Thursday, August 26, 2010

Whatever happened to Dedalus? (and, by the way, Icarus too)

The failure and opportunity of innovation in Greece

By George Zarkadakis

Many myths are born in Greece, one of which claims that Greeks rank amongst the cleverest people in the world. And yet, by examining Greece’s ranking in the Global Innovation Index[1] you would be hard-pressed not to disagree. The country was at place 42 last year, at the bottom of every other western European country, a fact reflected on the sobering absence of Greek high technology products and services from the world market. More disparagingly, when the crisis hit, the debate about recovery was focused on investing, and improving, the tourism and agricultural sectors; which makes one wonder if our politicians and mainstream journalists live on another planet, or another era.

A favorite explanation for Greece’ lack of marketable hi-tech ideas is that public investment in research and development is very low. Indeed Greece’s public expenditure on RTD, at 0.57% of GDP[2], is one of the lowest in Europe. The key for improvement, politicians will hasten to claim, is more tax money funneled to science and technology. I beg to differ. Given the current situation, not only it is mathematically impossible for the Public Purse to subsidize innovation but, as I will argue, the surest way to stifle bright ideas is through government subsidies.

Since Greece joined the EU in the early 1980s billions of Euros have been invested in research infrastructure and payrolls, in universities and research institutes. And more billions have poured in through a superfluity of EU-funded research programs. And yet, there is very little to show for it. Greek universities have failed scientifically and socially. They have become playgrounds for organized groups of brain-washed, leftist students who terrorize staff and their fellow students, and vandalize what is public property in the name of academic freedom. Meanwhile, all kinds of byzantine machinations percolate in the background, for teaching positions that rarely target talent and more often than not are cheap rewards for blind loyalty. Greek universities have thus become a waste of taxpayers’ money and confer serious damage to the social cohesion of the country because kids from poorer families cannot get the standard of higher education that rich kids –whose parents can afford to send them abroad – do. Bright professors and research students who can, have started to flee. Research institutes do not fare any better. Like every other public institution in Greece they are heavily politicized at the expense of good research work.

The private sector does not innovate either. Since the 1980s Greece has been de-industrialized whilst failing to claim a position in the global, digital economy. The result is that the majority of so-called “innovative” companies are proposal-making manufacturers that go after EU-subsidies. It is precisely this policy of subsidization that has rendered Greece a follower and not a leader; and here is the reason why.

The key to innovation is risk. New ideas are risky because you never know if they have any value unless you invest in them first and then roll them out into the real word. So the question arises who takes the risk for all this? By introducing a grant or subsidy system, the risk is borne mainly by the state (or the EU). But this is wrong for at least two reasons, one ethical another economical. Why should the taxpayer be burdened with the risk for something that, if successful, will profit only certain individuals? Secondly, the only real motivation for doing things right is when by doing things wrong you have something to lose; grant and subsidy takers do not have a strong enough motivation because they simply do not risk their own money and time; on the contrary, their main economical goal becomes the taking of the subsidy; therefore, their success is measured not by the efficacy of the end product but by the approval of their grant application by a bureaucrat who, in turn, risks not his own but the taxpayers’ money in the name of some vague “social good”. Hence, the proliferation of the proposal-making industry and the strangulation of the really good ideas; the latter constantly have to compete against government subsidies and grants, taxation and levies.

And yet there are many people in Greece with very bright ideas. They are the untapped human capital, the best of the best this country has. They are struggling against a well-entrenched system that is indifferent to merit and hostile to business. Potentially, they could be an agent for change and economic growth, if only they were given a chance. The wonderful thing about the digital economy is that you need very little infrastructure. A computer, a modem and access to the Internet is all you need; that, and a good idea. Greece may never become the innovation hub of big multinationals but can become a place for innovation start-ups in the creative industries, the media, web applications, industrial and architectural design, smart green technologies, as well as social innovation.

