Table of Contents Cover Title Copyright Preface Introduction 1: Theories and Policies of Economic Development 1.1. The era of economic interventionism 1.2. The era of liberalism 1.3. The era of “good governance” 1.4. The system of “global governance” under scrutiny 2: Innovative Capacities and Systems of the South in Globalization 2.1. Innovation for economic development 2.2. Innovation systems and integration into the world economy 2.3. The difficulties of implementing innovation policies in developing countries Conclusion Bibliography Index End User License Agreement List of Illustrations 2: Innovative Capacities and Systems of the South in Globalization Figure 2.1. Strategy of innovative activities location of the global firm Figure 2.2. Industrial performance by region (1995/2010) Figure 2.3. The vicious circle of technological dependency List of Tables 1: Theories and Policies of Economic Development Table 1.1. Share of manufacturing in GDP by region, 1960-2017 (in %) Table 1.2. Development, global governance and institutional renewal 2: Innovative Capacities and Systems of the South in Globalization Table 2.1. Economic development by accumulation and use of tangible and intangible resources Table 2.2. Interaction between the formal and informal elements of the innovation system Table 2.3. Comparison between NIS of the North and of the South Table 2.4. Regional trends of growth in developing countries and countries in transition Table 2.5. Share of high school graduates pursuing higher education by region (1991 and 2004) Table 2.6. Domestic expenditure on R&D (in % share) Table 2.7. Spending on research and development (% of GDP) from 1996 to 2012 Table 2.8. Science and technology indicators by country group Table 2.9. The 10 most innovative countries in the world in 2014 and the positioning of emerging countries in the ranking of global innovation Innovation Capabilities and Economic Development in Open Economies Volume 1 Smart Innovation Set coordinated by Dimitri Uzunidis Vanessa Casadella Zeting Liu Dimitri Uzunidis First published 2015 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc. Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licenses issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned address: ISTE Ltd 27-37 St George’s Road London SW19 4EU UK www.iste.co.uk John Wiley & Sons, Inc. 111 River Street Hoboken, NJ 07030 USA www.wiley.com © ISTE Ltd 2015 The rights of Vanessa Casadella, Zeting Liu and Dimitri Uzunidis to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Library of Congress Control Number: 2015948060 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library ISBN 978-1-84821- 874-1 Preface Besides increasing inequality, poverty, hunger, disease and conflict, the impacts on poorer countries of the accelerating pace of technological change, globalization of sociotechnical transitions (energy, ecological and demographic), globalization of technofinancial strategies of firms and the trend toward standardization in the global economic space are problems to which the economic analysis of development must find solutions. Since scientific and technical knowledge of mankind are inexhaustible resources, the question is then how to turn such knowledge into useful goods and services and how to define their usefulness in different socioeconomic backgrounds where these goods and services can be introduced. So, in other words, the question is: what efforts should be made, and for which innovations in developing countries? Sustained innovation and proactive policy is needed to develop new production techniques and to produce new goods and services to meet local demand, but they must also be sufficiently demanded and reasonably competitive on the global market. The dialectic of development thus supposes that a double performance is needed: innovation to expand the local market; innovation to enter or to stay on the technological trajectories that are needed in the global market. For now, international technological disparities between countries (industrialized, emerging, middle-income, and less developed) remain significant. What would be the appropriate development models for promoting endogenous technology while simultaneously integrating into the imported knowledge production system? How are technology transfer vectors formed? How do national innovation systems emerge in different contexts and on what institutional foundations? How do policies contribute to organizing production systems? What are the limitations and how do we create the necessary conditions for connecting scientific and technical knowledge with tacit and local knowledge in developing countries? How do we evaluate the performance of such systems? In this book, we set out to present key intellectual mechanisms – conceptualized by our experience in the field – that support the integration of innovation in general development policy. This book is the result of works carried out within the Research Network on Innovation (http://2ri.eu) whose objective is threefold: to observe and analyze the innovation process, to theorize innovation systems and to promote research in economics and management of innovation. The Cité des Sciences et de l’Industrie in Paris, as well as the Institut CDC pour la Recherche of the Caisse des Dépôts group contributed materially to the production of this book. We would particularly like to thank Lamia Yacoub and Gwenaëlle Otando, the Tunisian and Gabonese researchers, respectively, for their valuable contributions to the study of active economic policies and new institutional architectures in developing countries. Dimitri UZUNIDIS President of the Research Network on Innovation August 2015 Introduction The study of development refers to standards that characterize innovative capacity, industrial competitiveness and economic performance of rich countries. Development policies therefore aim at bringing countries out of a state of “underdevelopment”, which must itself be defined in relation to these standards: widespread poverty, low production potential coupled with high population growth, insufficient promotion of natural resources, survival of an economic and social status described as “archaic”, disjointedness of the productive apparatus due to the coexistence of a modern extrovert sector and a traditional survival sector, etc. The question of the constitution of an economic system is paramount: the model, the structure and pace of economic development are schematically determined by political architecture. With this in mind, economic development is one of the most studied subjects in international economics. The fundamental differences are rooted in the mismatch between two fundamental economic approaches: liberal and interventionist. Development issues fuel a debate of great political acuity that itself refers to an