RACHEL JAFTA & WIMPIE BOSHOFF DEPARTMENT OF ECONOMICS UNIVERSITY OF STELLENBOSCH

1. TIPS FORUM 2008 RACHEL JAFTA & WIMPIE BOSHOFFDEPARTMENT OF ECONOMICSUNIVERSITY OF STELLENBOSCH ACHIEVING ASGISA'S ASPIRATIONS: THE ROLE OF THE NATIONAL SYSTEM OF INNOVATION

2. Content PART 1: The National Innovation System concept from an evolutionary perspective Rachel Jafta PART 2: Applying the evolutionary economics understanding of innovation and the NSI to ASGISA Wimpie Boshoff

3. Asgisa & the binding constraints on increased & sustained economic growth Fundamental growth constraint: The current inability of the economic system to generate and support sufficient innovation Why is the case, and Can the analytical tool of an NSI from the evolutionary economics perspective shed light on the issue?

4. FIGURE 1. THE NATIONAL SYSTEM OF INNOVATION: A STYLISED VISION FROM AN ECONOMIC PERSPECTIVE Buyers / customers Training and research infrastructure Suppliers Global: WTO Regional: SADC National: S & T policy makers Other policy makers Regulators [e.g. ICASA] Competition authorities Provincial Local government [e.g. municipal service providers ] Innovating Firm Financial system Cross-cutting Policy apparatus • Importance of learning • SET • DUI

5. The understanding of the NSI from the policymakers' perspective

6. The usefulness of the NSI notion to policymakers "Whether he or she likes it or not a policy-shaper trying to defend the need for more funds for R&D relies implicitly on the famous 'linear model of innovation'. This view of innovation sees the relations between research and markets as forming a 'chain', a straight line extending either from research to market ("technology push") or from the market to research ("market pull"). Despite the fierce criticism they have attracted from the more popular systemic approaches, these linear models paradoxically continue to influence thinking amongst decision-makers and public opinion because they have the virtue of being simple (or of appearing to be so." [Caracostas, 2007]

7. Could the NSI notion be 'operationalised' to make it more useful to policymakers? Metcalfe (2007:452): "The broad rationale is systems failure rather than the traditional market failure arguments. For the latter derive from an equilibrium theory of competitive resource allocation whereas the appropriate framework is one of a competitive process that is ordered but never in equilibrium. Indeed the purpose of innovation policy is to ensure that it never is in equilibrium but is continually challenged from within." The learning policy-maker

8. Applying the evolutionary understanding of innovation and the NSI to ASGISA Will ASGISA enhance NSIs ability to innovate? Accelerated and Shared Growth Initiative (ASGISA) Aim: focus policy attention across different spheres and levels of government Ultimate aim “A vigorous … economy where … products and services … are diverse, more value is added …, labour is readily absorbed and businesses encouraged to proliferate and expand…” In other words: a dynamic, innovative economy

9. Applying the evolutionary understanding of innovation and the NSI to ASGISA To achieve this ultimate aim, ASGISA identifies six factors deemed to be “binding constraints” Volatility and level of currency Transport infrastructure problems Labour skills and cost Limited competition Regulatory environment Government administrative failures Questions: How each of these actually constrain innovation? Are the proposed policy remedies appropriate?

10. Applying the evolutionary understanding of innovation and the NSI to ASGISA But first: innovation should be viewed broadly Not high-tech only. Tourism innovation… Then important to see that innovation systems differ: each have different players and formats Not one, but many NSIs …but all NSIs share similar set of components and relations Over-arching policies such as ASGISA should focus on binding constraints that affect allinnovation systems

11. Applying the evolutionary understanding of innovation and the NSI to ASGISA All NSIs can be broken down into two main parts: An assessment of ASGISA binding constraints should consider their relation to these subsystems

12. Applying the evolutionary understanding of innovation and the NSI to ASGISA ASGISA and innovation: Labour skills Limited competition Regulatory environment Govt admin failures Currency/transport

13. ASGISA and knowledge building • Labour skills are important for knowledge building • …because it raises absorptive capacity… • …and supports generation of ideas via “tinkering” • ASGISA recognizes this and seeks to further enhance govt commitment to education • But knowledge building requires more… • Too much emphasis on higher education: Innovation does not necessarily require PhD – SMME owners also innovate – they need basic maths, read and write • Not just skills development, but skills retention: much of knowledge is tacit and possessed by experienced individuals. Therefore, formal tuition is a start, but loss of capable individuals significantly constrains knowledge dissemination and experimentation

14. ASGISA and the wider innovation setting: some problems • ASGISA & limits to competition • Concern about concentration in telecommunications, energy, steel, chemicals, etc • One problem is the empirical basis for policy decisions: • In the current case, the literature recognizes that “effect” is far more important than “form” • Even more basic, evidence that SA firms are “highly profitable” is not undisputed • Problem: many of the structural problems originally created by government intervention and severe lags in policy-making (e.g. Eskom and Telkom)

15. ASGISA and the wider innovation setting: some problems • ASGISA & regulatory environment • ASGISA focuses on transaction costs (tax admin, labour law, etc) • These are important issues, but the focus neglects a fundamental problem: sectoral regulation • As noted, prevents new firms and ideas from entering • More important, sectoral regulatory policies in SA are frequently mutually incoherent • Policymaking is following a silo approach, resulting in conflicting policies • E.g. call centre strategy depends on telecoms policy • More broadly: mining policies depend on energy policies

16. Conclusions • ASGISA can be interpreted as identifying important “constraints” on innovation and making important proposals to deal with this • However, ignores some of the features of these constraints • The frequently tacit nature of knowledge • The path-dependent nature of our economy’s structure – and the influence of past and current policies • The systemic nature of innovation • Over-arching policies should aim at removing ambiguities in current policy by adopting a systemic approach • Must recognize that innovation is multi-scalar process: firms occupy core of the system and government provides important support for system

17. Q & A