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

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?

Overview

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

Government’s Approach (2000)

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

Creating innovation infrastructure

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

One-North Business Park

Phase I and Phase 2 can accomodate 6000 researchers when fully occupied

Houses Genome Institute of Singapore and Bioinformatics Institute

Biopolis

Two-tower complex Attracts companies

across the media chain

Strong intellectual property laws a deciding factor in media companies’ decisions to relocate

Fusionopolis

2000-seat performing arts center in Downtown

Opened in 2002 Designed to attract

creative, innovative workers to relocate to Singapore

The Esplanade Theatres

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

Improving IPR Protection

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

Venture Capital Funds

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

Improvements to Education and Research Institutions

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

Relaxing social constraints

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

Criticisms of Singapore’s Strategy

New PM Lee Hsien Loong 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

Changing the Social Environment

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

Comparative Advantages and Weaknesses

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

Pros and Cons of Specialization

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

Enhancing the Services Sector

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

Regulatory Reforms for the Services Industry

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

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

Effectiveness of Supply-Push