ideological and theoretical debate. Indeed, the requirements and effects of globalization have propelled reflections on the legitimacy of an active economic policy based on innovation to the front of the stage [UZU 10c, UZU 10d, UZU 10e]. The fact is that a proactive role of the State would result in, according to the predominant neoliberal approach, extensive and unjustified interventionism, which is a stark contrast to the context of globalization. In fact, liberal principles and speeches advocating the neutrality of economic policy were developed around the 1980s with the supremacy of monetarist approaches and then, to some extent, embodied in the Washington Consensus, while Keynesian-inspired regulations were already “well-softened”. Recently, liberally-inspired approaches have been developed, which in fact singularly relativize the end of Keynesianism. Today, the idea of the State is still valid, even if its role is challenged in many politico-economic discourses. Indeed, from what the advent of globalization suggests, it is probably unable to consider the organization and development of the world on the basis of a simple interstate system. Hence the recurrent idea of global economic governance, which underpins that worldwide regulation is no longer reducible to the exclusive and independent regulation of States, which, as we shall see in this book, reduces the leeway of development stakeholders. Therefore, at a time when the world economy is mutating and sources of competitiveness are constantly changing, would it be wise to admit that globalization inexorably leads to the substitution of market forces for State interventions in favor of the economy? Otherwise, will a strong foundation for the active role of the State against the hegemony of the liberal approach that underlies globalization be found in recent economic theories (endogenous growth, post- Keynesian growth, neo-institutionalistic growth, etc.)? And so, with reference to theoretical developments as well as recent economic policy practices, what room for maneuver do States actually have to face the challenges of a globalized economy? Is the activation of innovation potential of the South an economic modernization that would allow these countries to beneficially integrate transnational processes of economic growth? These legitimate questions, which relate to both theoretical and practical reflections, encourage us to analyze the main elements they raise in the debate on the economic role of active innovation policies in the context of globalization. Our goal is to show that recent development, and seemingly paradoxically, economic policy is nothing other than the implementation of a renewed debate on the proactive role of the State. The term globalization refers both to: the strong integration of national economies into the international flow of capital and goods; and the establishment of international institutions (International Monetary Funds (IMF), World Bank, World Trade Organization (WTO)), a set of rules that ensure freedom of cross-border activities of companies. A transnational legal regulatory framework will tend to fall into place as the result of tensions and political compromises between States. This framework is based on the immutable principle in a market economy where capital must be valued at all times and by all means (financial, commercial and regulatory) with a view to improve potential profit-making. It is now a highlight of globalization that challenges the active and voluntary nature of national economic policies and weakens the role of the State in the development process. But a certain awareness of the challenges of globalization, and the opportunities and constraints it creates at all levels, seems to be renewing the debate on development issues. Within the context of this debate, there are some for which a global governance system would be the best answer, if not the only answer, to solving the proliferation of interests and conflicting objectives. They rely on arguments drawn from different theoretical approaches (which we will present later) to legitimize this intermediate system between the State and the global market. While for others, the global governance system would be the legitimation of a legal and institutional framework whose true aims are far from achieving the need for new development of the economy and global society. They, in turn, rely on theoretical arguments, but also on historical and recent events, questioning the validity of liberal policies advocated by international institutions. They relate the global governance system to an organizational mode that favors the interests of powerful economies and that embodies the supremacy of decision-making powers of multinational corporations and financial markets [UZU 10b]. While it may be theoretically and logically sustainable, this system seems a priori unable to achieve its objective of improving overall performance. Behind this inefficiency, multiple dysfunction problems loom, leading to a crisis of global governance system goals where the global governance system is itself linked to a crisis of legitimacy of recommended actions and stakeholders involved in the decision-making process [UZU 10a, UZU 10b, UZU 10c]. Our goal here is not to propose “ready-made” solutions to this problem, but rather to highlight the gaps in global governance that, until now, have separated us from the perspective of a harmonized, diverse and accelerated development. This analysis will form the first chapter of this book. The second chapter of this book is dedicated to the study of the main track that developing countries could take to strengthen their economies when confronted with the demands of globalization. The ability to innovate, in fact, allows an economy to improve its performance as well as those of its stakeholders (companies, institutions and individuals). But this capacity depends on the strength of national innovation systems (NISs). The concept of an innovation system is used to measure technological performance and to understand the growth and economic development of a country. The process of innovation and learning from the South differs from those in developed economies. Technology transfer is achieved through the construction of technological capacities and national efforts for absorption and diffusion of foreign knowledge. But this construction also involves the creation of more microeconomic learning processes that are based on indigenous and specific knowledge. The ultimate goal would be to understand the process of innovation in the form of actual construction of skills, with the aim of promoting economic development. But to do this, we will justify the implementation of active innovation policies; we will also discuss the challenges of innovative capacity building in developing countries.