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

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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. Overview. This paper discusses Singapores efforts to increase innovation and R&D in its economy - PowerPoint PPT Presentation

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

From Efficiency-Driven to Innovation-Driven Economic Growth: Perspectives from SingaporeWorking Paper by Kim-Song Tan and Sock-Yong Phang, Singapore Management University 2005This paper discusses Singapores efforts to increase innovation and R&D in its economyEarly 2000s: Singapore was billed as efficient and capable of operating existing technologies, but lacking in capacity to create new technologies, compared to world frontierImprovements in infrastructure of other Asian countries have indicated that Singapore must increase its innovation to stay competitiveThis paper aims to determine whether an innovation-driven economy requires a different kind of infrastructure than an efficiency-driven economyHow effective is the governments approach?OverviewGoal: to develop comparative advantage in innovation by developing supporting infrastructureChanges to: internal environment of firms and external social policies and regulationsInnovation policy deals with large and small firms in sectors of high tech manufacturing, services, creative contentIncreased awareness of innovation potential in small firms and service and creative sectors shifted focus from high tech MNCs to broader targetIn 2001-2005 plan, National Science and Technology Board aims to put infrastructure in place for basic research programs, esp. in life sciences

Governments Approach (2000)Supply-push strategy: build up supply of innovative workers and activities to gain a first-mover advantage over competitorsAttract creative workers by providing a culturally enriching lifestyle: increase availability of artistic performances, social interaction with other creative workersIncrease availability of R&D facilities, intellectual property protection, venture capital

Creating innovation infrastructure

One-North Business ParkOne-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 DistrictServes biomedical sciences, information technology and media industriesTwo major complexes: Biopolis houses biomedical sciences research and Fusionopolis houses information technology and media research

One-North Business Park

Phase I and Phase 2 can accomodate 6000 researchers when fully occupiedHouses Genome Institute of Singapore and Bioinformatics Institute

Biopolis

Two-tower complexAttracts companies across the media chainStrong intellectual property laws a deciding factor in media companies decisions to relocateFusionopolis

2000-seat performing arts center in DowntownOpened in 2002Designed to attract creative, innovative workers to relocate to SingaporeThe Esplanade TheatresStrong IP culture is conducive to innovation and Singapores plans to become regional hub for IP managementNeed for well-defined, strictly enforced IP laws and institutions that promote IP knowledge creation and managementRegistry of Trademarks and Patents became a full statuatory board, the Intellectual Property Office of Singapore, in 2001IPOS signed treaties with US, EU and Japan to develop regional and global IP networksLaunched Intellectual Property Academy, a research and education center Improving IPR ProtectionOver 100 venture capital firms in SingaporeGovernment provides 1/5 of total capital funding for venture capital firmsEconomic Review Committee recommended implementing harmonized tax incentives and additional partnerships with government-linked companies to promote venture capital investmentVenture Capital FundsRecent increase in funding for research programs and graduate programsGovernment gave more automony to Singapores three research universitiesSingapore universities are recruiting more foreign research faculty and working on more joint projects with universities abroadFirst private foreign university opened its Singapore campus in 2004Government grants for joint research projects between local and foreign universities

Improvements to Education and Research InstitutionsSingapores government has historically tried to regulate peoples social and political lives, encouraging conformity and obedienceEfforts to promote entrepreneurship by slowly loosening governments control over society and becoming more accepting of diversityHousing Development Board loosens restrictions on use of public housing as office spaceEducation Ministry allows for more private schools to open and relaxes entry requirements for foreign students at all levels of education to study in SingaporeCould especially help innovation in creative content sector because those workers tend to value a liberal working environment

Relaxing social constraintsStrategic industrial policy involves winner-picking: government decides which industries to pushNone of the established innovative cities have taken this approachWorked for industrialization policies of 1970-1980s when making an efficient economy, but the same approach might not work for innovationCriticisms of Singapores Strategy

New PM Lee Hsien Loong urges Singaporeans to aim for creativity and abandon conventional thinking at National Day Rally 2004Promises to change the government into one more accepting of diversityChanging the Social EnvironmentComparative advantages: accessible, central geographical locationstrong efficiency infrastructureWeaknesses: underdeveloped innovation infrastructuresmall domestic marketpolitical and social constraints of the business environmentCreative content is culture specific and thus more difficult succeed in foreign markets compared to high tech manufacturing and services industriesSize of domestic market may be a greater obstacle for creative content firmsComparative Advantages and WeaknessesSpecialization risk: Less certainty about which industries will succeed when pushing the frontiers of technology instead of merely adapting existing technologyConcentrating limited amount of resources into just a few sectorsStrong focus on electronic industry has recently caused volatile swings in GDPJustification: high-tech manufacturing is where Singapore has the most comparative advantage and pre-existing capacity for innovation

Pros and Cons of SpecializationEconomic Review Committee recommended a becoming a regional hub for service industries as part of the goal of innovation developmentThis requires significant regulatory reformsSingapore has already been a leader in financial services, transport and logistics, and healthcare but has trouble staying competitiveAfter two major shipping lines, Maersk and Evergreen, relocated from Singapore to Malaysia, the Port of Singapore Authority made drastic changes to its operationsEnhancing the Services SectorDeregulation 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 placeEducation reforms (previously discussed) have positive externalities: channeling creative people into Singapore

Regulatory Reforms for the Services IndustryResults have been mixedNumber of R&D workers has increased due to influx of foreign researchers, but effect on number of innovations is yet unknownNumber 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 residentsSingapores rank fell from 11th (2002) to 15th (2003) in Global Entrepreneur Monitor Effectiveness of Supply-PushConcern of overinvestment in innovation infrastructure with such an aggressive strategyWhat is the socially optimal level?Authors argue for a more well-defined way of evaluating innovation infrastructureThere is a minimum level necessary to create a general innovation-oriented cultureValue should be measured by an investments impact on the overall economys 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 thoughtEffectiveness of Supply-Push

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