Innovation systems in Metropolitan Regions of developing countries

During 2015 Frank Waeltring and I were commissioned by the GIZ Sector Project “Sustainable Development of Metropolitan Regions” (on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), Division 312 – Water, Urban Development, Transport) to write a discussion paper about a hands-on approach to innovation systems promotion in metropolitan regions in developing countries. The discussion paper can be found here.

Frank (left) and Shawn (right) in front of the Berlin Wall Memorial

This assignment was a great opportunity for us to reflect on Frank’s experience on structural change in territorial economic development and my experience on industrialization and innovation systems in developing countries. We also had to think hard about some of the challenges of using a bottom up innovation systems logic in developing countries, as such an approach would rely heavily on the ability of local public management to coordinate strategic activities aimed to improve the dynamics between various public and private stakeholders. It was great to reflect on our past Local Economic Development experience and our more recent work on innovation systems, industrial upgrading and complexity thinking.

A key aspect of this discussion document was to think long and hard about where to start. We know many economic development practitioners in cities are often overrun by demands from both politicians and industries for support. We also know that by selecting promising sectors based on past data and assumptions about job and wealth creation often end in little impact and much frustration. We agreed that an innovation systems approach must be aimed at stimulating the innovative use of knowledge, so we decided to not start with a demand focus (assuming the officials are already responding to some of the demand) or with statistics but a knowledge application focus. The use, generation and recombination of knowledge is central to the technological upgrading of regions, industries, institutions and societies. From our experience in promoting innovation systems and our recent research into non-consensus based decision making (this is where you do not select target sectors based on consensus or assumptions about growth potential, but you look at emergent properties in the system) we decided to start with three questions to understand the dynamics of knowledge flows in the region:

  1. Which enterprises, organisations and even individuals are using knowledge in an innovative way? Obviously this question is not simple and can only be answered by reaching out in the local economy to institutions, firms and individuals.
  2. Which stakeholders are actively accumulating knowledge from local or external sources? Again, this is an exploration.
  3. Who are individuals or organisations that know something about unique problems (challenges, demands, constraints) in the region? These could be buyers, supply chain development officials, public officials, engineers or even politicians that are willing to articulate unique demands on the regional economy that might not have been responded on by local (or external) enterprises.

These three questions are treated as an exploration that will most likely be most intensive at the start. In our experience economic development practitioners should constantly be asking themselves these questions when working on any form of private sector upgrading.

A second dimension is about assessing the interplay between institutions and industries and its effect on innovative behavior within regions. Who is working with whom on what? Why? What are the characteristics of the life cycles or maturity of various kinds of stakeholders in the region? Thus we are trying to understand how knowledge “flows” or is disseminated in the region. While some knowledge flows are obvious, perhaps even formal, some knowledge flows could be more tacit and informal. For instance, while knowledge flows from education is quite formal, the informal knowledge exchange that takes place at social events is much more informal, yet very important.

Apart from the identification of the dynamics and interrelations between the industries and the different locations, one other key factor is to identify the drivers of change who want to develop the competitive advantages of the region.

We also present our technological capability upgrading approach as six lines of inquiry, some of which have been covered in earlier posts on this weblog:

  1. The company-level innovation capability and the incentives of firms to innovate, compete, collaborate and improve, in other words the firm-level factors affecting the performance of firms and their net-works of customers and suppliers. These include attempts within firms to become more competitive and also attempts between firms to cooperate on issues such as skills development, R&D, etc.
  2. The macroeconomic, regulatory, political and other framework conditions that shape the incentives of enterprises and institutions to develop technological capability and to be innovative.
  3. Investigation of the technological institutions that disseminate knowledge.
  4. The responsiveness and contribution of training and education organisations in building the capacity of industry, employees and society at large.
  5. Investigation not only of the interaction and dynamics between individual elements in the system, but of the whole system.
  6. Exploring poorly articulated needs or unmet demands that are not visibly pursued by the innovation system.

We, and of course our GIZ colleagues of the Sector Project Sustainable Development of Metropolitan Regions, are very keen to engage with the readers on these ideas? Please post your comments, questions to this weblog so that we can have a discussion.

