L/O/G/O National Innovation System and Developmental State Model: Insights for Indonesia Rully Prassetya The University of Tokyo-NUS
What they said about Indonesia Roubini: Goodbye China, hello Indonesia. Nouriel Roubini, 2011 The Indonesian Tiger: story that you missed in 2010. Foreign Policy, 2011 The 7 th -largest economy in the world by 2030. McKinsey Global Institute, 2012
Outline Introduction Concluding Remarks National Innovation System Insights and Reflection Developmental State Model
Outline Introduction Concluding Remarks National Innovation System Insights and Reflection Developmental State Model
Present vs. the Future Source: McKinsey Global Institute, 2012
GNI Per capita in Current USD PPP Indonesian GNI Per capita has grown at around 6.5% annually since 1980; or around 7% since 2004 6000 5000 4000 3000 2000 1000 0 Source: World Bank, 2013
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 GNI Per capita in Current USD PPP Indonesia started with higher GNI per capita than China and India in 1980, but was surpassed by China in 1999; so is between Malaysia and Korea 35000 30000 25000 20000 15000 10000 5000 Indonesia China India Thailand Malaysia Korea, Rep. 0 Source: World Bank, 2013
Introduction We run fast but other run even faster,, Finding the road ahead looking at two models of developments.
Outline Introduction Concluding Remarks National Innovation System Insights and Reflection Developmental State Model
Introduction Differences in development are mainly caused by technological differences (Gerschenkron, 1962). In another word, technology is considered as the driving force of growth and development (Lucas 1988, Romer 1990, Aghion and Howitt 1992) The importance of Innovation and adoption/diffusion.
Introduction (Cont d) Science, Technology, and Innovation (STI) policy Traditional (neoclassical & linear) vs. system approach Innovation system Interdependence and non-linearity; Focus on the learning process; Emphasize the role of institutions; Interaction: competition, transaction, and networking; All important economic, social, political, organizational, institutional, and other factors that influence the development, diffusion, and use of innovations;
Example: Japan s NIS Late comer advantage and government policies; Willingness of the private sector to respond to opportunities; Japanese management system; Good basic education system in Tokugawa era; Importation of advance technology + promoting domestic technological base Technological progress;
Example: Japan s NIS (Cont d) The case of TiO 2 photocatalyst by Professor Fujishima and Hasimoto of Tokyo University (Baba, et al., 2010). Source: Baba, et.al., 2010
Commonality across countries Market economy; The bulk of education, including university education, is provided by public institution; Government is presumed to have major responsibility for funding if basic research; NIS is shaped by factors such as size and resource endowment which affect comparative advantage at a basic level; but also reflect a conscious decision to develop and sustain economic strength in certain areas (shape and build comparative advantage).
Key Points The firms in the industry were highly competent in what mattered to be competitive in their line of business; The responsiveness of university to the training needs of industry. National fiscal, monetary, and trade policies must spur national firms to compete on world market.
The Triple Helix Firms University Government
It shows the central role of government (policies) for nation s development
Outline Introduction Concluding Remarks National Innovation System Insights and Reflection Developmental State Model
Introduction Attempt to explain the rapid growth of Japan, Botswana, South Korea, Taiwan, Singapore, Indonesia, and Malaysia. Based on Adrian Leftwich (1995) on Bringing Politics Back In: Towards a Model of the Developmental State. The Journal of Development Studies, 31(3), pp.400-427.
The model Developmental state Its political purpose and institutional structures have been developmentally-driven, while their developmental objectives have been politically-driven. States whose politics have concentrated sufficient power, autonomy, and capacity at the center to shape, pursue, and encourage the achievement of explicit development objectives.
The Model (Cont d) A determined developmental elite Repression, legitimacy, and performance Relative autonomy Effective management of non-state economic interest A powerful, competent, and insulated economic bureaucracy A weak and subordinated civil society
The Model (Cont d) Is it a sustainable model? Singapore and Malaysia recent election. Key takeaways: The importance of strong institution and good governance Get the politics right The role of media and civil society
Outline Introduction Concluding Remarks National Innovation System Insights and Reflection Developmental State Model
Insights National Innovation System Firms/entrepreneurship Education system and universities Government policies Developmental State Model The importance of strong institution and good governance Get the politics right The role of media and civil society
Reflection from NIS Firms Key Points Reflection How many research-driven firms Indonesia has? Does Indonesia has internationally competitive firms in its industry? Education and university Has our education system provide the necessary skills? How strong is cooperation between university and private sector? Or maybe a basic question, do our people receive basic education? Government policies Have government policies encourage firms to compete globally?
Reflection from Dev t State Model Key points Strong institution and good governance Get the politics right The role of media and civil society Reflection How far has our bureaucracy reform gone? How to improve the governance? Should we go back to autocracy? How our democracy could be improved? Has our media play its role well? Is it independent? Capacity building on civil society.
Where we are now: Firms 66% of export in 2011 is in nonmanufactures; while 60% of the import is in manufactures. Commodity Export Import Agricultural products 24 12.7 Fuels and mining products 42.2 26.6 Manufactures 34.1 59.9 Source: WTO, 2013 Ranked 17 th in country manufacturing competitiveness index ranking; expected to be in 11 th place in five years (Deloitte, 2013). No firm listed in Fortune Global 500.
