This excerpt from Innovation in Real Places: Strategies for Prosperity in an Unforgiving World published by Oxford University Press (2021) is part of a series in which experts and thought leaders — from around the world and all parts of society — address for the OECD the COVID-19 crisis, discussing and developing solutions now and for the future. Aiming to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge, opinions expressed do not necessarily represent the views of the OECD.
Innovation is not just the invention of new shiny things. If it was, it would have a feeble effect on economic growth and welfare. We should care about innovation, because it is the only way to ensure sustained long-term economic and human-welfare growth, not because it is new or cool.
So what is innovation?
Innovation is the complete process of taking new ideas and devising new or improved products and services. It comes in all stages from the first vision, design, development, production, sale, and usage, to the after-sale aspects of products and services. The true impact of innovation was not in the invention of the internal combustion engine, nor even the invention of the first automobile. The true impact of innovation is represented by the continuous stream of implementation of large and small inventions to make the car a better and cheaper product, to improve the way it is produced, and to continuously find ingenious ways to sell, market, and service cars. If innovation was invention, there would be no continued progress and growth in welfare. For example, without innovation, there would be no smartphones, since a phone would still be a very large wooden box with a rotating dial, and it would take about a minute to even attempt a call.
In technical terms, invention is the process of coming up with a truly novel idea, while innovation is the process of using ideas to offer new or improved products and services at the same factor cost. […] However, we now live in the world of fake news and misconceptions, and too many people and organizations make too much money by selling myths about innovation. The purveyors of these myths—the religious believers of techno-fetishism—have a feeble understanding of the big picture of global production and innovation. For example, they have not noticed—or will not tell you—that there is a significant obstacle to creating the next VC hub in Oklahoma or Ohio or Bouches-du-Rhone in France or Emilia-Romagna in Italy: namely, the overwhelming power of the real hubs, which siphon up vast amounts of talent and money.
The misconception-mongers also seem unaware of the research showing that promoting VC-backed high-tech startups can end up widening the gulf between rich and poor, and that a region can therefore waste a lot of time, money, and energy trying to improve its economic health by shopping for high-calorie, low-protein, and low-fiber start-ups. Those start-ups might indeed make their founders and funders rich, but they will not supply the wider employment and growth benefits that the regions seek. In todays’ world of globally fragmented production and dominating high-tech clusters, not all boats are raised when high-tech start-ups succeed. […]
As my book Innovation in Real Places explains, the greatest opportunities for growth lie in communities’ recognizing their own advantages, then fostering forms of specialized innovation that rely on those advantages. The opportunities include raising the growth trajectories of existing small and medium-size enterprises, figuring out specific sets of activities within the global production networks that dominate our world, and attracting start-ups that are outside of information technologies and biotech, in fields as diverse as agro-tech and textiles.
At the same time, communities must encourage the development of public institutions to provide critical support, including fostering sources of what is known as “patient” capital, a set of “shared” assets that provide unique competitive advantages, and collaborative public spaces, where isolated businesses and individuals find ways to become part of cohesive ecosystems. Certain areas of the globe have become production powerhouses by following this approach. […]
Find more on the Forum Network: Disappearing Businesses and the Long Road to Recovery: Catalyzing women’s entrepreneurship, by Sudha Gooty, Programme Manager, Catalyzing Women’s Entrepreneurship, United Nations Economic and Social Commission for Asia and the Pacific
A key to understanding innovation-based growth is to understand that innovation is the whole progression of taking new ideas and devising new or improved products and services. It comes in all stages of the production of goods and services, from the first vision, design, development, production, sale, and usage to the after-sale. […] Once we realize this, we become aware of the large number of available options with which to reach prosperity, as well as the futility (and perhaps the stupidity, if we care about inequality) of only trying to become a Silicon Hyphen. The smart community lets others try to become Silicon Valley North, Silicon Vale, Silicon Hill, Silicon Isle, or Silicon Shade, and instead focuses on developing its own model of innovation-based growth. […]
As you think about your own region, think carefully about whether its current capacities and capabilities, and at least as importantly its potential capacities and capabilities, would allow it to excel as stage 4 (production and assembly), stage 3 (second-generation product and component innovation), or stage 2 (design, prototype development, and production engineering), instead of becoming another locale that failed to become Silicon Valley, or one that cursed the day it succeeded. Stage 1 (novelty) is the stage that caught the imagination of so many and to such a degree that most people think it is the only mode of innovation- based growth. But as the divergent fortunes of communities under COVID-19 attest to, it is time we start to appreciate the widely distributed growth and the greater resiliency that focusing on stages 4 to 2 innovation grants. […]
As you plan, implement, revise, change, and perfect your policies, it would be useful to constantly focus on four fundamentals. The first being the local flows of local–global knowledge, demand, and inputs. Since we live in a world of fragmented production, continuous success requires that a region establish and institutionalize modes of ensuring constant bidirectional flows of these three critical components. […]
The second fundamental is the supply and creation of public and semi public goods. Innovation, by its very essence, is a collective endeavour that requires an array of public and semi-public goods, from the supply of specialized skills, be they craftspeople or R&D engineers; to shared assets, such as testing facilities, trade shows, or specialized prototyping-to-production facilities; to what I call collaborative public spaces, the socioeconomic places where an industry moves from sharing knowledge to becoming a community.
Those first two lead us to the third fundamental, building a local ecosystem that reinforces the firm-level benefits of the previous two fundamentals and allows access to critical resources, such as finance or legal services, that fit the business models and the local stage of innovation specialization. In time, the elements of the ecosystem support one another as the locale develops in a specific innovation-based-growth trajectory. […]
The last, but not least, fundamental is the co-evolution of the previous three fundamentals and the role of public policy as the locale grows and excels. One of the classic mistakes of policymaking is the assumption that what works in one time and one place will always work across time and space. This is a perfect example of inflexibility, a textbook failure to change policy instruments in tandem with the environment. In innovation policy, even more than in any other policy domain, the forces of evolutionary change mean that those who do not change become extinct. […]
If there is one lesson that I hope readers of my book will take away from it, it is to believe in human ingenuity and the ability of communities to chart their own future even under the worst global headwinds. This is the real splendor of innovation. Whenever we are told that there is no choice, that the forces of the market, technology, and globalization continuously limit our ability to act, communities prove those pundits wrong by devising innovative ways to chart their own growth paths, demonstrating again and again that human choices, creativity, and actions matter, and that social structure is malleable to the, always underestimated, human agency. The act of innovation is what led us to profoundly change our world and natural environment, it is what makes us humans. As such, innovation is hope—hope in the human ability to bring change, and hope that, more often than not, human-brought change will lead us all toward a better world.
Learn more about the state of entrepreneurship in the OECD report The Missing Entrepreneurs 2021: Policies for Inclusive Entrepreneurship and Self-Employment
Find more on innovation in the OECD report AI and the Future of Skills, Volume 1: Capabilities and Assessments
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