Building Science, Technology, and Innovation Capacity for Development

1. Building Science, Technology, and InnovationCapacity for Development Alfred Watkins S&T Program Coordinator HDNED Presentation to STI Thematic Group October 18, 2005

2. Plan of Presentation • S&T Capacity Building: The International Agenda • Why Is S&T Capacity Building Important? • What Do We Mean by S&T Capacity? • How Do Countries Build S&T Capacity? / What Has the Bank Done to Help? • The Way Forward: Future Agenda

3. S&T Capacity Building: The International Agenda

4. Convergence of Views • UN MDG Taskforce • Blair Commission • Inter-Academy Council • Many Government leaders (Mauritius, Rwanda, Tanzania, Mozambique, Kazakhstan, Madagascar, Vietnam) all agree that S&T capacity building is essential for growth and poverty reduction and that the World Bank must do more, and do it more effectively, to support indigenous S&T capacity building efforts

5. Science and technology, including ICT, are vital for the achievement of the development goals …We therefore commit to:…Assist developing countries in their efforts to promote and develop national strategies for human resources and science and technology, which are primary drivers of national capacity building for development… Draft Communique from UN Summit, September 14, 2005

6. The World Bank has only had modest activities in promoting technological innovation in development. The first step would be for the World Bank to integrate technological considerations more fully into their operations. Blair Commission Report

7. World Bank Perspective • S&T Vision Paper presented to Board • Wolfensohn • Wolfowitz also agree with this assessment of the importance of S&T capacity building

8. First of all, I think that sense of assuming responsibility [by developing country governments] is really critical. We often talk about building institutions or building capacity. And my feeling is that sort of suggests you can come in like an outside contractor and bring some bricks and mortar and you construct capacity. It doesn't work that way. You grow it. Its got to be indigenous. It's got to have indigenous roots. You can fertilize it. You can water it. You can rip the weeds out, which I think is part of fighting corruption. Or you can help people do it. But they need to do it themselves. Paul Wolfowitz on capacity building at his first Town Hall Meeting

9. Why Is S&T Capacity Building Important?

10. S&T Seems to be the Answer,But What are the Questions? • Why is S&T important, even for the poorest countries? • How can S&T help to achieve the MDGs? • How can S&T capacity help to increase wealth, improve productivity and alleviate poverty? • What do we mean by S&T capacity building? • What is the role of the World Bank in supporting this capacity building agenda?

11. Why is S&T important, even (or especially) for poorest countries?

12. Critical Lessons • Investing in S&T capacity is not a luxury for the rich; it is an absolute necessity for poor countries that wish to become richer – there is no choice • The time to start investing and building capacity is when you are poor • Countries at different stages of development, and employing different learning strategies, need to invest in different aspects of S&T capacity – plugging in, catching up, innovating: different tasks and challenges for different stages of development

13. There is No Choice: “The world is moving fast…with or without you!” • Increasing globalization: reduction of transportation & communication costs, increasing global information, increasingly mobile FDI. • Rapid pace of technological change and innovation:Half life of technology is getting shorter. Keep up or fall behind – these are the only options • Increasing competition: driven by trade liberalization and increasingly larger players (e.g., China, Korea, India) plus laggards that want to catch up – Vietnam, Mozambique, Rwanda • Networking and disintegration of production

14. Typical Value Chain Expertise Significant ‘outsourcing’ R&D/Technology Manufacturing/Operations Sales & Marketing 14

15. Differentiation Global Brand Innovation Advantage Slope Differentiated Profit Margin Commodity

16. Multi Nationals First tier Second tier Third tier Nature of relationship Close family Partner Inter dependency High trust Relationship based Nature of relationship Cousin Provider Dependency Medium trust Specification based Nature of relationship No ties Servant dominated No trust Price based

17. High Tech Is Not the Only (or Best) Route to Prosperity and Competitiveness!!

18. What Do We Mean by S&T Capacity? Parable of the blind men and the elephant. Every perspective is correct,but each provides only a partial view of reality

19. Five Dimensions of S&T Capacity

20. Capacity Building Occurs at Different Levels of the Economy • National policy institutions • S&T organizations -- -- universities, public and private R&D institutes/technology diffusion institutions • Enterprises – both users of knowledge and creators of new knowledge • Labor Force

