L/O/G/O

National Innovation System and Developmental

State Model: Insights for Indonesia Rully Prassetya

The University of Tokyo-NUS

What they said about Indonesia

• Roubini: Goodbye China, hello Indonesia. Nouriel Roubini, 2011

• The Indonesian Tiger: story that you

missed in 2010. Foreign Policy, 2011

• The 7th-largest economy in the world by

2030. McKinsey Global Institute, 2012

Outline

Introduction

National Innovation

System

Developmental State Model

Insights and Reflection

Concluding Remarks

Outline

Introduction

National Innovation

System

Developmental State Model

Insights and Reflection

Concluding Remarks

Present vs. the Future

Source: McKinsey Global Institute,

2012

Indonesian GNI Per capita has grown at around

6.5% annually since 1980; or around 7% since 2004

0

1000

2000

3000

4000

5000

6000

GN

I P

er

cap

ita i

n C

urr

en

t U

SD

P

PP

Source: World Bank, 2013

Indonesia started with higher GNI per capita than China and

India in 1980, but was surpassed by China in 1999; so is

between Malaysia and Korea

0

5000

10000

15000

20000

25000

30000

35000

1980

19

82

1984

1986

19

88

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

GN

I P

er

cap

ita i

n C

urr

en

t U

SD

P

PP

Indonesia

China

India

Thailand

Malaysia

Korea, Rep.

Source: World Bank, 2013

Introduction

We run fast but other run even faster,,

Finding the road ahead looking at

two models of developments.

Outline

Introduction

National Innovation

System

Developmental State Model

Insights and Reflection

Concluding Remarks

Introduction

• Differences in development are mainly caused by

technological differences (Gerschenkron, 1962).

• In another word, technology is considered as the driving

force of growth and development (Lucas 1988, Romer

1990, Aghion and Howitt 1992)

• The importance of Innovation and adoption/diffusion.

Introduction (Cont’d)

• Science, Technology, and Innovation (STI) policy

– Traditional (neoclassical & linear) vs. system approach

• Innovation system

– Interdependence and non-linearity;

– Focus on the learning process;

– Emphasize the role of institutions;

– Interaction: competition, transaction, and networking;

– All important economic, social, political, organizational,

institutional, and other factors that influence the development,

diffusion, and use of innovations;

Example: Japan’s NIS

• Late comer advantage and government

policies;

• Willingness of the private sector to respond to

opportunities; Japanese management system;

• Good basic education system in Tokugawa

era;

• Importation of advance technology + promoting

domestic technological base Technological

progress;

Example: Japan’s NIS (Cont’d)

• The case of TiO2 photocatalyst by Professor Fujishima

and Hasimoto of Tokyo University (Baba, et al., 2010).

Source: Baba, et.al., 2010

Commonality across countries

• Market economy;

• The bulk of education, including university education, is provided by public institution;

• Government is presumed to have major responsibility for funding if basic research;

• NIS is shaped by factors such as size and resource endowment which affect comparative advantage at a basic level; but also reflect a conscious decision to develop and sustain economic strength in certain areas (shape and build comparative advantage).

Key Points

• The firms in the industry were highly

competent in what mattered to be

competitive in their line of business;

• The responsiveness of university to the

training needs of industry.

• National fiscal, monetary, and trade

policies must spur national firms to

compete on world market.

The Triple Helix

Firms

Government University

It shows the central role of government

(policies) for nation’s development

Outline

Introduction

National Innovation

System

Developmental State Model

Insights and Reflection

Concluding Remarks

Introduction

• Attempt to explain the rapid growth of

Japan, Botswana, South Korea, Taiwan,

Singapore, Indonesia, and Malaysia.

• Based on Adrian Leftwich (1995) on Bringing Politics Back In: Towards a Model

of the Developmental State. The Journal of Development Studies, 31(3),

pp.400-427.

The model

• Developmental state

– Its political purpose and institutional structures

have been developmentally-driven, while their

developmental objectives have been

politically-driven.

– “States whose politics have concentrated

sufficient power, autonomy, and capacity at

the center to shape, pursue, and encourage

the achievement of explicit development

objectives.”

