Learning Interactions Make for National Innovation Systems 154.0

Adapting Professor Bengt Ake Lundvall’s ideas for the Philippines

Productivity is the true source of wealth for any nation, in the final analysis. And sustaining productivity requires for that nation to innovate continuously on its productivity base.

Nations follow different strategies for innovation. The Philippines has survived through a strategy of trading services – by exporting the labor mainly of the poor or unempowered – rather than by innovation. This is a weak strategy – that keeps the national elite in place but weakens the nation – and ought to be used only to buy time, as originally intended during the first oil crisis in the 70s, while we seek a more robust strategy of wealth-building and country strengthening.

(Note: This is a rewrite of Post #17 that was poorly written and hard to understand. In part this was because at that time I was working on a self-imposed 350-word limit per post. This ought to be a big improvement.)

America uses a dual national innovation strategy – which is not necessarily one system – ostensibly based on free-market capitalism. One component that is founded on Eisenhower’s so called military-industrial complex has already yielded such gems like the Internet and the GPS. The other part, mainly for downstream applications and commercial diffusion, is the linked University and venture capital firms that is, for example, the foundation of Silicon Valley.

The Europeans and the Japanese, because of a historically powerful State, uses ‘national innovation systems’or NIS that is more structured. One of the key thinkers on national innovation systems is Bengt Ake Lundvall now of Aalborg University in Denmark.

I believe his ideas work better for a latecomer country, with limited resources, and in a catch-up mode, an emerging market.

I asked Professor Lundvall for a copy of his out-of-print 1992 book. Instead, he pointed me to his paper marked WPG07-01 written for the paper presented at the 5th GLOBELICS Conference in Saratov on September 19-23 2007 (Find link at bottom of this post). I thanked him heartily. Professor Lundvall, with Christopher Freeman (see Post #5) for some flow-of-knowledge citation), wrote first about national innovation systems (NIS) in 1981.

Four points from his paper impressed me as the logical keys to the NIS process.

1. From its roots with Joseph Schumpeter and Friedrich List, learning and new knowledge are the drivers of innovation and technical progress (i.e. Total Factor Productivity) and, thus, eventually of productivity and national wealth.

2. There are two kinds of learning: STI-learning (science and technology to innovation) and DUI-learning (doing, using and interacting). The two types work in a virtuous cycle to produce innovation. The driver for the choice of innovations is market need and, as in #3 below, is facilitated by strong growth in the marketplace.

For countries, STI-learning is often the focus of innovation systems because of the absence of metrics to justify DUI effects. Science and Technology (S&T) have mystique and in the first world, and especially in support of war efforts, S&T is critical for military strength. For STI metrics in modern times, neo-classical economists derive effects from proxies like new patents and PhDs. Institutionally, STI is often the responsibility of well-defined departments like the Department of Science and Technology (DOST) in the Philippines.

DUI-learning, on the other hand, is often covered by other departments but not as learning or as primary responsibility. The Board of Investments and Department of Trade and Industry, for example, use volume of activity rather than learning as measure of accomplishment.

From these, my own view of the weakness of DUI-learning, at least in the Philippines though a study about Thailand shows a similar weakness, is institutional in nature. Except for very few like former Secretary Ceferino Follosco of the DOST, no one stands for DUI-based innovation as part of learning.

3. Demand-pull from growth gives the widest route to innovation. As drawn above, continuous interaction between STI and DUI in a vector-driven, virtuous cycle to create ‘global, explicit’ knowledge is the effective mechanism.

The Philippines did not achieve technical progress because growth was zero (no factor accumulation – Post #11). STI efforts led innovation while DUI as learning-by-doing was nil because industry was being hollowed out.

Also, as noted in Cororaton, there was hardly any DUI learning between the export and local sectors because of the dual economy. The volume split flattened the learning curve. There were efforts to connect the two via common service facilities, and customs-bonded warehouse, etc. The tariff wall between export and local market and, anecdotally, (a) higher prices and margins with (b) less quality demand by the local market worked to push and pull the Philippines into a dual economy.

4. Professor Lundvall suggested the NIS as a focusing device with firms at its core. For the Philippines, much work needs to be done at the wider setting– the political economy– to reverse the hollowing out of the industrial sector, if at all still possible with the dominance of China in most things industrial, and rebuild DUI competence-building.

An alternative strategy is to evaluate post-industrial sectors, I,e, service, like medical care, ship manning, business process outsourcing, where the Philippines is successful but positioned only as an alternative low labor cost supplier. Looking at the value chain of these sectors, it may be possible via innovation to find ways to capture more of the value adding for the country.

One way to do this is to ask the typical Hamel and Prahalad question (Competing for the Future, 1994), “Where will the industry-market be in, say, five years?” Then, develop new products and services, and manage change, to converge our local firms with the industry as leaders in five years.

Professor Lundvall’s NIS concept (he refuses to call it a general theory, a rallying cry for scientific revolution and paradigm shift) binds together aspects of the Philippine innovation system – or more precisely the lack of it – into a problem that can be solved.

In doing so, we can use the opportunity presented by the post-industrial sectors to innovate a more robust wealth-creating and strengthening strategy for the Philippies.

Note: Please visit Professor Lundvall’s paper, “post script (WPG07-01)” written for the 2007 GLOBELICS. I thank Professor Beng-Anke Lundvall for allowing us to feature his paper.