Sustainable ICT solutions Luc Soete UNU-MERIT University of Maastricht Workshop 2B, Regions for Economic Change – Building sustainable growth, Brussels, May 21 st, 2010

Outline A first conceptual part ICT and the European Digital Agenda: a subset of the innovation debate in Europe. ICT solutions are basically innovations Reflects also a shift in one thinking about the role of S&T and innovation to development. A digital Schumpeterian agenda. Old ideas, new concepts at least in the way we measure them. A digital Marshallian agenda: ICT solutions and agglomeration effects A second part focusing on sustainable part of Europe 2020 strategy [Smart ICT induced growth] Increases in business competitiveness Delivering public services Sustainable ICT solution It is easy to be eco-innovating [Inclusive ICT] Smart specialisation

1. From S&T to ICT as engine for growth Good to remember that the focus on industrial science and technology (R&D) is a relatively recent phenomenon. Long before, experimental development work on new or improved products and processes was carried out in ordinary workshops. Technical progress was rapid but the techniques were such that experience and mechanical ingenuity enabled many improvements to be made as a result of direct observation and small-scale experiment. Shift in the nature of knowledge accumulation: from industrial, tight to more undetermined outcomes, trial and error science and technology Traditional industrial R&D based on: Clearly agreed-upon criteria of progress, and ability to evaluate ex post Ability to hold in place (Nelson), to replicate, to imitate A strong cumulative process: learn from natural and deliberate experiments New technological change appears more based upon: Flexibility, hence difficulty in establishing replication; Trial and error elements in research with only ex post observed improvements Problems of continuously changing external environments: over time, across sectors, in space; difficulty to evaluate Particular role of users in the R&D process itself and much larger role for entrepreneurial based innovation Codified parts of knowledge easy, but difficult to appropriate the efficiency improvements leak quickly away, tacit parts much more difficult, imitation never complete

From industrial to innovation policy Distinction between novelty and routine reflected in essential features of R&D definition and its policy support: Professional R&D with professional S&E manpower versus routine production with routine high/low skilled manpower Dominance in-house R&D over outsourcing, licensing, open innovation STS activities such as design, engineering, etc. outside of R&D At innovation side blurring distinction between innovators and users: Innovation outside of R&D system, associated with entrepreneurs Innovation as novelty with respect to firms market, countrys market, world market? Role of knowledge management, organisational innovation, social innovation All features of ICT solutions and the digital economy. New innovation is characterized by ICT solutions.

Back to Schumpeter Relevance of innovation (policies) at all levels of development. Three broad categories of innovation policy challenges (Aghion and Howitt): For high income countries, such as Japan or the EU, the policy challenge is one of the sustainability of Schumpeterian dynamism For emerging economies (BRIC), the challenge appears the design of backing winners innovation policies based on new comparative cost advantages For least developing countries, the policy challenge focuses on the disarticulated nature of the local knowledge systems Growing scope for mutual learning from each others experiences: relevance of community of practice in many areas. Knowledge sharing shifts the attention away from the purely technological aspects of research to the broader organisational, economic and social aspects which are today in many cases a more important factor behind innovation. This is reflected to some extent in the much greater popularity of the term innovation today than R&D Innovation is at the same time as relevant to poor countries/regions as it is to rich countries.

Back to Marshall The global dimensions of collaborative innovation can go hand in hand with a huge concentration of R&D efforts in the US, Japan and the EU with the BRIC countries rapidly catching up… Local agglomeration effects of knowledge are, however, continuously eroded: The most important long term enabling factor of ICT will be in enhancing A2K Not just access to the required knowledge but also to the tools to replicate and improve upon knowledge Access not as passive consumption but as right and ability of participation: as a factor enlarging the resource base of potential innovators Crucial role of various communities of practice (innovators, local users, implementers, etc.) Role of (local) public sector in setting the fences of the commons in nature but also in innovation, in creative commons In doing so, innovation is becoming less driven by R&D and at the product end by the continuous search for quality improvements, typical of the old mode of technological progress, identified with the high income groups in society, but by broader user needs across society. At the same time, such innovation demands might feed back to R&D departments in new ways, further globalising the impact of research.