The Model (Cont’d)

A determined developmental

elite

Relative autonomy

A powerful, competent, and

insulated economic bureaucracy

A weak and subordinated civil

society

Effective management of

non-state economic interest

Repression, legitimacy, and performance

The Model (Cont’d)

• Is it a sustainable model?

– Singapore and Malaysia recent election.

• Key takeaways:

– The importance of strong institution and good

governance

– Get the politics right

– The role of media and civil society

Outline

Introduction

National Innovation

System

Developmental State Model

Insights and Reflection

Concluding Remarks

Insights

National Innovation

System

• Firms/entrepreneurship

• Education system and

universities

• Government policies

Developmental State

Model

• The importance of strong

institution and good

governance

• Get the politics right

• The role of media and

civil society

Reflection from NIS

Key Points Reflection

Firms How many research-driven firms Indonesia has?

Does Indonesia has internationally competitive firms

in its industry?

Education and university Has our education system provide the necessary

skills?

How strong is cooperation between university and

private sector?

Or maybe a basic question, do our people receive

basic education?

Government policies Have government policies encourage firms to

compete globally?

Reflection from Dev’t State Model

Key points Reflection

Strong institution and

good governance

How far has our bureaucracy reform gone?

How to improve the governance?

Get the politics right Should we go back to autocracy?

How our democracy could be improved?

The role of media and

civil society

Has our media play its role well? Is it independent?

Capacity building on civil society.

Where we are now: Firms

• 66% of export in 2011 is in non-manufactures; while 60% of the import is in manufactures.

• Ranked 17th in country manufacturing competitiveness index ranking; expected to be in 11th place in five years (Deloitte, 2013).

• No firm listed in Fortune Global 500.

Commodity Export Import

Agricultural products 24 12.7

Fuels and mining products 42.2 26.6

Manufactures 34.1 59.9

Source: WTO, 2013

Where we are now: Firms (Cont’d)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1970 1980 1990 2000 2012

The share of industry in the economy is around 43% in 2012, slightly decline from 45% in 2000

Service

Industry

Agriculture

Source: World Bank, 2013

Where we are now: Education

• Lack of management pool (84%) and skilled

workers (69%).

• Ranked 40th out of 40 countries in Pearson

Cognitive Skills and Educational Attainment

Ranking.

• University ranking (Asia/World) 2012: UI

(59/273); ITB(129/451-500); UGM (133/401-

450); Unair (145/601+).

• Any collaboration between university and

firms?

Where we are now: Education (Cont’d)

Source: Hill and Wie, 2012

Where we are now: Government

• Ranked 118th in CPI 2012, down from

100th in 2011 (Transparency International,

2012).

Where we are now: Government (Cont’d)

Indicator Score Rank

Gov't services for improved business performance, 1-7 4.461279 21

Wastefulness of government spending, 1-7 (best) 3.828313 32

Favoritism in decisions of government officials, 1-7 (best) 3.794937 35

Burden of government regulation, 1-7 (best) 3.722343 48

Intellectual property protection, 1-7 (best) 3.729093 60

Public trust in politicians, 1-7 (best) 3.009729 60

Efficiency of legal framework in challenging regs., 1-7 3.763165 63

Diversion of public funds, 1-7 (best) 3.363889 65

Efficiency of legal framework in settling disputes, 1-7 (best) 3.781631 66

Judicial independence, 1-7 (best) 3.568954 76

Property rights, 1-7 (best) 4.056038 82

Transparency of government policymaking, 1-7 (best) 4.150774 82

Reliability of police services, 1-7 (best) 3.909306 85

Business costs of crime and violence, 1-7 (best) 4.310225 98

Irregular payments and bribes, 1-7 (best) 3.198246 111

Organized crime, 1-7 (best) 4.140086 116

Business costs of terrorism, 1-7 (best) 4.583048 121

Source: World Economic Forum, 2013

The hope is still there

• 24% of population enrolled in tertiary

education in 2011, up from 16% in 2004

(World Bank, 2012).

• National budget increase four-fold in nine

years.