Best wishes, Shawn and Frank (Mesopartner)

 

 

For bottom up development to work, you must go up

For about 6 years I was intensely involved in establishing, promoting and cheer leading Local Economic Development in South Africa and elsewhere. In a country where so much planning, allocation and overall coordination came from the top, these were exciting years. I was always amazed and delighted to find hard working champions in the public and the private sector in every town, city or community where we worked. Our GIZ programme identified private sector and governance experts; and we trained, developed methods, and supported these experts to provide hands on services to local communities, the private sector and the local governments over several years. A small group of experts emerged out of this that are still actively involved in Local Economic Development in South Africa and in many other countries.

While Local Economic Development is something NGOs, Business Associations and donors understand and value, it was often a hard sell to local government, provincial government and even national government. In many parts of the world where societies are more homogenous and where social trust is high, many important economic decisions are in fact made at the local level – this is even thought of as common sense. But not here in South Africa, and also not in many of the other countries in Africa where we worked (our communities is not homogenous and is often divided along ethnic and political lines, our social trust is low even within these ethnic and political groups). This is because the ideas generated by local communities and priorities expressed by business did not always tie in so well with what planners or public sector managers had in mind (I call this top down development as it is rooted in someones authority to decide on behalf of communities).

Everybody who appreciated local ownership, local self determination and participatory approaches liked our logic and could integrate our concepts into their activities, but for many public sector managers our ideas created tension. I must add, on a few occasions we also faced resistance from business, especially as participatory approaches often challenge those in powerful positions.

But the experts, many local government champions, and industry often felt frustrated (see the irony of bottom up development). A group of people actively engage in diagnosing the local economy, and lots of energy would be unleashed. Often, the disconnect between government plans and the real issues confronting business would sometimes become visible. Or the power plays between different politicians and even between different business interests would be revealed. The same patterns emerged in different places, and we could not address these at local level. Unfortunately, many funders of these local processes did not have a mandate nor an interest to go beyond their pilot or designated areas. For instance, an international donor funding an Local Economic Development process in a particular town wanted to see local action that would result in jobs, gender equality, etc. They did not want to rock the boat by questioning local, provincial or national policies and programmes that often made their primary objective unreachable. Even in cases where local government was strongly in support of local action, their funding for economic development often came from national or provincial funding programmes that had different priorities, resulting in good ideas not being implemented because of a lack of funds or too much bureaucracy.

In 2008 I decided to switch my attention to innovation systems, private sector promotion and applying science to industry. I remained committed to bottom up development and decentralized decision making, but felt that I had to get away from depending on local government. However, here too the same challenge emerged, but this time it was not the fault of local government. Reflecting on the last few years and relating it back to my years in Local Economic Development I realize that there is an important lesson in all this for me. The same patterns emerge when I work with universities, a small local chamber of business or a city.

For bottom up development to work, you must go “up”. Sounds simple. But think about it. You cannot just focus on working in a local community as if it is an eco system on its own. Many policies that are undermining local development, trust building, etc. are coming from outside the designated area. The same applies to value chain promotion, cluster promotion and any other flavor of development. Creating a little isolated area where things are working for a particular designated group while the greater system is not working (or creating incentives for contrasting behavior) is wasting resources – when you withdraw your external resources things go back to how they were (see my post here about how we draw boundaries). While I would never regret empowering more local champions to do their advocacy and development work better, I must wonder what would have happened if we could have taken more of our insights to higher levels BOTH within the countries where we work, BUT ALSO to the international agencies that often funded these programmes. Not that we did not try, but often our efforts to communicate what was wrong was challenged on the basis of a lack of data supporting our arguments.

We do not want “bottom development” only. While this may suit the priorities of an NGO to equip a small group of designated people, we should strive to identify patterns, find new paths, and then communicate and use this insight elsewhere in the economy to reinforce what is working and address what is undermining local development. One of the reasons why we as Mesopartner dived into complexity thinking is because we realized that much of the answers to the questions that effect local stakeholders and economic systems are not to be found in the traditional, silo based (also called focused development) that are increasingly becoming “evidence based”.

Bottom up development remains important as we recognize that economies are complex adaptive systems and that the way to make an economy healthier is to equip its agents (business people, local government officials, communities) to make better decisions based on the signals they receive and the factors that affect them locally (local here means close to a particular context).  Our task in development is to try and identify patterns that can be amplified, or to assist agents to probe and try low risk experiments to create new paths for upgrading, decision making and wealth creation. This will require that we challenge how development programmes decide where to work, what to do and what outcomes to expect. Mesopartner is actively involved in the international discussion about how this complexity insight will challenge our development paradigms.