A new emerging innovation development paradigm Innovation, and in particular new product innovations seems to have been driven in the past by professional use demand and in particular innovation directed towards the tip of the income pyramid. One may call this the long tail of product segmentation and product quality. But there is also a long tail of innovation at middle and low income levels. These needs have been by and large ignored by private firms. A certain laziness on the innovation front with massive cost reductions thanks to outsourcing has made many firms in the developed world slow and unimaginative in their attempts at bringing innovations on the market (reflected in investment figures lagging behind). New complex markets at the middle and low end of households. Top down (Prahalad) from large Western foreign companies: difficult to implement, insufficient top management support, CSR burden… Bottom up emerging from grassroots innovation (Gupta) in alliance with firms from emerging economies: Indigenous innovation: difficulties in up-scaling and reaping scale economies; Need for close link with development of purchasing power (micro-finance and micro- insurance): addresses in general above poverty line households. Covers a much wider spectrum than consumer good innovations, also in health, agriculture, communication, also finance…

Role of social innovation Ultimately one of the most important political innovations in Europe was due to a trade union, churches and groups of intellectuals in Poland, East Germany and Czechoslovakia. Debate in Europe today whether we need a new era of open innovation processes, involving the State-the Market-Civil Society. Such innovation will be required for increasing the resilience of the European System (EU Institutions, Member States, Regions, Cities, Businesses and Networks) in order to cope with the shocks that may occur in connection with potential crises in the fields of climate change, reduction of biodiversity and energy. To do so one needs: Well-Being Indicators New guidelines for fiscal Incentives, ecological sub-primes, design of Banks Guidelines Much stronger participatory democracy as lever for innovation: need for new governance schemes, new business models, new lifestyles and culture. Innovation and change are already taking place today in cities and communities (smart eco-efficient and low-carbon economy). In al these cases ICT solutions play a central role

2. Existing technologies: is it easy to be green? Using currently available technologies to control emissions could appear at first sight to be the most sensible thing to do. However, doing so would fix the energy consumption characteristics of that machinery and equipment at a level dictated by the present state of technology, whereas much energy conversion machinery, like a coal-fired or gas-fired power plant, has a technical lifetime of three decades or more. In a situation of ongoing technical change, committing investment resources to produce output now essentially entails foregoing producing those same units of output with even more efficient equipment in the future. Investment in current technologies entails the loss of the option to invest in superior future ones. The result is a tendency to postpone investment not just because of a lack of trust, as in the present economic crisis, but even in good times for perfectly respectable reasons. From a long- term point of view, postponing investment may have its merits. Publicly funded R&D will be necessary to share the risks of developing the technologies: this would provide the private sector with the opportunity to build on these technologies through less risky, applied R&D. At the same time R&D diversification will be essential so as to ensure that other potential technology options would either be in the pipeline, or could be scaled up if so required.

Two central research/innovation trajectories The scale and complexity of the scientific and technological efforts require that measures that enhance the effectiveness of both public and private research investments and technology transfers in a wide array of green technologies, facilitating also knowledge-sharing, adaptation and diffusion of innovations. Two major trajectories of research and innovation can be thought off. One focusing on reductions in the energy/ecological footprint of high income consumers ( the vertical arrow in the figure below) One focusing on increasing development in an energy/ecological sustainable fashion (the horizontal arrow in the figure below) Such a vast research and innovation program also entails a critical rethinking of ways to mitigate the inhibiting effects on exploratory research and cumulative incremental technology development that arise from the intellectual property rights regime. Targeted domains for research exemptions, defined fields in which a liability approach to IPR infringement replaces the existing property rights approach, and competition policy adjustments to permit efficient pooling of patent, copyright and database rights, are likely to be needed. A smart, green economy is therefore less likely to lead to the sort of technology-based competitiveness monopoly rents and advantages typical of other major technological breakthroughs. Citizens in Europe, the US, or Japan, are ultimately dependent in their sustainable future on the speed of (green) knowledge diffusion in both their countries as well as those in the rest of the world..

The global sustainability smart research challenge

Research insights from the South: it is easy to be eco-innovative Developing markets appear to raise some of the most motivating research/innovation challenges Autonomy, unwired to high quality infrastructure (energy, water, roads, terrestrial communication); Low education hence necessity of simplicity in use; Less maintenance/repair facilities, so an intrinsic need for long term sustainability; Extreme income inequalities with strong needs in urban slums and poor rural villages, but little current purchasing power and high living risks, hence low willingness to invest or borrow money in the long term. All these features appear also and increasingly of particular value to consumers in developed countries: Autonomy of high quality infrastructure as freedom of movement; Shift in the democratization of innovation: from the needs of sophisticated, bèta users to the needs of (digital) illiterates; Need for zero maintenance and ecological sustainable: cradle to cradle Relevance of new financial products such as micro-credit and micro-insurance in poor urban areas