Unlocking the potential of the states, markets and society trio

Published on 18 July 2016

Amrita Saha

Research Fellow

The IDS 50th anniversary conference presented a critical lens on the diversity of ideas and debates that tackle questions about the political economy of states, markets and society head on.

The role of this trio has a fundamental impact on the key challenges of smart innovative growth, sustainable growth with green outcomes, and inclusive growth. Over the two days of the conference, armed with the key question of comprehending finer nuances of the processes that can unlock new synergies from the trio, I found myself challenged to push the boundaries of conventional thinking. The business and finance sessions gave me the premise that these processes include negotiations among a multi-faceted set of actors. However, as an academic in political economy, I was compelled to question how can we move towards a framework to contextualize the role of these actors. Associated questions emerged as the conference unravelled and I found several answers across the sessions that I discuss below under six key themes.

Role of state: can we move from market fixing to market shaping?

One perspective that received overwhelming emphasis was the role of state to move from ‘market fixing’ to ‘market shaping’. The financial crises proved that state intervention was in fact critical to fix market failure. However, going beyond this, I found the focus was to question if the state can build exploratory public sector organizations that can invest in new innovations that will push the frontiers of existing markets and lead to the creation of new ones. There seemed to be agreement that the room for trial and error warranted by such investment creates the need for careful evaluation to pick more winners (with high probability of success) rather than losers (with higher probability of errors) in the playing field. A combination of strategic public finance with careful monitoring and public-private partnerships emerged as the key to transition towards the role of the state in market creation.

Can development banks act as knowledge platforms?

Several ideas on the instrumental role of Development Banks (DBs) were presented and questioned. In their leading role in innovation in developing countries, DBs have in fact emerged as key actors filling in financing gaps where markets have not been very forthcoming. However, what I found novel was that DBs were hypothesized not just in their act of funding mechanisms for infrastructure but also in establishing platforms where knowledge can be shared with several actors in the economy. The primary message was that the triad of states, markets and society can in fact be led by an innovative financing pathway wherein DBs must go beyond their conventional roles and establish global partnerships to emerge as knowledge sharing platforms for all.

What are the pathways to inclusive innovation and structural change?

A critical question that perhaps underlined all the themes of the conference concerns the political economy of innovation and structural change. There are pathways or channels that lead to innovation, some examples being state-led innovation or public-private partnerships alluded to above. However, a crucial aspect remains as to how we can ensure that the process of innovation is not only inclusive for all actors but actually creates structural change that leads to growth and development outcomes that are more broad-based. With the aim of filling in this gap, we are working to develop a research framework at the Business, Markets and State cluster at IDS, which can potentially answer these questions in a developing country context. Preliminary findings have revealed challenges in conceptualising the parallels between technology transfer and technology diffusion on one hand, and structural change and inclusive innovation on the other.

Transfer, adoption and diffusion: How can we unlock the tripartite potential?

This brings me to observations from the third session on business and finance that saw some very interesting evidence presented on technologies in African Agriculture. However, deriving from ongoing work above, an imperative question in my mind at that juncture was how can technology transfer in the least developed countries lead to adoption and actual diffusion in terms of building local capabilities? Perhaps what needs to be addressed includes the types of technology transfer and corresponding pathways that lead to diffusion. Diffusion, wherein firms and local actors are able to build local capability that contributes to the creation of livelihoods at the level of the domestic firm in manufacturing or even changes at the farm-level in agriculture. Further, the session presented evidence of Chinese and Indian investments in technology innovation in African countries. Therefore, what needs to be assessed from the point of view of diffusion is the extent to which the small and medium enterprises and the small-scale farmers can actually upgrade and link into the existing global value chains being potentially led by the rising powers. This would be key towards unlocking the potential of technology transfer leading to adoption and finally diffusion.

Innovation as Participation: Will Democratic Innovation lead to Inclusion?

Perhaps one of the most engaging snippets from the conference was the idea of innovation as participation, where inclusion is conceptualised as stemming from democratic innovation. ‘Democratic Innovation’ found meaning in terms of broadening the very foundation of innovation, beginning from neglected issues that need to be addressed by means of new ideas. It also included not only reaching out to the marginalized but also working with them, where technology has the capability of being empowering. This suggests innovation as a distributed activity where communities can innovate and organisational structures are built on local knowledge. The idea of ‘Innovation as Participation’ seems the key to facilitate true democratic innovation that leads to inclusive growth.

Can technological innovation go hand in hand with social innovation?

A final question concerns the potential collaboration of the role of technological innovation and the contribution from social innovation. ‘Technological Innovation’ is in terms of products, processes, organization and markets. ‘Social Innovation’ on the other hand is often classified as innovation that leads to broad-based outcomes for society. Deriving from all the themes discussed above, can we think of a framework that brings together the idea of technological innovation that creates smart growth with the key of social innovation that leads to inclusive growth and improved social welfare? The answer perhaps lies at the crossroads of the ideas above that need to be developed as a coherent agenda whereby the complementarities of technology and society can be harnessed with a key role of the state and partnerships between the state and markets to create development outcomes for all.

Amrita Saha is a Research Officer at IDS.