Where we are now: Firms (Cont d) 100% The share of industry in the economy is around 43% in 2012, slightly decline from 45% in 2000 90% 80% 70% 60% 50% 40% Service Industry Agriculture 30% 20% 10% 0% 1970 1980 1990 2000 2012 Source: World Bank, 2013
Where we are now: Education Lack of management pool (84%) and skilled workers (69%). Ranked 40 th out of 40 countries in Pearson Cognitive Skills and Educational Attainment Ranking. University ranking (Asia/World) 2012: UI (59/273); ITB(129/451-500); UGM (133/401-450); Unair (145/601+). Any collaboration between university and firms?
Where we are now: Education (Cont d) Source: Hill and Wie, 2012
Where we are now: Government Ranked 118 th in CPI 2012, down from 100 th in 2011 (Transparency International, 2012).
Where we are now: Government (Cont d) Indicator Score Rank Gov't services for improved business performance, 1-7 4.461279 21 Wastefulness of government spending, 1-7 (best) 3.828313 32 Favoritism in decisions of government officials, 1-7 (best) 3.794937 35 Burden of government regulation, 1-7 (best) 3.722343 48 Intellectual property protection, 1-7 (best) 3.729093 60 Public trust in politicians, 1-7 (best) 3.009729 60 Efficiency of legal framework in challenging regs., 1-7 3.763165 63 Diversion of public funds, 1-7 (best) 3.363889 65 Efficiency of legal framework in settling disputes, 1-7 (best) 3.781631 66 Judicial independence, 1-7 (best) 3.568954 76 Property rights, 1-7 (best) 4.056038 82 Transparency of government policymaking, 1-7 (best) 4.150774 82 Reliability of police services, 1-7 (best) 3.909306 85 Business costs of crime and violence, 1-7 (best) 4.310225 98 Irregular payments and bribes, 1-7 (best) 3.198246 111 Organized crime, 1-7 (best) 4.140086 116 Business costs of terrorism, 1-7 (best) 4.583048 121 Source: World Economic Forum, 2013
The hope is still there 24% of population enrolled in tertiary education in 2011, up from 16% in 2004 (World Bank, 2012). National budget increase four-fold in nine years. Education spending on national budget is 20% since 2009 ( spending quality?) Improving political stability subject to 2014.
The hope is still there (Cont d) Life expectancy increase 17 years compared to 30 years ago. In 1960, 1.6 years of schooling, 68% of the population aged 15+ had no or incomplete primary education (Hill and Wie, 2012).
The road ahead Increasing the value added activity (building up technological capability). Foreign Direct Investment Technopreneurs Commercial oriented /applied research. Stronger univ-firm cooperation Improving education and university quality? Government Industrial and competition policies; Improvement in institution quality.
Outline Introduction Concluding Remarks National Innovation System Insights and Reflection Developmental State Model
Concluding remarks It depends on us.
L/O/G/O Thank You!
Reference Baba, Y., Yarime, M. & Shichijo, N., 2010. Sources of success in advanced materials innovation: the role of "core researches" in University-Industry collaboration in Japan. International Journal of Innovation Management, 14(2), pp. 201-219. Deloitte. 2013. Country Manufacturing Competitiveness Index Ranking 2013. Hill, Hal and Thee Kian Wie. 2012. Indonesian University: rapid Growth, Major Challenges. Presentation to the ANUS Indonesia Update Conference 2012. Leftwich, A., 1995. Bringing Politics Back In: Towards a Model of the Developmental State. The Journal of Development Studies, 31(3), pp. 400-427. McKinsey Global Institute. 2012. The archipelago economy: unleashing Indonesia s potential. Transparency International. 2012. Corruption Perception Index 2012. http://www.transparency.org/cpi2012/results. Nelson, R. R., 1993. National Innovation System: A Comparative Advantage. Oxford: Oxford University Press. World Economic Forum. 2013. Global Competitiveness Ranking 2013. http://www.weforum.org/issues/global-competitiveness.
Appendix 1 Government s role in NIS Encourage firms to cooperate in R&D; Activate venture capital; Fund research at universities and public laboratories (sectoral);
Country Appendix 2 National Innovation System National Innovation System US Characteristics: o Enormous scale of national R&D investment; o The changing role (as performer and funders) of industry-university-and federal government; o The importance of new firms in commercialization of new technologies; o Public policies: (1) anti-trust legislation; (2) military R&D; As of 80s: relatively weak national innovation system: slow in adopting new manufacturing process; little strategic planning in innovation system; Japan Late comer advantage and government policies; Willingness of the private sector to respond to opportunities; Japanese management system; Good basic education system in Tokugawa era; Importation of advance technology + promoting domestic technological base Technological progress; Germany Early development: Education (universities; technische hochschulen); Specialized research organization; Current technology policy: cooperation among firms or with public research organization (in microelectronics, robotic, computer added design and manufacturing, biotechnology); indirect government support (tax credit; national laboratories and departmental laboratories); Support to aircraft industry; science park and innovation centers. Failure in 1980s: full-funding from the government on research projects; Challenges: Lack of managing role from Federal Ministry of Research and Technology; reforming higher education sector.
Appendix 3 Development of Electrical and Communication Equipment in Japan The technological lag was not far; Imported technologies were not discontinuous from domestic technologies; Domestically educated engineer assimilate the western technology; Foreign technologies were imported through joint ventures, technology contract, and reverse engineering; Strong entrepreneurship; Demand from military procurement;
The road ahead (Cont d) Others: Improve the consumer service (banking, retail, telecommunication); Improve productivity in agriculture and fisheries increase small holder yield; producing higher value crop; use the unused land; productivity in fisheries)