A final reflection. Perhaps our objective in Local Economic Development was wrong to start with. It is not (just) about empowering local stakeholders. Our objective should have been to use the insight from what is possible and what is not possible at the local level to try and affect top down strategy. Or maybe it was about holding up a mirror for top down and bottom up champions to see their effect and role in the system. These questions are at the heart of our new thematic area in Mesopartner looking into bottom up industrial policy, and will be a theme in our 2014 Summer Academy event in Berlin. Remember to apply soon as the early bird discount deadline expires at the end of March.

Quick recap: what is an innovation system?

Before I continue with this series, it is necessary for me to refer you back to a post I wrote some time ago where I described what an innovation system is. For the full post, click here

For those to lazy to click on links I will quickly summary two key points.

Freeman (1987:1) defined an innovation system as “the network of institutions in the public and private sectors whose activities and interactions initiate, import and diffuse new technologies.The emphasis is mainly on the dynamics, process and transformation of knowledge and learning into desired outputs within an adaptive and complex economic system.

So how does innovation systems work within regions or places? Well, it is often affected by issues such as trust, social and informal networks, formal relationships, common customers or common inputs and other factors. You will notice that it sounds very similar to the characteristics of a cluster in its early days. The main characteristic of a local or regional innovation system is that it is mainly focused on a specific geographic space and on the specific knowledge spill-overs that occur around certain firms, industries or institutions unique to that space.

For the rest of the post where I related innovation systems to the surrounding geographic environment click here.

More on bottom up development

I was reminded by a reader that Robert Chambers of the IDS is known to be a strong proponent of bottom up development, because it overcomes some of the issues of the complexity of development.

At the same time I found a recent blog post by Ben Ramalingam at the Aid on the edge of chaos blog about a meeting held earlier in May about Complexity and International Development. I am very jealous because Eric Beinhoecker, Robert Chambers and Ben Ramalingam (lead author of a fantastic paper  of a 2008 Overseas Development Institute working paper ‘Exploring the Science of Complexity: Ideas and Implications for International Development and Humanitarian Efforts’) were all in the same room talking about complexity and development. Can we have some of this in South Africa too? I have in previous posts mentioned some of the work these gurus are doing on complexity.

For some insights into the discussions at that meeting head over to the blogsite of Duncan Green (Oxfam) where he wrote a post titled “so the world is complex – what do we do differently“.

Perhaps what I neglected to say this explicitly on my previous post is that bottom-up development is about much more the Local Economic Development. You would have noticed that in my recent posts I have associated bottom up diagnosis with innovation systems, industrial development, advanced manufacturing, the service sector and many other topics. We have to strive to understand the system, and not get caught up with specific target groups. This will take us further from understanding and carefully intervening into the complex local system.

Also to clarify. You do not diagnose the complexity of the system by analysing data. You do this by engaging with people, and allowing them to reach a deeper understanding of the system that they are part of.

Let me know if I again forgot to say something!!

The irony of bottom-up development

From the participants of our trainings on local and regional economic development it seems evident that many national governments are paying lip service to bottom-up development. Often Local Economic Development (LED) is related to attempts to decentralise certain decision-making to lower tiers of governments. However, this is done in an uneven way where powers to make decisions about financial allocations, education, health investments are centralised. Even is places where local economic development decisions are decentralised to the local level, other national policies counteracts the power of local stakeholders. For instance, LED is decentralised by law in many Southern African countries, however, skills development, university programmes and even small enterprise development programmes are all designed and run from a national level. I do not count a local office of a national or provincial programme as “localisation”, as local representatives have no power over funding allocation and programme development. Other national programmes such as tender regulations, public procurement rules, and public finance legislation were all implemented to contain corrupt or incompetent public officials (thanks for that), but it also inadvertently reduces the ability of local government to drive their own development agenda. My late business partner liked to refer to that as “unintended consequences”.

Despite these obstacles to local development there are several brave souls that are trying to do local economic development from the bottom-up. They may be constrained in many ways, but they continue to try and mobilise local stakeholders.

Often bottom-up development activities in countries and specifically at the local level are driven by external development organizations (ranging from donors to charities). From my experience in Africa I can say that international development cooperation is often more serious about bottom-up development than most governments. While I know from my previous experience (I worked for GTZ on LED) that many national government officials think this is western ideology of democracy that is being forced down the throats of developing countries, I also know from experience that imperfect solutions that are developed by locals often have critical momentum that simply outperforms even smart initiative coming from the national level. But these development organisations are Macro level actors from outside of the country, so on a hierarchy they would be above the top!

