Wednesday, September 26, 2007

Thinking About Growth Through Innovation

At the meeting on innovation policies in India and China I was struck by a comparison of China, India, Israel and Ireland. They are all technological innovators, but India and China are huge countries while Israel and Ireland are small countries. It occurred to me that it might be worthwhile to consider innovation in other than a national perspective.

We know that the key innovation clusters in India are located in Bangalore and Mumbai; those in China are in Beijing and Shanghai. In both countries, as in the United States, many cities do not have innovation clusters, and rural areas are unindustrialized. In Europe, a lot of ICT innovation takes place in Scandinavia, but many other countries fail to innovate as much as do Sweden, Norway, Denmark, etc.

It occurs to me that technology investment is focused into areas that have access to large markets. Silicon Valley and Beijing have access to large markets in the United States and China respectively. Scandinavian countries and Ireland have access to the European common market. Israel is a special case, denied access to the markets in the other countries in its geographical region, it enjoys a special access to markets in the United States and Western Europe. India had developed an innovation based industry taking advantage of the Internet and global information infrastructure to tap an emerging global market for tradable services such as software and Internet enabled services.

It is pretty well known that there are cluster effects that encourage new technology firms and existing firms seeking new sites to locate where there is an existing cluster of similar firms. In part this is believed to be due to the technological spillovers among firms, and in part to supporting institutions tailored to the needs of high tech industry, such as financial services, labor markets and other human resource institutions, and markets for intermediate goods and services.

The emphasis on national innovation policies found in so many countries and forums suggests that the policy domain is important. However, companies make location decisions not only on the basis of national policies but also on the attractiveness of the local setting. Local policies and offers seem to count.

Adequate knowledge and human resources seem to be a necessary but not sufficient condition for the development of an innovation cluster. An open environment also seems important. The environment must be sufficiently open that knowledge workers and companies can network with others. Once a cluster takes off, the environment must be open to the immigration of people with the necessary skills. In some (small) countries human resource growth has been accomplished by repatriating expats, while in other (large) countries growth has been accomplished by internal migration.

Policies to promote the development of innovation clusters therefore include those which open markets and open borders, as well as those which open knowledge systems.

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