Transcript Should Chile have an innovation strategy? Alexander Galetovic CEA-DII Universidad de Chile

Should Chile have an
innovation strategy?
Alexander Galetovic
CEA-DII Universidad de Chile
What do we mean by
“innovation strategy”?
1. Clever and well-informed people doing
policy, figuring out what needs to be done,
or...
2. ...a bunch of consultants and interest groups
seeking rents and subsidies
Of course we mean 1!
A few things
one needs to be aware of
• “Clever and well informed people doing
policy, figuring out what needs to be done” are
in short supply
• Hence “clever and well informed people doing
policy, figuring out what needs to be done”
have a high opportunity cost
What’s the high opportunity cost?
• Labor market reform
• Instututional improvement (regulated sectors,
budgetary institutions, etc. etc. etc.)
• Removal of distortions (banking, electricity
distribution, transport,
• Being well prepared to confront interest groups
• Improving and abandoning many things that
the state is doing badly today
Doing the right thing is hard
VCs in the United States reject 990 of 1,000.
They succeed in one of the 10 they finance.
Wrong reasons to justify an
innovation strategy
Avoid wrong cliches
“There is no innovation in Chile”
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Patents are the wrong indicator
R&D spending is probably misleading
There is a lot of innovation going on; one only
needs to go out and talk with those who do
(Ronnie Fischer did, by the way)
Avoid wrong cliches
“Natural resources are not advanced”
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Just go out and see a winery!
U.S. Growth was based in the explotation of
natural resources
Natural resources are knowledge-intensive
We can earn rents!
Avoid wrong cliches
“To grow fast you need to invest in
advanced sectors”
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Sectors where productivity grows fastest in the
world are not necesarily those where relative
prices will move in your favor
You want to take advantage of rents!
There is something called international trade
Productivity growth is valuable in any sector
Avoid wrong cliches
“Appropriability problems are pervasive and
prima facie justify a technology policy”
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Patents are really important only in a few sectors
(drugs and chemicals, simple machinery)
Patents are the least effective means of
appropriation (complementary manufacturing;
complementary sales/service; lead time; secrecy)
There are many market-based strategies that
firms use to make money out of IP
The onus is on the advocates
of an innovation strategy
The onus is on the advocates
of an innovation strategy
• Don’t tell me that “we’re going to play like
Michael Jordan” (... wouldn’t it be nice to be
developed?)
• Don’t tell me “we should be able to walk and
chew gum” (a perhaps clever but upon
reflection silly metaphor when it comes to
economic policy)
What do advocates have to show?
What needs to be proven
•
You tell me what “technology policy” really
means: objectives, means to reach them, how
you gonna do it (tell me the details!)
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You show me that the price system is worse
than economists&bureaucrats to guide
resource allocation
What needs to be proven ...
3. You show me that technology policy is more
cost effective than “standard” micropolicies
(competition in banking, costs of starting up
a business, the burden of regulation on small
firms, labor-market reform, etc. etc. etc.)
4. You show me that you can’t do significantly
better with all the money that you already
spend
What needs to be proven ...
5. You tell me who are the “clever and wellinformed people” who will do technology
policy and what’s their opportunity cost (I
want to know names!)
6. You show me the design of the institution
and practices that will keep consultants and
interest groups at bay (with the laws and
constitution we now have!)
What needs to be proven
7. You show me how you will solve the
selection problem (99% of projects are bad;
one in ten fail)
To conclude
Policy conclusion
• An innovation strategy is not prima facie
desirable or sensible
• Such policies have failed the world over time
and again
• Hence, prove it before the President announces
the policy and commits money to it