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Asia is using technology to build new models for delivering goods and services to its vast low-income populations. Many of those models will lead to powerful innovations for global markets. -
The US relies on market forces to spur innovation, but it's starting to lag behind nations that make innovation a national priority with policies that support research and education.
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Iqbal Z. Quadir
Why Asia can take the lead
Asia is positioned to generate a torrent of new products and services that could make it the global leader in innovation. China and India are fast adopting modern technologies and making great economic strides. South Korea, Taiwan, and Singapore have already leaped forward. Yet all of these countries were among the world’s poorest only a few decades ago. With this momentum, Asia could become the center for innovation in the 21st century.
But that outcome is hardly certain. Asia has much to overcome: the region has adopted innovations primarily from abroad; about 45 percent of its four billion people live on less than $2 a day; the average Asian income is only 40 percent of the world average; other than Japan, successful Asian economies are newly industrialized; and many Asian governments are weakly democratic or nondemocratic.
Yet adversity can foster innovation, and innovations can convert adversity into advantage. Indeed, Asia has been doing just that. The region has generated innovations—defined here as new ways of doing things that have actually been put into practice, not patents or good ideas that haven't—in at least five ways. Each could generate innovations at an even faster pace in the not too distant future.
First, innovations often emerge from existing technologies. Electricity, for instance, was not harnessed originally to facilitate computing or wireless communication, but it led to these transformative innovations. Likewise, Filipinos and Indians are innovating in ways to transfer money through mobile phones, which were originally invented in Western countries for other purposes. Thus, when technologies—no matter where or why they were invented—are applied to diverse contexts, they provide a foundation for previously undreamed-of permutations and combinations.
Second, 1.8 billion people in Asia live on less than $2 a day. Although India is considered an IT powerhouse, more than one billion Indians lack Internet access. However, the self-interest of Asia's considerable commercial entities will compel them to engage vast low-income populations in serious commerce. That will require new products, approaches, and forms of employment and participation. Microcredit and innovative distribution schemes for solar panels, cell phones, and drip irrigation systems in rural communities are examples of ways to engage the traditionally unengaged.
Third, Asia's companies know that by addressing low purchasing power, they can reach vast markets. The lure of these markets is pushing them to search for ways of achieving dramatic savings in energy and materials. Tata's affordable, fuel-efficient Nano automobile, for example, caters to low-income markets, but its impact may extend well beyond them. Admittedly, the environmental effects of the Nano remain to be seen because it will probably translate into more cars on the road and the product itself has yet to mature. However, the thinking behind the Nano and the practical experience that will result from its use could lead to innovations for global markets that increasingly must reckon with climate change.
Fourth, while Asia's late industrialization implies a weakness in fundamental research, it also means that the region is less locked into old infrastructure and legacy technologies and more willing to adopt new ones. For instance, 95 percent of South Korean households have broadband Internet access, while only 60 percent of US households do.
Fifth, though vast amounts of human energy and ingenuity remain dormant beneath Asia's weakly democratic or nondemocratic regimes, this is changing rapidly. Recent events in Iran—whatever their eventual outcome—demonstrate the potential for the Internet, mobile phones, and Twitter to bolster democratic pressures. As democratic forces gather steam and people become more empowered, new entrepreneurial activities and innovations will follow.
These forces of innovation are self-reinforcing, their effects cumulative, and their impact exponential. Together, they can make Asia this century's global center for innovation.
Robert Atkinson
America's policy problem
Investment literature warns that “past performance is no guarantee of future results.” This advice should be attached to anything written about the innovation position of the United States vis-à-vis Asia. All too often, defenders of the status quo dismiss Asia’s prospects as an innovation leader because the United States has been the leader for so long—and they assume it will continue to be. But past performance in innovation is no guarantee of future performance, as we have seen with one-time leaders that have lost their advantage, such as Germany and Great Britain. In fact, while the United States once led the world, it no longer does by many measures, and absent significant changes to public policy, it won’t in the future. Asia will.
Already, the United States lags behind other countries in innovation-based competitiveness. The Information Technology and Innovation Foundation (ITIF), which I head, recently published a report called The Atlantic Century. It used 16 indicators to examine the innovation-based competitiveness of 40 nations, including the United States and five Asian nations (China, India, Japan, Singapore, and South Korea). We found that the United States is sixth, not first—behind Singapore, Sweden, Luxemburg, Denmark, and South Korea.
