Xavier Devictor: Should Poland Care About Innovation?

Minister Bienkowska recently announced that Poland will allocate Euro 10 billion to support innovation in Small and Medium Enterprises over the 2014-2020 period.  Skeptics observe that Poland ranks 24 out of 27 within the European Union in terms of “innovativeness” and they claim that Poland is not ready yet to become a “Silicon Valley”.  Who is right ?

When we talk about innovation, we often think about products like iPhones and 3-D printing, or services like Facebook and GoogleEarth.  But this is a very limiting definition of innovation.  What most specialists call innovation is the “development and commercialization of products and processes that are new to the firm, new to the market, or new to the world”.  This is not only about new products, but also about new, more effective processes.  This is not only about inventing something new, but also about applying existing technologies and processes in a new environment, in a new firm.
Poland has no choice but to innovate.  Poland’s current model of economic growth may be gradually approaching its limit.

Over the last two decades, Poland’s growth has been driven by a “post-transition” catching up, relying on a relatively cheap, yet well-educated workforce.  As the country gets wealthier, as income per capita increases, labor is becoming more expensive.  Productivity has to increase in parallel if Poland is to remain competitive.  This is where innovation is key.

Make no mistake.  The time when innovative products were designed in the West and mass-produced in less-developed countries is rapidly coming to an end.  China has dramatically increased its research effort and is now close to the vanguard in a number of areas.  Korea is at the forefront of IT developments.  New seeds are being developed in India and in Brazil.  Chile, once a backward economy, is now a champion of innovation in a broad range of sectors.  In the global course for competitiveness, Poland has no choice but to innovate. 

So, will Euro 10 billion be enough ?

International experience shows that innovation is not only about money and subsidies.  It is about the business environment, and whether it is easy enough to create and grow an enterprise.  It is about skills, and whether the education system is equipping the next generation with the knowledge but also with the soft skills that are needed to operate effectively in the global economy.  It is about the linkages between researchers, entrepreneurs, and financiers – something that many places in the US excel at. 

And, yes, it is also about money.  Private sector money first – and there is far too little of it in Poland.  But public resources too.  Across the world, Government programs have been instrumental in encouraging and supporting innovation and innovators, from the internet to pharmaceutical drugs.  But many Government programs have failed too and have been a waste.  So how can public funding be deployed in an effective way ?  Let me offer four suggestions:

First, focus on a few things only.  Experience shows that to get the most results resources need to be concentrated on a few objectives, in a few areas.  This is why the definition of focused strategies, at national and subnational levels, is so critical – to make sure resources are directed in the most effective manner, and are concentrated in a way that will maximize their impact. 

Second, consult and mobilize the private sector.  The private sector will be the driver of innovation.  Public support is just that: support.  Across countries, we see the best development results in those places where the public and private sectors work hand in hand towards a shared objective.  A true partnership is key to success.

Third, define the right instruments and incentives.  Grants need to be gradually replaced by instruments which can leverage private sector funds: revolving funds, credits, guarantees, or sophisticated financial instruments.   Institutional systems and incentives need to encourage reasonable risk-taking: innovation is about taking a bet on something new, and accepting that some of these bets will “fail”.  Those who are in charge of selecting projects need not be afraid of such “failures”…  or they will not finance truly innovative projects.

And fourth, put in place an effective monitoring and evaluation system.  This is not about measuring what happened or seeking scapegoats for what did not work as planned.  This is about actively managing the program, to assess in real time what is working well and what is working less well – so that adjustments can be made and resources redirected to achieve results.

Fins made Nokia.  Estonians invented Skype.  Why could Poland not be one of the next Silicon Valleys ?