I listened to an interesting presentation from Peter van Lieshout, a Dutch psychologist and philosopher and a member of the Scientific Council for Government Policy in the Netherlands.
The general gist of the presentation was that we need to apply different economic models to ensure that ‘the earning capacity’ of the country – the current economic lifestyle – can be maintained. He alluded to several examples where he believed that the Netherlands was on the wrong track. His key concerns were:
- government policies and directions are too silo-based;
- a rather arbitrary picking of potential industry winners who should provide for the economic wealth of the future;
- a potentially wrong, or at least incomplete, policy direction for R&D;
- a rather damning report on the fairly laissez-fair approach within the Dutch education system, with no clear direction regarding the curriculum;
- the need for more attention to the institutions and social structures that determine the nation’s earning capacity in the longer term.
Some of these issues are specifically relevant to the Netherlands, but in general his message and the issues he addressed are universal, and I will concentrate on these.
Trying to pick industry winners who will drive the economy forward is no longer a sensible direction for economic policy. The industry success cycles which have driven economic growth in the past are becoming significantly shorter and relying on those long cycles of industry success will no longer provide long-term economic security. At the same time predicting what will happen in five or ten years’ time is also no longer possible for most of the industry sectors; so picking winners will simply not be possible anymore.
Government would do much better concentrating instead on policies aimed at providing the infrastructure that will allow people and organisations to develop their own new businesses, models and opportunities that, combined, will lead to national economic sustainability and success. This is not just physical infrastructure, such as roads, energy and broadband; it is also education, legal, financial and other institutions. They should leave it to individuals and businesses to use that infrastructure to develop new economic opportunities.
In this respect he also mentioned the rigid R&D structures often deployed or subsidised in order to support those silo-based industries. In a report we wrote for the Dutch Government in 2009, we both warned against picking winners and funding the silo-based approach towards innovation (R&D funding). Instead we argued for a far more holistic approach, which we called ‘trans-sector’. Obviously we were disappointed when a year later the Dutch government decided to continue its traditional approach towards silo-based innovation policies.
Now, four years later, Peter van Lieshout approached this in a slightly different way.
What he was saying was that within an increasingly globalised economy R&D in most smaller and mid-sized western economies is less than 2% of the total amount of R&D done globally; so 98% of R&D is done elsewhere. The key to future success is to learn from, and use, the entire volume of R&D, learn from that and use it to the advantage of local economies and societies. With the internet, open data policies and increased international R&D collaboration this is becoming increasingly viable. Governments could take a lead here and focus their industry R&D and innovation policies on tapping into that wealth of global R&D work that is available, and from which local businesses and sectors can learn and profit.
Norway now has an active government policy aimed at tapping into the 99% of R&D that is done outside that country. Other countries, including the UK and Australia, have started on this track but so far have not formulated policies aimed at moving in this direction in any concerted way.
Furthermore, new growth comes less and less from product innovation and more from soft elements (knowledge, services, intellect, design, etc). More than 60% of new economic growth comes from these soft developments. As an example, Apple used existing MP3 technology to develop the iPod, and added existing technologies available in Taiwan to enhance the product. The major breakthrough was to add iTunes, as well as product design, marketing, etc, and from this the iPhone was developed.
Developing industry policies based on picking national industry and R&D winners will become increasingly futile. Most new products will now have elements that are sourced from an average of 20 countries, and in ICT even an average of 27 countries. On a product and industry level this is now a global environment and innovation and R&D is also global. Governments will need to structurally rethink their industry policies and develop new infrastructure policies that will allow their businesses and industries to respond more quickly and participate in new developments that include policies aimed at tapping into the global body of R&D that is becoming more easily accessible.
On the other side we see an opposite development. In order to maintain our own (local, national) economic lifestyle we need to concentrate more on city-based and/or regional economic and social developments – and, as we see in Europe, some of the regional developments cross borders – as it is easier to cut through silos and generate synergy at that smaller level. This will create a truly connected and learning local environment for all involved and in this way generate new social and economic opportunities for those communities.