Strikingly, the ITIF found that all of the 39 other countries studied have made faster progress toward an innovation economy over the last decade than the United States has. Dead last is not good either in sports or in innovation-based competitiveness. Among Asian nations, China made the most progress, followed by Singapore (2nd), Japan (10th), India (14th), and South Korea (17th). While the United States ranked 30th in the rate of growth of corporate R&D as a share of GDP, China ranked 4th and South Korea 10th. The United States ranked 29th in growth in the number of scientific researchers as a share of total workers, while China ranked 1st, South Korea 4th, Singapore 5th, and India 10th. If these different rates of improvement continue, as they are likely to, without significant policy changes in the United States the US position will probably continue to fall and Asia’s will likely rise.
One reason many observers maintain their faith in US innovation leadership is that they focus only on the core strength of the United States: its strong market and business environment, which are conducive to innovation. The culture of the United States is more entrepreneurial than that of many nations, including China and Japan. Many US firms continue to be leaders in innovation. But national innovation leadership also depends on having a strong innovation policy system, and on this score the United States is at risk.
Unlike most leading Asian nations—including Japan, South Korea, Singapore, and China—the United States does not have an explicit national innovation policy. Other nations have developed explicit and strategic national innovation policies that, among other factors, include generous tax incentives and direct funding for innovation. In the United States, the continued dominance of neoclassical economics doctrine, which holds that the market will take care of everything, means that efforts to develop similar strategies here are attacked as heavy-handed industrial policy. In fact, the emerging field of innovation economics makes it clear that markets, left to themselves, will underperform with regard to innovation and that they need to be complemented by strategic innovation policies: generous R&D tax credits and capital investment incentives, strong support for science and technology (including efforts to ensure an adequate supply of scientists and engineers), and other related policies. The short answer to the question of whether Asia will lead is that it will do so if the United States lets it by continuing to rely on market forces alone to generate innovation leadership.
07 May 2010 · 08:42:14 PM GMT
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India may have the potential and ability to be a leader in innovation. But given several impediments to innovate in the soci-political-economic “sphere”, it is wishful thinking to say India will lead innovation. Of course, there are plenty of commissions and policies that the government can come up with. The Indian education system churns out huge number of graduates. But how many of them have been taught to think, inquire and above all take pride in what they have learnt. The education system which continues to test people on rote learning is a barrier to innovation. The economic situation of many forces them to have secure jobs (preferably IT) which may require them to do routine jobs and take few risks. Innovation requires sustained ability to invest and neither the government or organizations nor individuals have the ability or willingness to make such investments and take risks.
It may perhaps be interesting to base conclusions of India leading innovation base on examples of having lead, in any sphere. I am still searching :-(
The 2 key barriers to overcome, in my opinion are:
1. Education reforms, including evaluation reforms. Starting more IITs or IIMs is not the solution. The admission process of such institutes is flawed. Kids who have slogged at coaching institutes who are also lucky on the day of the exam will make it to the IITs and many other smart kids who were not that lucky will be “stuck” in mediocre colleges.
2. Support from the government for private/public research programs.
Posted 15 July 2009, 21:33 by Raghu Hudli
Conspicuous by it’s absence in the debate on the future of US healthcare is the fact that the US healthcare industry has been the primary engine of innovation for the past 60 years. Focusing only on “access” and “cost” of health care and looking to the example of what has happened to innovation in the field since healthcare has been nationalized in Europe should give us all pause. The contributions made to longevity and quality of life by healthcare companies, particularly those that are R&D based have been phenomenal. Unless the debate is enriched with this fact, the direction I fear is likely to kill the goose that has laid the golden healthcare egg. That reform is necessary is not the debate. All agree that we cannot continue to have a healthcare system that excludes so many and the cost of which is the fundamental cause of bankruptcy for so many familes every year. Should we however risk “throwing the baby out with the bathwater”; I hardly think not. In the current administration’s zeal to “get something done quickly” there is an enormous risk that the unintended consequences will be crippling to future innovation in healthcare and that would be a legacy that none of us would wish on future generations. Additionally, reform in the US healthcare system will never be complete without fundamental tort law reform. I see precious little being said about this major factor in cost of healthcare. It needs to be considered along side all of the other major factors NOW, and not dealt with in some fashion after the horse has left the barn.