21. S&T Capacity Building: Strategic Policy Options • Creation of new knowledge vs. import adaptation, diffusion, and adoption of knowledge created elsewhere • Enhance supply of knowledge vs. stimulate demand for knowledge • Hardware vs. software • Horizontal policies vs. vertical policies

22. S&T Capacity Building

23. S&T Capacity Building • Linkages • Technology consortia • Mobility schemes • Matching grants

24. How Do Countries Build S&T Capacity? / What Has the Bank Done to Help?

25. Linear S&T Capacity Building Model Basic Science Applied Research Development Production Marketing

26. East Asia Capacity Building Model: A Different Approach Creation Improvement Assimilation Acquisition S&T & R&D Stages Imitation internalization generating Developing Country Newly-Industrializing Country Advanced Country Development Stages

27. Growth of Science and Technology Community in Korea 1963 1970 1980 1990 2002 4 33 428 4,676 14,433 GERD (US$, Million) 97 : 3 71 : 29 64 : 36 19 : 81 26 : 74 Gov’t vs. Private 0.25* 0.38* 0.77* 1.87 2.53 R&D / GDP 5,628 18,434 70,503 189,888 (FTE: 141, 917) Researcher (Persons) Source: Ministry of Science and Technology * R&D / GNP

28. Overseas Patents of Korea U.S.A. Patent Registration: No Growth in Applications until the Late Development Stage 1990 1993 1995 1998 1999 2000 2001 224 765 1,166 3,267 3,568 3,331 3,546 Number 17 11 8 6 7 8 8 Rank

29. Frontier Innovation Technology Improvement and Monitoring Significant Adaptation Basic Production – use technology Levels of Innovation

30. R&D Science Development and Creation Design & Engineering Technician & Craft Skills & Capabilities Science Use, Operation and Maintenance Basic Operators Skills and Capabilities (These all need human capacity.)

31. Enterprise Demand for Technology • Category 1: Demand for existing specifications, equipment, and know-how – new machines • Category 2: Demand for new designs and systems, generated by engineering and other services, but based on existing technology – new processes • Category 3: R&D to create new technology – new inventions

32. Nine dimensions of Firm Technological Capability Source: Korea: How Firms Use Knowledge, Part A – Firm Level Innovation in the Korean Economy, World Bank processed, 2002

33. Groups of Firms According to Technological Capability

34. “Everyone can get the same technology. But that doesn’t mean they can make an advanced product” “Samsung’s Perspective,” Business Week, June 16, 2003

35. Emerging Issue Need to take an inventory of skill requirements, technology demand, and enterprise capacity and improve all dimensions. Bank needs to take the lead – encourage countries to think systematically about these issues

36. Lessons Learned From World Bank Operations (1) • Sustained long-term engagement is required to build both S&T capacity and industrial development capability • Specific investment loans rather than budget support -- hands-on rather than arm’s-length • Focused (vertical) interventions in specific sectors to help local firms build capacity to absorb and adapt existing technology • Many projects (e.g. Korean Institute of Electronics Technology) supported institution-building and strengthened institutes that transferred existing knowledge into local economy.

37. Lessons Learned From World Bank Operations (2) • Comparative advantage is created not given -- e.g., salmon in Chile, electronics in Korea and Taiwan. • World Bank projects and interventions were grounded in each country's own S&T and industrial strategy. PW on capacity building • Explicit learning strategies (learning-by-doing, learning-by-interacting) in targeted areas are as important as general regulatory framework • Developing human capital is an essential pre-requisite for S&T capacity building. Nothing else is possible without human capital

38. Conclusions and Challenges (1) • Ability to produce new knowledge (R&D) is important, but ability to absorb and utilize existing knowledge may be even more important at early stages of development – National Systems of Economic Learning and Technology Diffusion. This aspect of capacity building needs to move higher onto the World Bank and international development agenda • Absorptive capacity of enterprises and labor force must be developed – spillovers (from FDI) aren’t automatic --e.g., enclaves • S&T capacity building policies should be devised within the context of an overall industrial development strategy – not separately