• Education spending on national budget is

20% since 2009 ( spending quality ?)

• Improving political stability—subject to

2014.

The hope is still there (Cont’d)

• Life expectancy increase 17 years

compared to 30 years ago.

• In 1960, 1.6 years of schooling, 68% of the

population aged 15+ had no or incomplete

primary education (Hill and Wie, 2012).

The road ahead

• Increasing the value added activity (building up technological capability). – Foreign Direct Investment

– Technopreneurs • Commercial oriented /applied research.

• Stronger univ-firm cooperation

• Improving education and university quality – ?

• Government – Industrial and competition policies;

– Improvement in institution quality.

Outline

Introduction

National Innovation

System

Developmental State Model

Insights and Reflection

Concluding Remarks

Concluding remarks

• It depends on us.

L/O/G/O

Thank You!

Reference

• Baba, Y., Yarime, M. & Shichijo, N., 2010. Sources of success in advanced materials

innovation: the role of "core researches" in University-Industry collaboration in Japan.

International Journal of Innovation Management, 14(2), pp. 201-219.

• Deloitte. 2013. Country Manufacturing Competitiveness Index Ranking 2013.

• Hill, Hal and Thee Kian Wie. 2012. Indonesian University: rapid Growth, Major Challenges.

Presentation to the ANUS Indonesia Update Conference 2012.

• Leftwich, A., 1995. Bringing Politics Back In: Towards a Model of the Developmental State.

The Journal of Development Studies, 31(3), pp. 400-427.

• McKinsey Global Institute. 2012. The archipelago economy: unleashing Indonesia’s

potential.

• Transparency International. 2012. Corruption Perception Index 2012.

http://www.transparency.org/cpi2012/results.

• Nelson, R. R., 1993. National Innovation System: A Comparative Advantage. Oxford:

Oxford University Press.

• World Economic Forum. 2013. Global Competitiveness Ranking 2013.

http://www.weforum.org/issues/global-competitiveness.

http://www.transparency.org/cpi2012/resultshttp://www.transparency.org/cpi2012/resultshttp://www.weforum.org/issues/global-competitivenesshttp://www.weforum.org/issues/global-competitivenesshttp://www.weforum.org/issues/global-competitivenesshttp://www.weforum.org/issues/global-competitiveness

Appendix 1

Government’s role in NIS

• Encourage firms to cooperate in R&D;

• Activate venture capital;

• Fund research at universities and public

laboratories (sectoral);

Appendix 2

National Innovation System Country National Innovation System

US Characteristics:

o Enormous scale of national R&D investment;

o The changing role (as performer and funders) of industry-university-and federal

government;

o The importance of new firms in commercialization of new technologies;

o Public policies: (1) anti-trust legislation; (2) military R&D;

As of 80s: relatively weak national innovation system: slow in adopting new manufacturing

process; little strategic planning in innovation system;

Japan Late comer advantage and government policies;

Willingness of the private sector to respond to opportunities; Japanese management system;

Good basic education system in Tokugawa era;

Importation of advance technology + promoting domestic technological base Technological

progress;

Germany Early development: Education (universities; technische hochschulen); Specialized research

organization;

Current technology policy: cooperation among firms or with public research organization (in

microelectronics, robotic, computer added design and manufacturing, biotechnology); indirect

government support (tax credit; national laboratories and departmental laboratories); Support to

aircraft industry; science park and innovation centers.

Failure in 1980s: full-funding from the government on research projects;

Challenges: Lack of managing role from Federal Ministry of Research and Technology;

reforming higher education sector.

Appendix 3

Development of Electrical and Communication Equipment in

Japan

• The technological lag was not far;

• Imported technologies were not discontinuous from domestic technologies;

• Domestically educated engineer assimilate the western technology;

• Foreign technologies were imported through joint ventures, technology contract, and reverse engineering;

• Strong entrepreneurship;

• Demand from military procurement;

The road ahead (Cont’d)

• Others:

– Improve the consumer service (banking,

retail, telecommunication);

– Improve productivity in agriculture and

fisheries increase small holder yield;

producing higher value crop; use the unused

land; productivity in fisheries)