I will start my post by linking to another blog from Kenya. The blogger makes reference to a report by Robert Wade, professor of political economy and development at the London School of Economics, which discusses the role of industrial policy in Asia and how donors completely neglected it in Africa. In essence, Prof Wade compared the economic development activities of donors in Asia with development efforts in Africa.
I can’t help but wonder why industrial development is such a low priority for Africa.
Although donors generally respond to the demands from their developing country counterparts, I know from experience that donors also have preferential aid packages. But why is private sector development such a low priority? Why are we not seeing the same kind of productive infrastructure and technology transfer into Africa that we saw go into Asia? Even donors with “Sustainable Economic Development” Programmes are more concerned with rural development, gender and limited agri-processing support. What about building new industries, new processing facilities, new productive capacity in Africa? Instead the focus as at a micro level, and perhaps at some regional level.
Please don’t tell me it is because the enabling environment is not right. When it suited Western countries they invested in autocratic countries with very poor human rights track records. Billions of dollars went (and still go) into countries without an enabling business environment. Most countries in Africa today are at a better governance standing than their Asian counterparts were in the 1980s-1990s.
Just thinking out loud. What can we do to make industrial development more important in Sub-Saharan Africa?
In my daily work I often switch between working on firm level issues about innovation to working on the more systemic level of innovation systems. My focus is mainly on the institutions that are trying to get whole regions or sub-sectors to uprgrade technologically. In other words, they want modernization of a particular sub-sector or region for a specific reason.
In the last few years I have noticed some patterns that explain why these technology intermediaries are not hitting their targets:
2) an underlying assumption in many Technology Transfer or economic development programmes with an emphasis on technology is that the problem is that firms cannot innovate (for whatever reason), therefore agencies must innovate on their behalf. It therefore takes a very narrow perspective that innovation is about products or processes, and that technology is about hardware + training. It completely miss the point that innovations emerge from within a specific framework, and that giving a firm a new product on a platter is not technology transfer nor sustainable.
4) Innovation is somehow disconnected from creativity and creative thinking. Creativity in innovation is all about getting different people to think together. Maybe they agree, most often they don’t. But somehow they need to recognize constraints, threats, opportunities and then work from there. It requires some tension and often a lot of argumentation. It isn’t serendipitous journey. It requires strong leadership and a lot of guts. And it takes time.
Let me stop here.
Earlier in a post I have written about the different levels of innovation that are commonly identified as:
Product or service innovation
Process innovation
Business model or organizational innovation
Social or societal innovation
The funny thing is that everyone is focusing on helping firms to develop new products or maybe even a better process. Yet, the biggest obstacles to product and process innovation is not a lack of effort, or funding or ideas. It is complacent or outdated management, or perhaps business models that worked in another time but that has not kept pace with change. How often do we hear that someone we know or even a whole group quit a firm to start their own enterprise because management wouldn’t listen to their ideas?
Lets get practical. For example, large parts of our South African manufacturing sector is focused on the manufacturing of components designed somewhere else in the value chain. This is most likely explained by several factors including the concentration of corporate ownership in a few industrial holdings (a left over from sanctions and import substitution) and the presence of highly organized supply chains in many sectors like Automotives or electronics. Partial success in getting larger firms to compete internationally, combined with local framework conditions that inhibit the growth of small firms (for instance inflexible labour laws, collective bargaining, Black Economic Empowerment and a preference to procure through tenders) re-inforce this pyramid structure, with many component manufacturers at the base and product integrators (OEMs) at the top of the pyramid. The product owners dominates both their supply chain, the product architecture and the performance criteria. Most component manufacturers are squeezed both on their margin but also on the processes that they may use.
Are we getting things the wrong way around?
To help manufacturers to design new products and services is not entirely a bad idea, but this doesn’t address the systemic problem. We need business model innovation. We need new OEMs to emerge with new product combinations that draw on existing or easy to develop component competencies. Or we need some business model innovation where some traditional component manufacturers expand their business by manufacturing their own products. Perhaps we need some manufacturers to diversify horizontally, or vertically.
I have played with this idea with students in my classes, and almost all business model innovations will lead to interesting product, service and process innovations. However, we can generate long lists of product/service and process innovations that have not resulted in business model innovations. Partly because these firms cannot sell their new innovative products to their existing customers, they also need to diversify their markets which sometimes requires a completely different business approach.
