The Dragon and the Elephant

"Elusive Dragon"
by Kamala (an Asian Elephant)
The Calgary Zoo
source: cyber animal art gallery

I have been attending a conference on innovation in China and India, titled “The Dragon and the Elephant”. It is being held at the National Academy of Sciences, and is part of the NAS comparative study of innovation processes in the world’s large economies.

The speakers make the point that China has a much larger economy than does India, and that it is only recently that India has achieved economic growth rates comparable to those long enjoyed by China. The Chinese have had a growth characterized by an emphasis on manufacturing, while the Indians have focused more on services. The Chinese have capitalized on their large market more effectively than have the Indians. The Indians have had a program more focused on Internet enabled exports. Both have achieved high rates of growth of per capita GDP by increasing total factor productivity, but the Chinese have been much more effective in capital deepening, and especially in attracting foreign direct investment.

China was described as having developed its manufacturing industry using its competitive advantage of low cost labor, and accepting low profit margins. It has kept the competitive advantage by increasing labor productivity and keeping very high rates of saving and investment. It is now seeking ways to move up the value chain, adding services that involve more knowledge intensive labor and justify a price premium.

One speaker noted that her company can relatively easily get patents in China, but can not enforce them, but they can not even get the patents in India.

Another presentation noted that it is only in the pharmaceutical industry that patent protection is really important to stimulate innovation. While globally the ICT industries are very important seekers and holders of patents, they wield collections of patents to protect larger positions, whereas the pharmaceutical industry profits from the exploitation of individual patented products.

India for many years refused to give patents on pharmaceutical products, allowing them only on the processes for producing those products. As a result, Indian industry developed alternative processes for producing products under patent in other countries, leading directly to the development of its strong place in the international market for generic drugs. The reform of the patent laws to agree with WTO guidelines has resulted in a surge of pharmaceutical product patent applications, and is causing some significant revisions of the industry in India.

I was especially impressed by a question from the audience toward the end of the day. Someone asked if the emphasis on national innovation policies would better be replaced by an emphasis on global innovation policies. The more I think about the question, the more I like it!

I suspect that openness to international competition is an important element in innovation policy in both the national and global context. For most countries in which innovation is important on a global scale, the need to innovate to compete would be a stimulus in the private sector. The argument that open markets and a uniform playing field contribute both to the rate of national and global innovation would be an important element in foreign economic policy. It would help to counter arguments from countries that seek to protect their domestic companies from innovating multinationals.

The question raises issues of harmonization of standards and IPR systems internationally, as potentially supportive of global innovation -- something that merits more thought. I think the world as a whole benefits from a higher rate of global innovation.

The issue is perhaps different for public goods. How does the world achieve an appropriately high rate of innovation in areas such as vaccines against HIV, new anti-malarial drugs, or means for monitoring environmental degradation? How do we fight freeloading and get countries to pay their fair shares of the costs of development of the needed technologies?

Sam Petroda is a great key note speaker!