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Building Greater Sustainability & Inclusion in Developing Economy Innovation Systems

Updated: Apr 24

Innovation support is a growing component of the programs of international development agencies and foundations. The paper Transforming and Strengthening Innovation Systems in Developing Economies: Learning from International Experience and Clarifying Concepts outlines this development Read Paper.

While strengthening innovation systems is particularly difficult in lower-income countries, where institutions, capabilities, and resources are more limited, many of the lessons of that experience are relevant to Australia. One is the challenge of addressing complex problems that span many institutional and sectoral boundaries (e.g., climate change), where traditional approaches to problem definition and policy development are ineffective.

Experiments with new approaches to developing broadly inclusive collaborative problem framing and policy innovation and for developing the role of boundary spanners are of international significance.

The systems perspective is now a dominant framework for innovation policy in all countries. A challenge for international development assistance is how best to strengthen innovation systems in low- and low-middle-income countries (LLMICs) while also addressing inclusion and sustainability goals.

In addition to innovation system lenses at the macro level (national innovation systems), and at the meso level (regional and sectoral innovation systems), the strategies of development agencies also draw on approaches with different conceptual building blocks: innovation ecosystems and entrepreneurial ecosystems. While all these frameworks lack a strong theory of system genesis and evolution, they are, nevertheless, widely used along with pragmatic guidelines for ecosystem strengthening.

An essential component of a dynamic national or regional innovation system is entrepreneurship (business, policy and institutional) – discovering new paths of value creation and solving complex social problems. In OECD economies, new types of organisations and institutions emerged to support entrepreneurial activity - venture capital, incubators, accelerators, new types of equity exchanges, entrepreneurship training programs, etc - illustrating the role of organisational and institutional innovation in enabling and supporting technological innovation and entrepreneurship.

Neither the national innovation system of the OECD economies nor the high-performing entrepreneurial ecosystem of Silicon Valley developed through purposive design at the system level. They evolved over long periods in response to opportunities and problems, and a myriad of other contingent factors. But today, policies and interventions that shape the evolution of innovation and entrepreneurial systems are informed by systems perspectives and, hence, by some level of ambition regarding purposive system design.

However, barriers of many types inhibit the development of these ecosystems in LLMICs. The informal sector generally plays a much larger role in the economy, and there are weak links between this sector and those in the formal sector. The capabilities of most firms to absorb and apply new knowledge are often weak. Identifying which barriers should be addressed first and how best to do so is challenging. It is equally challenging to steer or re-orient innovation system development toward inclusion and sustainability goals, particularly if the explicit (and implicit) policy context does not support those goals.

Enabling marginalised groups to build agency to participate in innovation system development is often a key challenge. Again, useful attempts have been made to develop frameworks for strengthening innovation systems while addressing inclusion and sustainability goals.

International development assistance organisations and major foundations have been experimenting with new approaches, building new skills among staff, developing relationships with new organisations (domestically and within LLMICs) and rethinking effective monitoring and evaluation. Project planning based on rigid log-frame approaches and very lean administration and management budgets are less appropriate when higher levels of flexibility and ongoing adaptation are necessary.

Overall, there are several markedly different approaches to innovation support, each with specific objectives and modalities. Six major approaches can be characterised:

·        entrepreneurial orientated

·        innovation process-orientated

·        innovation policy-oriented

·        multi-level / portfolio orientated

·        platform technology-oriented

· mission-oriented.

Clarity about the barriers to the emergence, growth and performance of an innovation system or entrepreneurial ecosystem is critical for effective diagnosis and intervention design. The intervention logic in each of these six approaches focuses on different types of ‘system failure’ - from an innovation systems perspective, the barriers to innovation performance are due to failures at the level of the system structure and functioning rather than (or in addition to) market failures.

International experience suggests eight principles for strengthening innovation systems in LLMICs:

  • Using a learning plan approach to address complexity, uncertainty and multiple markets, systems and transformational failures

  • Using a collaboratively developed theory of change

  • Applying adaptive management and ensuring that project governance, management and budgeting reflect that approach

  • Probing, experimenting and learning collaboratively

  • Recognising that, as technologies, organisations and institutions co-evolve, all forms of innovation are important for growth and transformation

  • Recognising that innovation system growth is an endogenous process driven by opportunities (and the appropriation of benefits), problems and participants’ endeavours and investments

  • Entrepreneurship in all its forms is a vital component of innovation systems

  • Effective support of change is likely to require sustained and flexible support.

All of these lessons apply to strengthening innovation capacity in Australia.

Don Scott-Kemmis, Acton Institute for Policy Research and Innovation,



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