To stimulate a sub-sector or a region to upgrade cannot be achieved only by helping one firm or a few firms at a time. Somehow we have to challenge management models, we have to help business people identify areas for management innovation. This will result in business model, process and product/service innovations that are self perpetuating; meaning businesses can do it again and again because their competence have increased. Actually, the best impulse into innovation is still modern management that is strategic not only about the internal dynamics of the enterprise, but that is also looking outside of the firm into the market place, at their collaborators, new technologies and their competitors. With firms that are aware of what is going on inside and outside the discussion about innovation is a fantastically creative discussion about what is possible or impossible, with the latter gives rise to very interesting discussions. But a firm that is under-managed or managed with outdated principles is very difficult to assist. Giving the latter group a new product, or taking them to a new market simply won’t do the trick.
Perhaps this is where creative destruction of Schumpeter comes in. Sometimes the only way to upgrade a sector is to allow enterprises with new combinations of management, ideas, products and processes to outcompete older more complacent firms. Hopefully some of the incumbents will at least be able to imitate the signals from the new entrants.
I received the following images and text via e-mail and Facebook. A quick Google search shows that credit is due to Ahmed El Mezeny at Save the Children in Egypt. It is also published on the Global Dashboard site by Alex Evans.
This cartoon reminded me of when I first told family members about my “new” job at GTZ some years ago. They listened to my explanation of travelling to distant places to help people develop, and then asked whether I will be issued with a weapon!
Now that I work more with the private sector it is sometimes very difficult to explain to business people that our industry really exist, and that it matters!
So how do you explain to people unfamiliar with development what your “development” work is all about?
After the two earlier posts this morning I was asked if I could make my complete list of publications available. Thank you for the reminders!
I have added a new sub page on the left (main menu) with a list of the different kinds of publications I’ve been involved in. This includes books, reports and other publications.
For those that are interested in Mesopartner note that I have also updated the RALIS page on the Mesopartner site
This is the long awaited book on Market Failures. The cover page illustration of the hard copy is by Lina Stamer and is an image that I use when I present the popular training session on how to address market failure in a practical way.
Many development practitioners are familiar with the phrase “market failure”. However, not many people relate to the topic in a practical sense. Many remember boring lectures in universities where market failures were presented as abstract theoretical concepts in economics 101. In this book, Dr. Shawn Cunningham takes a perspective that the clues to begin to address market failures are in the world around us. He argues that the characteristics attributed to each market failure by clever scholars actually provide some clues to development practitioners about ways in which to address the imperfections that hinders market based transactions. Shawn also argues that market failures cannot be addressed by business management principles, and that typical market research instruments will provide little information on how to make a market system where there is demand, supply and supporting institutions work better
This book is a collaboration between Mattia Wegmann and myself, and is based on our practical experiences gained in assisting local stakeholders to identify and address Red Tape. It consolidates our work on Reducing Red Tape in the context of Local Economic Development. The book is available as a printable e-book for free, or you can order it in a A4 Paperback format (printing and shipping costs apply) from the Mesopartner Bookstore.
The official description of the book is:
Increasingly governments and international organizations are attempting to reduce bureaucracy and red tape. While many of these reforms are aimed at national laws and reducing the costs of compliance, not much guidance is available on how local stakeholders can identify and attempt to streamline red tape at a local level.
In this publication, Shawn Cunningham and Mattia Wegmann share their practical experience in reducing red tape at a local level. The manual is aimed at local economic development facilitators that are working on improving the cooperation between public and private stakeholders.
One of our well-known South African economists, Mike Schüssler, has been saying for a long time that South African firms are paying too high tax. In a recent article in Moneyweb he explains why and how South African firms pay much higher taxes than our main competitors. As we are awaiting our national budget to be published in a few days I think these kinds of articles are very important.
What Mike is not discussing in enough detail is that we should also consider the other indirect financial burdens on South African firms (that they also see as taxes). For instance, South African firms have to spend a higher premium than others on skills development and for skilled workers. Our firms also suffer from more downtime due to industrial action, and we are drowning in labour and other laws that we don’t fully understand. I would also include Black Economic Empowerment programmes that often further increases the costs of doing business in South Africa and that also raises the costs of securing potential staff, partners and contracts. Another indirect tax in business is the very high transaction costs to acquire internationally sought after skills, a process that is made extremely difficult due to our clumsy policies on immigration. Comparatively speaking we are paying an indirect transport tax because we are often far away from both our markets and important suppliers.
No wonder so many large (and small) South African firms have moved many of their activities out of the country.
However, most of these issues are not dealt with by the minister of finance. It is a highly sensitive issue that is made explosive not only by political rhetoric, but by the stark differences between the health of our private sector (which includes the health of its direct and indirect dependents), the health of our public sector (and its direct and indirect dependents) and the health of the society that is not benefiting directly from our private and public sectors (I call this group the excluded sector). To decrease the size of the excluded sector we have to address the health and well-being of the public and private sectors as much as we try to absorb the excluded people into a healthier society. We need to be very concerned about the health and the wealth of the private sector, as much as we are worried by the costs and the complexity of addressing the reasons why so many people are still excluded from a healthy and happy society. This means that we should be sensitive to the fact that running a business in South Africa is often expensive for more than just tax reasons, but due to those indirect taxes that we also have to absorb. to be profitable in South Africa is not so easy – ask any small business owner that’s been around for more than five years!