Posted 15 July 2009, 16:55 by Richard Smith
There has been tremendous innovation in the USA. Look at Wall Street and count how many top class mathematicians and physicists are employed there , innovating how to profit from designing new types of Ponzi schemes. Just imagine if these talents and resources could be reallocated to doing some real innovation in the economy. The US needs to change its culture to provide proper incentives to scientists and engineers to stay and develop in their professional fields, not just money but respect and recognition. Let US public companies stop paying CEOs (financial wizards/managers) 200 times the average wage of workers. Unfortunately, consumers in the USA have become fat and lazy living of cheap imports from China and elsewhere. Real estate selling and financial services are not activities requiring a great deal of innovation.
Let’s get the kids properly educated and give them the incentives to work hard and compete. Otherwise, this country will become a middle income country in a decade!
Posted 15 July 2009, 16:07 by S. Banerji
Here is a comment on the Atkinson’s part of the article. The statement: “markets, left to themselves, will underperform with regard to innovation and that they need to be complemented by strategic innovation policies”- is imprecise. Dangerously imprecise.
It very well may be in the current economic situation, the policies promise a quick pain killing effect. In the long run it doesn’t cure the trouble which eats us. The point is missed systemically in the article.
It all starts with the metrics. There is a bunch of metrics mentioned. All of them resembling looking at a snapshot and trying to guess how the composition came about to exist. It is not possible unless the understanding is far beyond the snapshot information. The extensions, the assumptions are out of the article’s scope. The majority of comments confirm the subtle need to discuss the parameters.
My take is that the metrics to look after is an entirely different set. They are not static characteristics: who, where, what. The set comprises of dynamic characteristics. One of them could be innovation efficiency. At the end of the day it doesn’t matter how much R&D spending do you have, but what you achieve with it. If the efficiency is low you can have all the resources of the World and live in a stale economy. This is what happens in the USA today. (Sample data, 2008, for technology businesses. Technical innovation efficiency by nations: USA – 100%, Russia – 234%, Germany – 159%, France – 122%, China – 41% ,India – 50%. Economical innovation efficiency by nations: USA – 100%, Russia – 163%, Germany – 90%, France – 107%, China – 68%, India – 156%)
The classic approach (and the one represented in the article) links innovation capability to the resources available for R&D. It is still there on the micro scale. On the macro scale of the nations it becomes secondary.
Since the coaxing of resources for the new tech is the primary improvement paradigm in the article, the question – Atkinson answers – is how. The trick is a shift from free market to planned economy. It is generally known that free market is an expensive system, but delivers more even and just resource distribution and opportunity utilization. The planned economy achieves better results with limited resources. It is cheaper system in maintenance and resource distribution (the potential gain.) On the downside are wasted opportunities, destructed optimal resource allocation, and inherent tendency to stop progress as the qualifications and motivations of the planners rapidly decline over time. The later is the danger we are facing.
Unchallenged planners, who are protected by the policy framework, are significant threat. Planned economy is a club with a fancy entry gate and no exit. As soon as we enter the policy making mode and the majority of innovation will be channelized by government, there is a huge risk that private R&D will not be able to keep up with the subsidized services. Upon the dye off of the private sector and over time the competency of the governmental decision makers will decline (for example compare Germany’s economical innovation efficiency.)
IMHO, the shotgun (general policy) approach isn’t acceptable here. Direct governmental interventions in innovations should be restricted to the pick and point approach. That is if the government senses, there is capital deficiency in the private sector (like in the space case), it should impact. Otherwise the tax payers’ money are better spent on education, seed funding, you name it, rather than on innovation policies and whole cycle investments.
Posted 15 July 2009, 12:17 by Konstantyn
Arguments on both sides are thought provoking and have been quoted often. Interesting how the baggage of Asia is what can launch it as an innovation powerhouse and lack of policy in the US can slowly eat into the market forces that encouraged innovation.
However neither is compelling; neither talks about what is the tipping point for a culture of innovation to take off. What forces came together to make Germany and the UK and then the US later, the leading forces that they bacame in innovation. It seems that Asia is going to follow a different path given its demographics and other factors.
