Promoting innovation or promoting development?

Following an animated research group discussion this morning about the merits of corporate social responsibility, development and China in Africa that had one non-neo-classical economist pitted against an investment trade lawyer and the rest of us listening carefully, I got animated to go read the headlines of The Economist which I had not done this weekend.

This one headline caught my attention: Promoting innovation: Growth on the cheap | The Economist a report on a recent OECD publication.

When it comes to both innovation and development, infrastructure is what makes the difference. The infrastructure needs to be resilient in order to absorb the assaults caused by the nonlinear behaviour of economic systems (never loyal to neo-classical models) that include formal and informal economic ecologies, thus also crisis. What constitutes infrastructure, and where to you start to build infrastructure when there is little to no infrastructure available?

But what is the best way for governments to boost innovation? Sensibly if predictably, the OECD urges investment in education, research and “knowledge-supporting infrastructure” (such as broadband internet networks and smart electricity grids). Skimping on this while money is tight, says the agency, will cause growth to suffer in the long term.

I agree with this view that, old and as uninspired as it may seem, it all starts with education, moves to research, and then to the what is called “knowledge-supporting infrastructure” that also includes capable and inspired teachers. Is education the corner stone of infrastructure? If so, how do we address the issue? I know that there are lots of ideas around, and that somehow we all have come to this conclusion. See for instance how in this recent article by Nicolas Kristof highlights one problem faced when it comes to educating the poorest of the poor.

The OECD report has more to offer:

It suggests that governments should not merely encourage the supply of innovation (for example, by funding research) but also try to stimulate demand. Economies, after all, benefit not from the invention of new products or services, but from their diffusion. In countries that are good at commercialising new ideas, such as America and Norway, even newly founded firms coin valuable intellectual property (see chart).

Stimulate demand? How so? Why? I am critical when it comes to the idea of stimulating demand, it reeks of an ill advised preoccupation with the acquisition of goods from all directions, and it does not have one iota of sustainability in it. Innovation is not a consumer good, it is not a commodity either, it is an activity with a purpose and it ought not to be driven without purpose. Growth is not a purpose either, not in my book. Innovation is also not a discipline, but one can consider it a slave of need.

Now let’s take another tack on this issue, and from another angle. Deborah Brautigam writing in Foreign Affairs notes:

Over the past few decades, China has managed to move hundreds of millions of its people out of poverty by combining state intervention with economic incentives to attract private investment — the kind of experimentation that the Chinese leader Deng Xiaoping once described as “crossing the river by feeling the stones.” Today, China is feeling the stones again but this time in its economic engagement across Africa. Its current experiment in Africa mixes a hard-nosed but clear-eyed self-interest with the lessons of China’s own successful development and of decades of its failed aid projects in Africa.

I agree that “Knowledge is the main driver of today’s global economy,” as the OECD Secretary-General Angel Gurría said at the launch of the OECD Innovation Strategy in Paris recently. “Countries need to harness innovation and entrepreneurship to boost growth and employment. This is the key to a sustainable rise in living standards.” Again, I would take issue with growth. Growth does not automatically mean development albeit it be a  good proxy for the health of the economy. Still, growth alone does not mean that the lot of the whole population has improved or that poverty has been reduced.

What does innovation have to do with CSR?

To me the connection is simple. When multinationals engage in the activity of developing their suppliers throughout the world, then it is not just a matter of applying their own private standards of production and complying with a whole slew of regulations both in the production country and the ones where the products enter the market. CSR ought to go a bit further and develop the local economy beyond the extraction of goods, services and labour. But do they?

If I am reading the signs right, it seems that we are in the midst of shifting gears from a colonialist approach to developmet to a reflexive demand approach that is driven by the needs on the soil being developed. It is time for the OECD folks to recognize that the sign on the power balance equation has changed. What there is to export from here (OECD) to there (LCD) is capacity building.

For a few hard facts that help in understanding development issues, The World Bank’s Global Monitoring Report 2010, The MDGs after the Crisis is a good read (electronic version).