Reducing poverty needs an ‘innovation system’ approach

There is a strong correlation in industrialised countries between spending on research and development (R&D) and economic competitiveness. This leads many people [1] to assume that R&D is a sufficient condition for economic development in developing countries — and by extension, that it is also essential for reducing poverty.

The sad truth, however, is that much of the research that takes place in developing countries (and elsewhere) is never actually used by developing countries.

Furthermore, many of those who fund such research are disappointed to find how difficult — some would say impossible — it is to determine the rate of return on their investment. Even harder is calculating the ‘poverty reduction rate of return’, in other words, the direct impact of the research on reducing poverty that some aid donors would currently like to see expressed in a quantitative fashion.

Of course, many other factors besides investment in research can affect the impact that knowledge generated by research can have on economic or other social processes. And many of these factors are outside the control of researchers. 

Luckily, some research donors and managers are beginning to see things in a new way, inspired by new insights into the relationship between research and economic processes in industrialised countries. This approach is referred to as the ‘national systems of innovation’ approach. [2]

Huge amounts of empirical evidence now provide a guide to what works and what does not in fostering innovation. Most of this comes from developed countries, and not all of it is relevant to the different conditions in developing countries. But one relevant conclusion is that policies should focus less on ‘research’, and more on what is required for successful ‘innovation’.[3]

‘Innovation’ in this context means the use of new ideas, technologies or ways of doing things, in a place where or by people whom they have not been used before. The distinction between ‘invention’ (the creation of new knowledge) and ‘innovation’ (in the sense of first application) is crucial. Indeed, long experience shows that working with and re-working existing knowledge, rather than generating new knowledge, is the dominant activity in innovation.

What, then, are the key lessons to emerge from the national systems of innovation approach? First is the recognition that successful innovation requires both the ‘supply push’ of the research community and the ‘demand pull’ of the users of new knowledge. Indeed, a successful system of innovation requires a constant interaction between many organisations and individuals in both camps.

Furthermore experience has shown that it is not only research organisations that produce new knowledge: people on farms and in companies also do (even if what they supply is the ‘tacit knowledge’ that comes from the application of technical skills and experience, while researchers supply ‘codified knowledge’).

Second is the fact that innovation takes place within a social system of which research and researchers form only a part. Other essential components are the networks of actors that provide communication channels linking organisations and individuals.

Such networks can be both formal and informal. But informal links are particularly important, as they foster trust between the various parties. This results in both parties knowing each other’s needs, and knowing the nature and quality of the goods and services on offer. It reduces risks, and may even do away with the need for costly contracts. Each factor can contribute to lowering the transaction costs of the interactions.

Third, ‘intermediate organisations’ often prove crucial to successful innovation, particularly when their task is to find out what producers (and their customers) want, and to search through the options within the stocks of existing and new knowledge to find what best meets the need. (Unfortunately, such ‘brokering’ organisations are often given a low status, and are rarely funded by research funding bodies.)

Fourth, the success of innovation relies hugely on the ‘framework conditions’ — in other words policies, laws, rules, and other cultural aspects — and the basic infrastructure of the system. Indeed, a particular culture’s ways of working, the social value it places on innovation and entrepreneurship, and its banking ‘ethos’ — funding priorities, notions of risk, whether they employ engineers, as is the practice in Germany, for instance — often most effectively explain the difference between countries that innovate and those that do not.

Finally, weaknesses in infrastructure — ranging from a limited electricity supply and an inadequate phone system, to weak banking systems, under-funded universities and sparse engineering expertise — often form the biggest constraint to the effective application of much research in developing countries. And the fact that the infrastructure in many such countries is actually deteriorating makes it even less likely that research alone will result in innovation that reduces poverty. 

Of course, the innovation system approach is not an argument against the value of research, good communications or effective extension services.

But much current practice gives the impression of doing little more than pushing knowledge down a hosepipe, in the hope that at least some of will come out the other end. The innovation system approach underlines the need to invest not only in the research that generates this knowledge, but in the quality and effectiveness of the pipe, and in the processes, mechanisms and institutions that will use the knowledge once it emerges.

Andrew Barnett, The Policy Practice Limited, United Kingdom

References

1. For examples of these views, see paragraphs 10 and 13 of DFID’S Research Framework; see also Lederman and Malone (2003) R&D and Development, May 2003, World Bank website 
2. The ‘national innovation system’ approach was pioneered by Christopher Freeman at the Science and Technology Policy Research, University of Sussex, UK and Bengt-Åke Lundvall at the University of Aalborg, Denmark.
3. A good summary of the nature of the national systems of innovation approach and its application to developing countries is provided by Erik Arnold and Martin Bell (April 2001), ‘Some New Ideas About Research for Development‘, in Danish Ministry of Foreign Affairs: Partnership at the Leading Edge: A Danish Vision for Knowledge, Research and Development, p 288.