Can demographics, in the case of India, create a culture of innovation that is scalable? Can one Nano herald a beginning for nation of 1 billion people?
What is the combination that can raise the probability of a nation leading innovation at a global level
Posted 15 July 2009, 09:10 by kamini banga
I disagree as far as india’s innovation on deliverance mode is concerned for the following factors:- a) 70% population lives on $1 a day,uneducated,poverty ridden,confronted by lack of civic amenities even drinking water,sanitation,med, not only this they are unaware of their rights and obligations towards the society,nation.And above all they elect the leaders to lead them.out of 543 parliament members nearly half of them have tainted persons sitting there to formulate the public policies.
b)in 62 years of independence ,what appals the masses that nation failed to catch up the culture,ethos and national spritand continued to rule the masses with the colonial mindset, rules,procedures,systems,and even with the outdated laws. the bureacratic system known as the world’s most corrupt, inefficient performers remains totally devoid of the social needs,aspirations of the masses. the judicial systems also eroded the faith in the people minds to the extent that public started treating the judges with malice.
c) late churchil said that india then was not fit for freedom and the political system will become corrupt,followed by the civil servants and later by the defence forces.it seems come true. there is nothing to deter as criminals and offenders take shelter under the delayed judicial procedures.
d)indian youth is directionless, as the education system lacks realistic approach to make their life path successful.
all the above factors besides betrayal of human rights,powerless to change things,indignant bureacracy,despairing environments overflowing with corrupt practices,yet proud to be indian; in the hope that right thinking people will emerge and bring amelioration to the infested delivery system for the benfit of the masses.
and that may bring an expected change in real sense.That,indeed will be a grand innovationn for india to grow.
Posted 15 July 2009, 02:38 by profhmj
The end of the cold war, (space and arms race with their respective research infrastructures), the cutting of university research funds driven by sharp losses in endowments, the cuts in corporate long-term R&D budgets driven by the need to please Wall St which seems incapable of focusing on anything but quarterly earnings add up to very significant reductions in basic and applied research. – All this at a time when the technology gap between countries capable of producing goods at significantly lower cost has closed very substancially….
Yes, the US still has a number of innovation-relevant ecological advantages going for it as is pointed out in the articles, but will this be enough to fill the tank? Can value chains continue to be owned/controlled by the West, even if they are now no longer sustained by the center (i.e. by controlling the links that provide the technology and manufacturing), but rather by the periphery (by the links that control logistics, distribution channels and brand). Common sense would say “not indefinitely”. Absent effective countervailing policy, one would expect sisemic change at some point.
Posted 15 July 2009, 01:17 by Rafael Fernandez-MacGregor
I donot agree with the fact that India and China will take the lead in innovation. Both countries will grow more than the world average because of the potential to grow.There are a lot of people who are poor and lacks the basic infrastructure. The present policy of those countries in spending in infrastructure will boost the economy. Whereas the growth of China’s economy is investment led, India’s growth will be consumption led.But in terms of world class higher education in US the major innovation will come from them. Due to the conducive atomosphere of innovation, synergy between industry and academia, US is the destination of bright minds of the world. The innovation that has happened in South Korea, Singapore is an imitation of the technology already discovered and adopted in US. The Incheon city of South Korea is an example where the latest discovereies of CISCO has been implemented. To summarise, the China and India lack the ecosystem for innovation at this moment.
Posted 15 July 2009, 00:09 by Prasanna Prakash Panda, India
US companies have found many innovative ways to get people in other countries to smoke our cigarettes.
Posted 14 July 2009, 23:42 by Michael
Agreed. We need better educational systems, multidisciplinary teams, collaboration and all the reast. America must also maintain its freedom for exploring ideas and supporting change and risk taking. The newest wave of American ingenuity includes the thinking, products and business results of Apple, Google, and WalMart. There’s a spark we have that is a reflection of who we are. Asia can copy – and improve on – our best, but that spark will continue to differentiate us.
Our Achilles heel, I’m afraid, is that our most-well funded and heralded companies and universities are weighed down with the legacy thinking and experience of older, white men. Please move over – the face of American innovation MUST look different and reflect our current population as we go forward in the global economy.
Posted 14 July 2009, 21:13 by Terri Nimmons