My advise is for an understanding that the private sector is under financial strain. This is caused not only by the direct taxes, but also by indirect taxes like I’ve mentioned. We should be not only tax competitive, but also aware that we have higher costs (and often smaller markets) and a scarcity in higher-skills. We might be killing the goose that lays the golden egg. I wonder how many more businesses would be financially viable if we could directly address (or maybe even acknowledge) those other indirect taxes. I believe that the private sector is overtaxed on all fronts.
A while ago I posted an article about the exciting developments in the various fields around complexity science and development (actually there are several earlier articles making reference to this topic). Recently Marcus Jenal wrote a great review of the work of Ben Ramalingam (author of the blog Aid on the Edge of Chaos) and Harry Jones with Toussaint Reba and John Young. The paper can be downloaded here.
Perhaps you have noticed that I often make reference in my posts to “complexity”, “evolution” and “complex systems” in the context of development. Some have even asked me why I do this. Well, already there are moves by donors and monitoring bodies to start using a more complexity-sensitive approach to evaluation. This is not entirely fair, as too many development programmes are still designed in a very linear way (log frames, impact chains are mostly used in a linear fashion). This means that to reach your impact you must combine your programme activity with faith and good luck (plus good weather) because most programmes are operating in a sea of complexity. There are just too many factors that can influence your outcomes. And even if you hit all your targets the system may remain exactly the same way. (wink wink: I wonder why no-one is making more of a fuss of the poor track of donor programmes in South Africa that were supposed to deal with systemic failures in education, rural development and even Local Economic Development?)
Another reason I am interested in these topics (other than my usual curiosity) relates to my practical activities around building industrial systems from the bottom up. Although I am still biased towards manufacturing with some emphasis on specialized services, I am trying my best to understand the complexity of not only relations between the actors, but also between the factors that are influencing their behavior. Then throw in some factors like policies several self justified meso-level organizations, mix in some government failure, market failure, network failure and also just the uncertainty from Europe. That makes for a complex system where there are a myriad of vicious and virtuous cycles and then the dynamism of time delays.Mix into this that the political system in South Africa also fights bottom up decision making. Local stakeholders have a limited number of instruments at their disposal and can hardly hold other spheres of the public sector (and other organisations) accountable. Despite this all kinds of firms are innovating, and there are even innovation systems that involves individuals in public agencies that are committed to support local actors (even if their institutions is unwilling or incapable to assist).
I find a lot of comfort and maybe some good questions in the literature on complexity and perhaps also the literature on evolutionary economics. Perhaps I even find some comfort that even the so-called industrialized world is struggling with the increasingly complex and interrelated policy environment.
If you are working on bottom-up industrial policy then please let me know, perhaps we can exchange notes.
There are hundreds of ways of describing the word systemic. Yet in development it is important that we at least narrow down the definitions as to not cause confusion.
Richard Hummelbrunner describes three emergent features of methods and approaches from systems thinking:
An understanding of interrelationships
A commitment to multiple perspectives
An awareness of boundaries
Richard then explains that each of these features focused in the development of the systems thinking field in the last fifty years. Up to the 60s, the focus was interrelationships. This was followed by an increasing awareness of the different perspectives as a critical issue. This affected the way people recognized interrelationships. In the 1980s the focus shifted towards the boundaries of the system, as practitioners realized that they system had to be bounded in some way to allow for diagnosis. This raised the ethical question of who decides what is part of the system and what is not, as the shifting of these boundaries has great influence on what is revealed and understood when the system is diagnosed.
Our firm, Mesopartner, is known for the “Systemic Competitiveness” framework that we use in our work. The framework originated within the German Development Institute in the mid 90s. One of the common misunderstandings about Systemic Competitiveness is that people confuse systemic with systematic. The latter in my mind would refer to a very detailed and exact way of understanding and doing things that may be very rigid. This may detract from the fact that to really understand a system we might have to embrace complexity, dilemmas and issues in a more dynamic way, something that a very recipe driven systematic approach may not allow.
Reference:
Williams, B and Hummelbrunner, R. 2010. Systems concepts in action: a practitioners toolkit. Stanford Business Books.
ESSER, K., HILLEBRAND, W., MESSNER, D. & MEYER-STAMER, J. 1995. Systemic competitiveness. New patterns for industrial development. London: Frank Cas.
MEYER-STAMER, J. 2005. Systemic competitiveness revisited. Conclusions for technical assistance in private sector development. Mesopartner
