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Rediff.com  » Business » World Bank's Chief Economist: Can India create a Silicon Valley?

World Bank's Chief Economist: Can India create a Silicon Valley?

May 10, 2018 09:43 IST

'There is no tried and true recipe for creating Silicon Valleys.'
'Attracting and creating a mass of truly dynamic entrepreneurs is at the core and among the hardest and most necessary ingredients.'
'In the US, close to 60% of the top valued tech companies were started by immigrants who found the start-up climate to be superior to where they came from.'
'India would clearly benefit from attracting back its talented Diaspora, but it also needs to hold onto those entrepreneurs.'

IMAGE: The Apple Campus 2 in Cupertino, California, as seen in this aerial photograph taken January 13, 2017.
Silicon Valley, as the southern part of the San Francisco Bay Area is called, is home to some of the biggest tech corporations in the world, including Apple, Google and Facebook. Photograph: Noah Berger/Reuters

The World Bank recently released a book on innovation in developing countries, The Innovation Paradox: Developing-Country Capabilities and the Unrealized Promise of Technological Catch-Up.

The book was written by William Maloney, chief economist, equitable growth, finance and institutions, World Bank, and Xavier Cirera, senior economist in the trade and competitiveness global practice at the World Bank.

"Attracting and creating a mass of truly dynamic entrepreneurs and researchers is at the core and among the hardest and most necessary ingredients," Dr Maloney, below, tells Rediff.com's Shobha Warrier in an e-mail interview.

 

Why did the World Bank write a report on innovation in developing countries? Was it because you found a huge disparity between the developed and developing countries in the way innovation was happening?

Innovation is a critical part of the World Bank Productivity Project. Differences in productivity account for about half of the differences in per capita incomes across countries.

Capabilities to innovate, including both invention and adoption of existing technologies, also account for a large share in productivity differences between developed and developing countries.

Why did you title the report, 'Innovation paradox'?

As the expected returns to investment in innovation are very high, yet the actual effort by most developing country firms is very low.

It's this paradox that we sought to explain and have developed policy recommendations to deal with.

How do you compare different developing countries as far as innovation is concerned?

One of the messages of this book is that the development community needs to invest more in measurement for benchmarking.

Some indicators, such as R&D spending as a share of income, are available for most countries. Yet it is only about one type of investment.

Other indicators, such as the share of firms that report the adoption of a significant new product or process are more relevant for developing countries.

But this data is complicated by the fact that entrepreneurs in different countries have different views of what a significant process or product upgrade would be.

In surveys we undertook, many firms that reported innovating made relatively minor upgrades.

Is economic development a major factor in innovation, as we see more innovations happening in the economically advanced countries? 

Innovation requires competitive and undistorted economies, adequate levels of human capital, functioning capital markets, a dynamic and capable business sector, reliable regulation and property rights.

Richer countries tend to have more of these conditions. This is at the root of the paradox.

Even though follower countries have much to gain from adopting existing technologies from the advanced countries, in practice, missing and distorted markets, weak management capabilities and human capital prevent them from taking advantage of these opportunities.

How much can the State contribute to making innovation happen?

There is a role for the State in resolving market failures in the national innovation system.

In advanced countries this mostly focuses on subsidies to R&D of various types, but in follower countries, all of the issues I mentioned before, need to work and the public sector can help to remedy them.

However, the fundamental driver of growth in the advanced countries has been a dynamic private sector with strong managerial and technical capabilities.

Removing roadblocks to their progress is another role for government.

Why do you think another Silicon Valley did not happen anywhere else in the world?
Can India create a Silicon Valley? What are the probabilities of that happening?

There is no tried and true recipe for creating Silicon Valleys, but numerous prerequisites are clear.

You need an entrepreneurial eco-system where all the basic issues of rule of law and trust, business climate, access to finance, global connectivity, ease of access to markets and inputs are all in place.

Labour legislation that both protects workers, but allows for the necessary flexibility to permit firms to be nimble in meeting technological challenges are also key.

Related to this is strong protection of intellectual property.

Without this, entrepreneurs will not have access to the latest technologies which are part of the building blocks of new technologies developed in India.

Excellence in the supporting research institutes, like Stanford or Berkeley is critical.

However, there must be incentives, indeed a vocation, to work closely with.

India may want to be sure that the present set of incentives for universities and think-tanks orient them in this direction.

Massive government subsidies to do R&D in institutions delinked from the private sector will prove unproductive.

Attracting and creating a mass of truly dynamic entrepreneurs and researchers is at the core and among the hardest and most necessary ingredients.

In the US, close to 60% of the top valued tech companies were started by immigrants who found the start-up climate there to be superior to where they came from.

India would clearly benefit from attracting back its talented Diaspora and entrepreneurs from elsewhere, but it also needs to hold onto those entrepreneurs who may see fewer barriers to productive entrepreneurship elsewhere.

Which do you think is the most impressive innovation that has happened in recent times?

I am very impressed with the CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats) genetic engineering tool that permits easy editing of DNA sequences.

The potential applications ranging from more productive crops to curing all manner of diseases are breathtaking.

With the disparity between the rich and the poor widening, which sector needs the most innovative practises so that the gap can get narrower?

No easy answer here. All sectors can benefit from upgrading and in fact, wages and hence family earnings cannot rise without improvements in output per worker -- productivity.

However, there are also some challenges to face.

In the advanced countries, automation has led to a hollowing out of manufacturing-type jobs leading to 'polarisation' of the workforce into high skills and more manual skills.

Our work suggests that this has NOT happened in India to date, but it is worth noting that we need to be vigilant that everybody benefits from progress.

Shobha Warrier / Rediff.com