Innovation is essential in the search for prosperity. Indeed, it plays a key role in the Colombian government’s recently unveiled national development plan (DNP)—Prosperidad para todos—and is one of the 5 (engines) “locomotoras” of economic growth.
But what does innovation mean today in Latin America?
The DNP accurately points out that “innovation doesn’t only mean developing new products and transforming existing ones but it is also creating new ways to produce, deliver, market and sell, and ultimately, generating value throughout the production chain”. The Santos government’s focus on innovation is important because there is a clear innovation gap in Latin America. According to INSEAD’s Global Innovation Index there are no Latin American countries ranked among the top 40 innovators. The highest ranked South America countries are Chile (42nd out of 132), Uruguay (53rd), Brazil (68th) and Argentina (75th)—Colombia comes in at 90th, two spaces after Peru. One reason for the poor performance is a lack of public investment in research and development, which at approximately 0.6% of GDP in South America is well behind fast-growing Asian economies such as South Korea (3%) and Singapore (2.4%).
Despite this, most of South America is currently enjoying firm economic growth. This is largely supported by the commodity boom and a recovery in internal demand. However, rates of unemployment, poverty and inequality remain high. With its focus on innovation and competitiveness the Santos administration is simply acknowledging the fact that no country has found prosperity through a reliance on natural resources and low wages.
Colombia has taken some initial steps to foster innovation but the DNP is right to suggest that more needs to be done to make the leap to a “knowledge-based” economy. According to Michael Fairbanks, a competitiveness expert and founder of the OTF Group, the key areas to focus on are institutions, knowledge resources, human capital and culture. Institutional capital includes legal protections of tangible and intangible property, government departments that work with little hidden costs to the economy and firms that maximize value to shareholders while compensating and training workers. Knowledge resources include international patents and university and think-tank capacities. Human capital represents the skills, insights and capabilities of the workforce and cultural capital means not only country’s artistic output but also people’s attitudes and values toward innovation and entrepreneurship.
Innovation success stories from the US and Europe also highlight the importance of entrepreneurial clusters, an established system of rules and access to financing. The success of Silicon Valley has spawned numerous imitations but few have been able to manufacture California’s concentration of technological entrepreneurs and informed investors. The so-called Silicon Roundabout, an emerging hub of internet companies based in the Shoreditch area of East London, is a recent example of a successful innovation cluster which grew spontaneously as a result of access to highly skilled employees, investment (Shoreditch is adjacent to London’s financial district) and cheap rents.
Government leadership and vision is also important, particularly in emerging countries which do not have the venture capital capabilities of the US and UK. In this regard, the Santos government is off to a good start with its bold plan. Now the government will have to encourage all sectors of society—especially businesses, entrepreneurs and universities—to follow its lead and work together in the search for prosperity.