Should Chile have an innovation strategy

1
Should Chile have an innovation strategy?

• Alexander Galetovic
• CEA-DII Universidad de Chile

2
What do we mean by innovation strategy?

• Clever and well-informed people doing policy,
  figuring out what needs to be done, or...
• ...a bunch of consultants and interest groups
  seeking rents and subsidies

3
Of course we mean 1!
4
A few things one needs to be aware of

• Clever and well informed people doing policy,
  figuring out what needs to be done are in short
  supply
• Hence clever and well informed people doing
  policy, figuring out what needs to be done have
  a high opportunity cost

5
Whats the high opportunity cost?

• Labor market reform
• Instututional improvement (regulated sectors,
  budgetary institutions, etc. etc. etc.)
• Removal of distortions (banking, electricity
  distribution, transport,
• Being well prepared to confront interest groups
• Improving and abandoning many things that the
  state is doing badly today

6
Doing the right thing is hard

• VCs in the United States reject 990 of 1,000.
• They succeed in one of the 10 they finance.

7
Wrong reasons to justify an innovation strategy
8
Avoid wrong cliches

• There is no innovation in Chile
• Patents are the wrong indicator
• RD spending is probably misleading
• There is a lot of innovation going on one only
  needs to go out and talk with those who do
  (Ronnie Fischer did, by the way)

9
Avoid wrong cliches

• Natural resources are not advanced
• Just go out and see a winery!
• U.S. Growth was based in the explotation of
  natural resources
• Natural resources are knowledge-intensive
• We can earn rents!

10
Avoid wrong cliches

• To grow fast you need to invest in
• advanced sectors
• Sectors where productivity grows fastest in the
  world are not necesarily those where relative
  prices will move in your favor
• You want to take advantage of rents!
• There is something called international trade
• Productivity growth is valuable in any sector

11
Avoid wrong cliches

• Appropriability problems are pervasive and prima
  facie justify a technology policy
• Patents are really important only in a few
  sectors (drugs and chemicals, simple machinery)
• Patents are the least effective means of
  appropriation (complementary manufacturing
  complementary sales/service lead time secrecy)
• There are many market-based strategies that firms
  use to make money out of IP

12
The onus is on the advocates of an innovation
strategy
13
The onus is on the advocates of an innovation
strategy

• Dont tell me that were going to play like
  Michael Jordan (... wouldnt it be nice to be
  developed?)
• Dont tell me we should be able to walk and chew
  gum (a perhaps clever but upon reflection silly
  metaphor when it comes to economic policy)

14
What do advocates have to show?
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What needs to be proven

• You tell me what technology policy really
  means objectives, means to reach them, how you
  gonna do it (tell me the details!)
• You show me that the price system is worse than
  economistsbureaucrats to guide resource
  allocation

16
What needs to be proven ...

• You show me that technology policy is more cost
  effective than standard micropolicies
  (competition in banking, costs of starting up a
  business, the burden of regulation on small
  firms, labor-market reform, etc. etc. etc.)
• You show me that you cant do significantly
  better with all the money that you already spend

17
What needs to be proven ...

• You tell me who are the clever and well-informed
  people who will do technology policy and whats
  their opportunity cost (I want to know names!)
• You show me the design of the institution and
  practices that will keep consultants and interest
  groups at bay (with the laws and constitution we
  now have!)

18
What needs to be proven

• You show me how you will solve the selection
  problem (99 of projects are bad one in ten
  fail)

19
To conclude
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Policy conclusion

• An innovation strategy is not prima facie
  desirable or sensible
• Such policies have failed the world over time and
  again
• Hence, prove it before the President announces
  the policy and commits money to it