Ok, I understand. For many national governments in Africa, their biggest obstacle to programme implementation is often the lower ranking officials in local governments. But this is not the cause of their problems, it is simply a symptom of other problems. A symptom that is further re-enforced by a lack of an ability to respond to the local context. Perhaps this is why local governments accross Africa are struggling more and more, despite evidence that national governments in Africa are improving their performance. But more about that in another post.

So the irony of bottom-up development is this: bottom-up development is often still happening in parts of Africa not because of top-down (national) support, but because of international (above-the-top down) support.

Until this situation changes, bottom-up development will always be limited to making local stakeholders feeling better about addressing some of their own issues without a guarantee that the framework conditions will re-enforce their goodwill. Sometimes this will yield excellent results if the right champions drive the activities, thus making it dependent on individuals and not systems. But for local initiative to become systemic, in other words, leveraged with multiplier effects, governments across Africa would have to sincerely embrace bottom-up development by addressing the constraints that limits local action.

Developing territories from the bottom up

Its been a while since I have made a post, largely because watching the discussions in our local press is so amusing and entertaining. I had to keep my fingers in fists not to type anything I would regret later. This is a poor excuse, so let me get back to the reason why you are reading this post.

Strangely, our discussions here in South Africa is not yet focused on the real issues of how to grow the local economies. Most projects contained in Integrated Development Plans are still un-systemic and often deal more with social than with business and growth related issues. Yes, with our history this is important. But I would immediately argue that it is possible to have systemic interventions (that unlocks growth and investment) that at the same time also has benefits or leveraged impact for the poor and marginalised.

Why are we not talking about building local meso-level institutions that not only supports local industries or address local issues, but at the same time draws on science and research to create new solutions? Why are so many local municipalities still doing such shallow Local Economic Development? At what point will the private sector at the local level realise that they need to be more reflective of their competitiveness and cooperation. OK, granted, this happens in some places. But not everywhere. And not enough.

It seems to me that so many solutions are still driven from the national level of government (and business) in South Africa. At what point will locals start demanding “economic” service delivery, which means infrastructure that supports the growth, profitability and expansion of business. Why bother with “small town economic development” if the potholes in the main road are as deep as opencast mines? (see the picture further down below)

Perhaps a reason for this hesitance to seriously and systemically engage in “Territorial Development” is because Local Economic Development is still seen as a narrow field of enterprise support through public planning instruments, instead of being seen as a multidisciplinary approach aimed at improving the local economic system. The systems perspective and an understanding of the complexity of this systems seems to be lacking. You cannot develop the tourism sector in a small town by itself, without dealing with retail, infrastructure, and many other issues.

I know there are many places that gets this right, and where a proper and interactive relationship exist between local government and local business.  But we need much more than a few anecdotal examples. We need to inspire our local businesses to invest, to grow and expand. Inspire them to paint their shops, and tidy their yards. Get them to think of new ideas, new opportunities. Only when we unleash the creativity of our existing businesses will new businesses emerge.

Look at the nice pothole below. The largest employer in this little town is moving to Johannesburg. Guess what, hardly any of its employees are staying behind and starting businesses. With them, they take their spouses, who are often providing services as teachers, medical staff, managers in other firms, and local consumers.

– Why would locals start a business here in this town?

– Why is fixing the potholes and the general look of the town not a major priority?

If business was important here, the main street would not look like this

– How can a few isolated “entrepreneurship” training and other isolated projects undo the impact of the large corporate moving away?

– Why can not a single business person here remember when last a local official contacted them to find out if there is anything that the municipality to can do to support the business in growing.

I think I know the answer. Business is simply not important here. LED in this place is about little projects and not about the bigger system. Business people also tend not to block roads and burn councillor houses.

Perhaps we should coin a new phrase “local private sector development” to describe what we should be doing as Territorial Development Practitioners. But then again, we know that you have to look at the whole system at the territorial level, so perhaps this title is not a good idea. To grow territories from the bottom up would need a focus on the private sector, but it would also require attention the public sector, both as a provider of critical infrastructure and other services, as well as a coordinator of many essential (and often overlooked) public goods. My main point is this. While the national frameworks are important, local energy is what matters. South Africa appears to be trying to build local economies from the top down (depending on national policy, grants and programmes), and not from the bottom up with based on an  understanding the local economy, opportunities and constraints, and then using local energy and resources.