March 6, 2015
Being a hot topic of discussion, innovations seem to be everywhere. But when we try to take a closer look, they are like Winnie-the-Pooh’s best friend: ‘the more he looked inside the more Piglet wasn’t there’. Why don’t we have technological innovations in Poland despite the abundance of innovative ideas, start-up companies and support programmes sponsored by the government and large private corporations?
In my opinion, which is based on experience and expert literature, further growth is only possible if we leave the comfort zone of the familiar technologies and set off towards where we want to be in 50 years. Because social and economic growth are at stake, we need a compelling vision of where we want to get and someone who will share the costs of discovering the right way to get there. This is the role of the state in promoting innovation.
We know a lot about innovation. Economists understand it is a key driver of global economic growth. Although there is no single answer to the question of what drives innovation, it is generally agreed that it cannot be ordered by a government decree. Subsidising selected technologies helps reduce costs, but is no guarantee of market success, which only happens when a product can be profitably sold on a large scale when financial support is no longer provided.
We also know that certain economic systems are more conducive to innovation than others. For example, innovation is hard to come by in centrally planned economies, although within certain enclaves, like the military, the system did produce some revolutionary inventions. However, these failed to bring any economic benefits and contributed to the system’s collapse.
Market economies are conducive to innovation. Free market mechanisms are indispensable at the commercialisation stage of an invention as they help verify whether it can be profitable. But they are not enough. In any case, at a certain stage of development, known as ‘catching-up’, innovation is not a necessity, as perfectly demonstrated by Poland’s economy, which has grown consistently since 1993 thanks to well-designed modernisation. The difference between MODERNISATION and INNOVATION is that the former relies on technologies already available on the market. A modernisation-based economy grows faster, at a lower cost and without technological risk.
However, growth driven by modernisation eventually hits the barrier of excessive labour costs. And since the latest commercial technologies are available to everyone, it is labour costs that should be used as a leverage in the marketplace. A country’s inability to outmatch competition on marginal productivity of capital stifles income growth. And when we fall into the middle income trap, further growth loses its social significance. Growing GDP is of little use if it fails to spur income growth.
In order to avoid the middle income trap, we must reorganise the economy to encourage technological development based on the competitive advantages afforded by innovation. Since it is the role of the state to decide how production is organised, a lot depends on its policies.
What can be done by the state to support innovation? First of all, I would say that the relevant time scale in thinking about growth is economic time rather than calendar time − time horizons should be considered in the context of a transition from fixed to flexible potential. In the world we live in, the long-term horizon offers the most flexibility because we don’t have to bother know what new production technologies will be available in the future. We do not know exactly what they will be but we can be certain that such technologies will appear eventually and that some of them will be revolutionary and deliver true innovation. This, however, will not happen on its own. Innovations will be created and implemented by people. They will happen in economies that are already at work on developing what we may need in 50 years time in a world that will be the fulfilment of a certain growth vision. What is stopping us from becoming one of such economies?
The timescale alone means that this goal cannot be attained without state aid. Most importantly, we should not make plans about how to fulfil a vision, however tempting that may be, especially knowing our penchant for planning. Irrespective of the actual time horizon, planning is always medium-term in nature, because it only factors in the technologies we know today. A vision reaches much further, stepping into the realm of technological uncertainty, which makes it more flexible.
What about planning, then? How should we reconcile planning with a vision? Making plans is necessary. For instance, in planning how to balance energy demand and supply within the next 15–20 years we must consider only the available technologies as the lengthy investment cycle in the energy sector forces us to make certain decisions today. Creating a plan, we evaluate our ability to carry it through. And just like we should not exhaust all our borrowing power when taking out a loan, we should not make plans without leaving some leeway for the unpredictable. What if new commercial technologies emerge in 5–10 years and change the rules of the game? This exact scenario is playing out before our very eyes as the success of hydraulic fracturing, which no one predicted as recently as five years ago, is transforming the energy sector. The elaborate plans for the future made by some have failed, while those who had a vision and remained open to the inevitable change have been given an opportunity to thrive. Let us plan, then, but always be ready for change. Plans are not made to be fulfilled.
We now come to the issue of a long-term VISION FOR THE ECONOMY. Such vision cannot be based on future technologies, as these are yet to come. Instead, it should be technology-neutral, and it should factor in Poland’s relative place in the European and global economic landscape and tell us what we need to overcome the challenges ahead. Knowing all this, we can better anticipate technological breakthroughs and adjust our vision to what they may bring about. Unlike a plan, a vision is flexible. Its practical value is that it becomes our touchstone when new opportunities emerge, telling us where we are headed and what we want to achieve.
It is the responsibility of the state to lay down such a vision, as well as to fund primary research to make it happen. This goal can only be achieved by professionally-managed research institutes through government-sponsored national development programmes. This cannot be done by academic institutions alone, because they have a different mission: to advance science as a public good. What needs to be done is to create conditions supporting commercial activity, and produce building blocks that will be used by business to make innovative products and technologies. Deemed as either too risky for business or too business-oriented for science, such building blocks will not be created at academic institutions. We need a mediator with a vision, and this is where the state enters the scene.
At the announcement of the EU financial framework for 2014–2020, Polish Prime Minister Ewa Kopacz said that the record EU funding (half a trillion złoty) should position Poland well for another civilisational leap: “Poland is set to become one of the world’s 20 richest countries in the coming years. This is our dream, our goal and our commitment.” PLN 40bn will be spent on innovative research and deployment of the resultant innovations in the Polish economy.
We have the money and we know what we want to achieve in the near future. Let’s assume that our dreams come true. What happens next? If we seize the opportunity and enter the path of long-term growth, our incomes will continue to rise. What if we fail? What happens then? Is growth only about continuity or is there something more to it? I believe that we should look far ahead and have a vision, an idea of where we are heading in the long run. Difficult choices about possible growth paths should be made taking into account their long-term ramifications. Anna, the protagonist of the Academy Award-winning film ‘Ida’, was able to solve the ‘what next?’ dilemma, and we will too. We just have to look into the future – as far as the mind can see.