39. Conclusions and Challenges (2) • Policy options shouldn’t be limited by today’s relative factor prices. Singapore 1965 vs. Singapore today. • Getting basics right – rule of law, business climate, etc. -- is absolutely necessary but not sufficient • Goal of universal primary education should be complemented by expanded access to vocational, secondary and tertiary education • Building one excellent institution vs. competition among existing institutions

40. Conclusions and Challenges (3) • A critical challenge is increasing the effective demand for R&D by developing enterprise capacity to innovate and utilize knowledge • Tension between expanding the supply of skilled workers and the private sector’s demand for skilled workers – chicken and egg / brain drain vs. skill shortage, Vietnam (supply with limited demand) vs. Thailand or Malaysia (demand with limited supply) • How firms learn and from whom is a key issue -- also how they innovate. Put this in a slide. competitors, suppliers, PRIs, universities, etc. • Freer trade and attracting FDI is necessary but not sufficient – spillovers won’t occur without accompanying capacity building efforts

41. Conclusions and Challenges (4) • Increased spending on education and/or R&D will not improve economic performance if there are poor linkages between research institutes and education sector on the one hand and enterprise sector on the other – Russia, Latvia, Vietnam, Bangladesh, etc. Linkages, quality and relevance are critical • Need for focus and realism – don’t spread resources too thin; develop a few niche areas; today’s comparative advantage vs. tomorrow’s needs; existing strengths vs. new competencies – comparative advantage must be created • Long term vs. short term – need for political commitment since it takes time (> ten years) for capacity building to affect economic development and poverty

42. The Way Forward: Future Agenda

43. Trends in World Bank Lending for S&T Capacity Building • Between 1980 and 2004, $8.6 billion to S&T activities; $343 million average annual lending for S&T • 9% of projects over the past 25 years provided some support for S&T • But only 2% of projects principally supported S&T • Annual average = 26 S&T projects: 5 major, 21 minor • The Agriculture-Rural Development Sector provided more support for S&T than all other sectors combined • 42 of 75 major non-ag S&T loans went to 7 countries (Korea, China, Brazil, India, Indonesia, Chile, Mexico)

44. Capacity building is important and the Bank is being asked to do more, but the Bank has recently been doing less

45. Capacity building is important and the Bank is being asked to do more, but the Bank has recently been doing less (2)

46. Issues for the World Bank • No operational home for STI. • Sectoral silos, e.g., Kazakhstan, Bangladesh, Vietnam • No unified framework to incorporate S&T into operations in all sectors • Most PRSPs and CASs don’t mention S&T; those that do give it cursory attention; Bank-IMF instructions for PRSPs do not refer to S&T • Many Country Directors and country economists are unsure how to respond to requests for assistance – Is it in the CAS; is it a priority? Is it relevant? Does it divert resources from poverty reduction? • Limited country budgets – especially in smaller countries. Leads to large omnibus projects, especially for budget support, while experience shows the need for a larger number of smaller projects. • Critical mass in individual countries vs. regional projects – e.g., AIST • Staff are unfamiliar with S&T issues; limited delivery capacity

47. Next Steps for World Bank • World Bank leadership in global S&T capacity building • Work cross-sectorally • Incorporate S&T into CSPs, PRSPs, and CEM’s – e.g., Mozambique, Vietnam (CG) • Integrate S&T capacity building into high priority sectors, such as health, agriculture, water, PSD, tertiary education • Work at the (international) regional level • Forge strong strategic alliances with external partners

48. Initial Work Program • Organizational • Operational • Analytical

49. Organizational • S&T Program Coordinator position established • Internal Advisory Group • Inter-sectoral thematic group • BBLs: AIST, Capacity Building, Learning Strategies, IK, Reverse Pharmacology, pro-poor innovations • Web site – an open source learning tool • Establish closer working relationships with sectoral anchor units and regions where existing relationships are still personal and ad hoc • Forge closer alliances with external partners • Cross support to help TTLs integrate S&T into CASs, PRSPs, environment and health projects, PSD projects, etc.

50. Operational Support • Operational (projects, ESW, TA) activities in Kazakhstan, Latvia, Viet Nam, Mauritius, Bangladesh, Malaysia, Mozambique, Rwanda • Capacity building workshops for TTLs/managers and government officials?