital): Israel
2. Focus on innovation strategy of a developing
country that has already made transtion to being
a global innovator:Korea
3. Focus on a network of private sector-led national
technology transfer organizations: Chile
(Fundación Chile), Mexico, Russia.
These three approaches are complementary and will
be considered in this seminar.
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Annex
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Knowledge Economy Index (most recent) breakdown
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Knowledge Index (most recent) breakdown
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KEI data – most recent
KI data - most recent
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Latin America
Internet users per 10,000 people
GDP grow th (%)
10
Computers per 1,000 persons
Human Development Index
Tariff & nontariff barriers
5
Telephones per 1,000 (mainlines +
mobile)
Rule of Law
0
Tertiary Enrollment
Regulatory Quality
Secondary Enrollment
Researchers in R&D / million
Patent applications granted by the
USPTO / million
Scientific and technical journal articles /
million
Adult literacy rate (% age 15 and above)
Latin America
1995
Most Recent Data
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Argentina
Internet users per 10,000 people
GDP grow th (%)
10
Computers per 1,000 persons
Human Development Index
Tariff & nontariff barriers
5
Telephones per 1,000 (mainlines +
mobile)
Rule of Law
0
Tertiary Enrollment
Regulatory Quality
Secondary Enrollment
Researchers in R&D / million
Patent applications granted by the
USPTO / million
Scientific and technical journal articles /
million
Adult literacy rate (% age 15 and above)
Argentina
1995
Most Recent Data
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Chile
Internet users per 10,000 people
GDP grow th (%)
10
Computers per 1,000 persons
Human Development Index
Tariff & nontariff barriers
5
Telephones per 1,000 (mainlines +
mobile)
Rule of Law
0
Tertiary Enrollment
Regulatory Quality
Secondary Enrollment
Researchers in R&D / million
Patent applications granted by the
USPTO / million
Scientific and technical journal articles /
million
Adult literacy rate (% age 15 and above)
Chile
1995
Most Recent Data
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Mexico
Internet users per 10,000 people
GDP grow th (%)
10
Computers per 1,000 persons
Human Development Index
Tariff & nontariff barriers
5
Telephones per 1,000 (mainlines +
mobile)
Rule of Law
0
Tertiary Enrollment
Regulatory Quality
Secondary Enrollment
Researchers in R&D / million
Patent applications granted by the
USPTO / million
Scientific and technical journal articles /
million
Adult literacy rate (% age 15 and above)
Mexico
1995
Most Recent Data
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Israel
Internet users per 10,000 people
GDP grow th (%)
10
Computers per 1,000 persons
Human Development Index
Tariff & nontariff barriers
5
Telephones per 1,000 (mainlines +
mobile)
Rule of Law
0
Tertiary Enrollment
Regulatory Quality
Secondary Enrollment
Researchers in R&D / million
Patent applications granted by the
USPTO / million
Scientific and technical journal articles /
million
Adult literacy rate (% age 15 and above)
Israel
1995
Most Recent Data
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Korea
Internet users per 10,000 people
GDP grow th (%)
10
Computers per 1,000 persons
Human Development Index
Tariff & nontariff barriers
5
Telephones per 1,000 (mainlines +
mobile)
Rule of Law
0
Tertiary Enrollment
Regulatory Quality
Secondary Enrollment
Researchers in R&D / million
Patent applications granted by the
USPTO / million
Scientific and technical journal articles /
million
Adult literacy rate (% age 15 and above)
Korea
1995
Most Recent Data
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Russia
Internet users per 10,000 people
GDP grow th (%)
10
Computers per 1,000 persons
Human Development Index
Tariff & nontariff barriers
5
Telephones per 1,000 (mainlines +
mobile)
Rule of Law
0
Tertiary Enrollment
Regulatory Quality
Secondary Enrollment
Researchers in R&D / million
Patent applications granted by the
USPTO / million
Scientific and technical journal articles /
million
Adult literacy rate (% age 15 and above)
Russia
1995
Most Recent Data
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LAC: Performance Variables
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LAC: Economic Incentive Regime Variables
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LAC: Governance Variables
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LAC: Innovation Variables
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LAC: Education Variables
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LAC: ICT Variables
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Chile: Performance Variables
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Chile: Economic Regime Variables
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Chile: Governance Variables
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Chile: Innovation Variables
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Chile: Education Variables
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Chile: ICT Variables
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Global R&D Effort in Comparative Perspective
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R&D Expenditure, 1981-2000
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Export Structure (1965-2000)
Argentina
China (1987-2000)
100
100
90
80
70
60
90
Manuf actures (% of
merchandise exports)
70
Ores and metals (% of
merchandise exports)
50
40
30
20
10
0
1987
Food (% of merchandise
exports)
1990
1995
80
60
50
Fuel (% of merchandise
exports)
40
Agricultural raw materials
(% of merchandise exports)
20
30
10
0
1965
2000
1975
1985
Hong Kong
100
90
80
70
60
50
40
30
20
10
0
1965
2000
Brazil
Food (% of merchandise
exports)
100
90
Manuf actures (% of
merchandise exports)
80
Ores and metals (% of
merchandise exports)
60
Fuel (% of merchandise
exports)
40
A gricultural raw materials
(% of merchandise exports)
70
50
30
20
10
1975
1985
1995
0
1965
2000
1975
1985
1995
2000
Chile
Korea
100
100
90
80
70
60
50
40
30
20
Food (% of merchandise
exports)
90
Manuf actures (% of
merchandise exports)
70
Ores and metals (% of
merchandise exports)
50
Fuel (% of merchandise
exports)
30
Agricultural raw materials
(% of merchandise exports)
10
0
1965
1995
1975
1985
1995
80
60
40
20
10
0
1965
2000
1975
1985
1995
2000
Mexico
Singapore
100
90
80
70
60
50
40
30
20
10
0
1965
100
Food (% of merchandise
exports)
1985
1995
2000
80
Manuf actures (% of
merchandise exports)
70
Ores and metals (% of
merchandise exports)
50
Fuel (% of merchandise
exports)
30
Agricultural raw materials
(% of merchandise exports)
1975
90
60
40
20
10
0
1965
1975
1985
1995
2000
Thank you!
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