From Efficiency-Driven to Innovation-Driven Economic Growth: Perspectives from Singapore

1. From Efficiency-Driven to Innovation-Driven Economic Growth: Perspectives from Singapore Working Paper by Kim-Song Tan and Sock-Yong Phang, Singapore Management University 2005

2. Overview • This paper discusses Singapore’s efforts to increase innovation and R&D in its economy • Early 2000s: Singapore was billed as efficient and capable of operating existing technologies, but lacking in capacity to create new technologies, compared to world frontier • Improvements in infrastructure of other Asian countries have indicated that Singapore must increase its innovation to stay competitive • This paper aims to determine whether an innovation-driven economy requires a different kind of infrastructure than an efficiency-driven economy • How effective is the government’s approach?

3. Government’s Approach (2000) • Goal: to develop comparative advantage in innovation by developing supporting infrastructure • Changes to: internal environment of firms and external social policies and regulations • Innovation policy deals with large and small firms in sectors of high tech manufacturing, services, creative content • Increased awareness of innovation potential in small firms and service and creative sectors shifted focus from high tech MNCs to broader target • In 2001-2005 plan, National Science and Technology Board aims to put infrastructure in place for basic research programs, esp. in life sciences

4. Creating innovation infrastructure • Supply-push strategy: build up supply of innovative workers and activities to gain a first-mover advantage over competitors • Attract creative workers by providing a culturally enriching lifestyle: increase availability of artistic performances, social interaction with other creative workers • Increase availability of R&D facilities, intellectual property protection, venture capital

5. One-North Business Park

6. One-North Business Park • One-North is an R&D hub that holds public and private research institutes, business offices, residential buildings, shopping centers and parks • $8.5 billion, 200 hectare development began in 2001, close to Central Business District • Serves biomedical sciences, information technology and media industries • Two major complexes: Biopolis houses biomedical sciences research and Fusionopolis houses information technology and media research

7. Biopolis • Phase I and Phase 2 can accomodate 6000 researchers when fully occupied • Houses Genome Institute of Singapore and Bioinformatics Institute

8. Fusionopolis • Two-tower complex • Attracts companies across the media chain • Strong intellectual property laws a deciding factor in media companies’ decisions to relocate

9. The Esplanade Theatres • 2000-seat performing arts center in Downtown • Opened in 2002 • Designed to attract creative, innovative workers to relocate to Singapore

10. Improving IPR Protection • Strong IP culture is conducive to innovation and Singapore’s plans to become regional hub for IP management • Need for well-defined, strictly enforced IP laws and institutions that promote IP knowledge creation and management • Registry of Trademarks and Patents became a full statuatory board, the Intellectual Property Office of Singapore, in 2001 • IPOS signed treaties with US, EU and Japan to develop regional and global IP networks • Launched Intellectual Property Academy, a research and education center

11. Venture Capital Funds • Over 100 venture capital firms in Singapore • Government provides 1/5 of total capital funding for venture capital firms • Economic Review Committee recommended implementing harmonized tax incentives and additional partnerships with government-linked companies to promote venture capital investment

12. Improvements to Education and Research Institutions • Recent increase in funding for research programs and graduate programs • Government gave more automony to Singapore’s three research universities • Singapore universities are recruiting more foreign research faculty and working on more joint projects with universities abroad • First private foreign university opened its Singapore campus in 2004 • Government grants for joint research projects between local and foreign universities

13. Relaxing social constraints • Singapore’s government has historically tried to regulate people’s social and political lives, encouraging conformity and obedience • Efforts to promote entrepreneurship by slowly loosening government’s control over society and becoming more accepting of diversity • Housing Development Board loosens restrictions on use of public housing as office space • Education Ministry allows for more private schools to open and relaxes entry requirements for foreign students at all levels of education to study in Singapore • Could especially help innovation in creative content sector because those workers tend to value a liberal working environment

14. Criticisms of Singapore’s Strategy • Strategic industrial policy involves winner-picking: government decides which industries to push • None of the established innovative cities have taken this approach • Worked for industrialization policies of 1970-1980s when making an efficient economy, but the same approach might not work for innovation

15. Changing the Social Environment • New PM Lee HsienLoong urges Singaporeans to aim for creativity and abandon conventional thinking at National Day Rally 2004 • Promises to change the government into one more accepting of diversity

16. Comparative Advantages and Weaknesses • Comparative advantages: • accessible, central geographical location • strong efficiency infrastructure • Weaknesses: • underdeveloped innovation infrastructure • small domestic market • political and social constraints of the business environment • Creative content is culture specific and thus more difficult succeed in foreign markets compared to high tech manufacturing and services industries • Size of domestic market may be a greater obstacle for creative content firms

17. Pros and Cons of Specialization • Specialization risk: Less certainty about which industries will succeed when pushing the frontiers of technology instead of merely adapting existing technology • Concentrating limited amount of resources into just a few sectors • Strong focus on electronic industry has recently caused volatile swings in GDP • Justification: high-tech manufacturing is where Singapore has the most comparative advantage and pre-existing capacity for innovation

18. Enhancing the Services Sector • Economic Review Committee recommended a becoming a regional hub for service industries as part of the goal of innovation development • This requires significant regulatory reforms • Singapore has already been a leader in financial services, transport and logistics, and healthcare but has trouble staying competitive • After two major shipping lines, Maersk and Evergreen, relocated from Singapore to Malaysia, the Port of Singapore Authority made drastic changes to its operations

19. Regulatory Reforms for the Services Industry • Deregulation of financial sector has allowed local firms to merge and foreign firms to enter • Healthcare reforms aimed at cost reduction have helped reduce shortage of doctors in Singapore, but changes to foreign medical student quotas still have not taken place • Education reforms (previously discussed) have positive externalities: channeling creative people into Singapore

20. Effectiveness of Supply-Push • Results have been mixed • Number of R&D workers has increased due to influx of foreign researchers, but effect on number of innovations is yet unknown • Number of patents filed increased from 1750 in 1995 to 5090 in 2000, but still less than 3% of patents and very few trademarks are filed by Singapore residents • Singapore’s rank fell from 11th (2002) to 15th (2003) in Global Entrepreneur Monitor

21. Effectiveness of Supply-Push • Concern of overinvestment in innovation infrastructure with such an aggressive strategy • What is the socially optimal level? • Authors argue for a more well-defined way of evaluating innovation infrastructure • There is a minimum level necessary to create a general innovation-oriented culture • Value should be measured by an investment’s impact on the overall economy’s innovative capacity, rather than impact on targeted industries • Innovation infrastructure also has consumption benefits, improving quality of life is an additional social benefit, so over-investment is less likely than previously thought