Connecting innovation systems with local and regional economies

Many of you have asked me how I connect my current focus on innovation systems and technological upgrading with industries with my past experiences of local and regional economic development. I thank you for repeatedly asking this question, and apologise for not providing you with an answer. The reason for my silence was that I was also not exactly sure how to connect these topics. But I think I am now starting to understand how these topics relate to each other.

Let me try to explain this.

Before I continue I need to make sure that you understand that an innovation system is far more than one or two innovative firms.  Freeman (1987:1) defined an innovation system as “the network of institutions in the public and private sectors whose activities and interactions initiate, import and diffuse new technologies.The emphasis is mainly on the dynamics, process and transformation of knowledge and learning into desired outputs within an adaptive and complex economic system.

So how does innovation systems work within regions or places? Well, it is often affected by issues such as trust, social and informal networks, formal relationships, common customers or common inputs and other factors. You will notice that it sounds very similar to the characteristics of a cluster in its early days. The main characteristic of a local or regional innovation system is that it is mainly focused on a specific geographic space and on the specific knowledge spill-overs that occur around certain firms, industries or institutions unique to that space.

You will immediately notice that innovation thus favours places with more people and more firms. You are right, a close relationship exist between density of interactions between people (provided for by towns and cities, nightlife, and frequent social exchanges) and the innovation system. It does not mean that innovations are limited to these spaces, but simply that they emerge faster or with more success in these spaces. This is largely caused by the increasing importance of knowledge exchange and interaction between firms, knowledge service providers and technological and educational infrastructure. But more about that in a seperate post.

I want to leave you with 3 questions that I have found to be useful to better understand the relationship between places and innovation systems. I use it frequently at the start of an assessment into an innovation system, or to stimulate thinking of public and private leadership.

1) Why are people innovating in this specific location (and not on another space)?

2) How does this space or place support innovation, and more specifically, how does it reduce the costs of innovation?

3) How do innovations in firms affect this space?

Bear in mind that with innovation I mean product, process as well as organisational or business model innovations.

Ask these questions and let me know what you find. I am sure that you will find that many places do not actively support innovation (unless you have some really determined or stubborn innovators there). Nor do they make it cheaper for people to innovate, exchange knowledge or stimulate joint problem solving (or opportunity exploitation). To me it also seems increasingly obvious that the role of cities and towns in Africa are not fully exploited in national economic development as spaces for innovation.

In South Africa, innovation happens mainly in 9 major and about a dozen secondary urban spaces. No amount of public policy will break this pattern until settlement patterns change, or until smaller places start to attract skilled people that can afford to innovate from cities.

So how can we support innovation systems in each and every town? How can we built regional and local institutions that reduce the cost and risk of innovation. Again, I dont mean only product development as an innovation. I mean process and business model innovation as well.

Until we can build our own local technological and educational institutions using local priorities and local resources from the bottom up the trend of urbanisation and migration to the major centres will continue. This is great in terms of reducing the costs of innovation, but it makes us very dependent on national policy, and only a few good local administrations. I would prefer a situation where we can build our local institutions around local issues, this giving firms in for example a mining region a head start in innovating around problems or opportunities related to mining.  For instance, in the Mpumalanga  province (South Africa) we have a lot of coal mining with its associated problems. Why is it so difficult to create a small but focused research institute or technological institute in a town that will focus on applied research and knowledge generation around environmental technology related to coal mining? Could this not be an impulse with environmental solutions as well as innovation as outcomes? I could imagine that such an institute could create positive externalities in a space that would lead to innovation that our both cutting edge and relevant to our society.

Now if you think about it, then Africa is rich with millions of ideas (also known as opportunities, challenges and obstacles) that could serve as impulses to create, stimulate or grow local innovation systems around relevant issues. Dont get me wrong, I dont mean that the public sector must do the research, and then the private sector must commercialise the research (although a little of this certainly helps). I mean that public funds or public private partnerships could be used to establish local institutions that create positive advantages for firms to innovate within regions through reducing the costs of finding relevant information (about a problem, opportunity or technology) and by highligthing opportunities for application of new ideas (by better articulating demand or applications). But there must be sufficient scale of infrastructure to allow the people with the right knowledge, experience and perhaps financial resources to settle in the region to exploit (or address) the opportunities through innovation.

Let me know what you find when you ask these questions.

PS. I know I will receive hundreds of angry e-mails that I am implying that rural areas are doomed.  Re-read my post before hitting ‘send’.

3 Responses to “Connecting innovation systems with local and regional economies”

  1. Lucho Osorio Says:

    Hi Shawn: Your reflections on innovation are interesting. They are also relevant for our work at Practical Action. Practical Action’s Markets and Livelihoods Programme is focusing some of its energies on the question of how innovation happens in market systems. We are starting to put together a webpage with some papers and slidecasts on these issues. I’ll share the link with MaFI members when it is ready.

    In the meantime, I want to leave you with a quote that rocked my world when I was exploring the issue of innovation from a “learning capabilities” perspective. Why? Because the idea you are about to read eliminates the need for a moral justification to include “the poor” in market development processes (which is something that bothers me a lot because morals are always relative and can be easily manipulated to produce bad policies):

    In the context of systems that change through time like markets do, it is possible to demonstrate that the advantages of increasing diversity exceed the related costs “when the main value of diversity lies in an enlargement of the knowledge base sustained by viable learning mechanisms” (Cohendet and Llerena 1997: 225).

    The implication for facilitators is that, unless we promote the conditions for viable learning to happen, trying to help “the poor” to participate in market systems is simply a waste of time.

    Keep your wisdom flowing! 🙂


    • Shawn Cunningham Says:

      It is important to add a comment that Lucho raised in a private conversation about this post.

      To quote Lucho “agriculture is a source of livelihoods for an estimated 86% of rural people […] Of the developing world’s 5.5 billion people, 3 billion live in rural areas, nearly half of humanity […]” WDR 2008, p3″

      In my post I did not imply that rural areas or agriculture is not important for development. But due to the size of the rural areas, and the distances between people, innovation systems in rural areas will be far more difficult to work with (than in urban areas). However, with the right programme design this is not an insurmountable problem.




  2. Quick recap: what is an innovation system « Shawn Cunningham's Weblog Says:

    […] Quick recap: what is an innovation system August 18, 2011 — Shawn Cunningham Before I continue with this series, it is necessary for me to refer you back to a post I wrote some time ago where I described what an innovation system is. For the full post, click here […]


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