There is a movement of people, young or less young entrepreneurs, who are willing to take risks. Today, if they want to start a business they must go through a bureaucratic labyrinth and begin to pay taxes and contributions before they make their first euro. This is a serious impediment for someone who aspires to something speculative and risky. Greece cannot afford to lose her brightest entrepreneurs. At the same time, no one expects the Greek socio-political system to change overnight to suit them. And yet this crisis can become, paradoxically, a golden opportunity for those innovators, if only the government would be willing to allow them to mitigate risk outside the system. No subsidies, no grants, no nanny state. In fact, the best recipe would be to have as little state intervention as possible.

This can be achieved, for example, by allowing technological start-ups a two-year tax and social contributions’ break. If you think you have a great idea register your tech company with the tax office on-line and get a VAT Number. This procedure should only take one minute and be done wholly on the web. Then, all you have to do is concentrate on being inventive and profitable. For two years you don’t have to pay tax. If you want to employ someone, you do not have to pay IKA. You can pay him/her cash in hand at a level agreed between the two of you. You don’t have to pay TEVE, the various levies, whatever. If after two years you have managed to prove that your idea can succeed in the real world then start paying your dues to the society that permitted you to realize your dream. If not, stop - or maybe try again another idea.

Let the government do that and all else will follow. Given this tax-free framework for innovative start-ups the private sector will be more willing to invest in risky projects. There is a superb example called “Open Fund” right now, a wholly-private, grassroots initiative, which offers seed money and precious business advice to technological start-ups. One must not lose hope that in the near future a major reformation of Greek state universities will also take place under pressure by Greece’s lenders, as well as the establishment of the first private universities, which may be able to transform the current, ruinous situation of higher education in Greece. World-class education standards, a business-friendly environment and less government, and this country may manage to bootstrap itself out of its perennial debts, and become a place we can all be proud of.

I am not a believer of myths, but I do believe in people and individuals with a vision and the will to take risks. What we need is for the Dedalus spirit of inventiveness to be given a chance. Remember that there came a time that Dedalus had enough of his state sponsor and decided to move on; whereupon he had his greatest idea: to fly. Like Dedalus we have to leave behind the shores of false security and take to the skies. Which is a risky business, because for innovation to take flight you need to test the limits and aim to go beyond. To invent like a Dedalus but to think, and dream, like an Icarus.

An edited version of the article was published in Odyssey magazine (Summer 2010 issue)

[1] he Global Innovation Indexis a global index measuring the level of innovation of a country, produced jointly by The Boston Consulting Group (BCG), theNational Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM's nonpartisan research affiliate.

[2] Eurostat Newsrelease 8/9/09

Monday, June 14, 2010

Technology Innovation and Enterpreneurs

By Bill Wicksteed, Institute of Manufacturing, Cambridge University

Technological innovation is often thought to be the province of clever scientists and engineers who generate new products or ways of doing things from their curiosity-driven research. There are two misunderstandings inherent in such a view: first, it confuses invention with innovation; and, second, it suggests that innovation is pushed out from the science base (supply push).

Breakthrough inventions and incremental advances in knowledge arising from scientific research do make an important contribution to national wealth creation. However, there is a crucial intermediate step before they do so. Innovation transforms inventions into economic growth by bring an imaginative understanding of what firms and consumers are willing to pay for i.e. a market perspective. Indeed an insight into the unfulfilled needs or desires of firms and consumers may identify the challenge which research and development needs to solve (demand pull).

Understanding the market potential of inventions and identifying market opportunities which research converts into business is the business of entrepreneurs. Sometimes they are talented individuals but increasingly working within a team and networking with others is the norm. Inventive scientists and engineers sometimes play the roles of both entrepreneur and inventor; themselves taking their work through to market through spin-out companies which they found and develop.

Where front-end capital investment requirements are low (e.g. which can be true for software and in areas where a “soft” start is possible) this is a realistic possibility and may be an excellent way of ensuring a full interplay of understanding between the technological possibilities and the market potential. In other cases the route to market is likely to be through licensing; and there is a growing number of technology transfer specialists who help to identify where inventions can best be applied and which firms are likely to most effective as partners. They are contributing “first stage” entrepreneurship and the firms they identify bring the resources and market connections to complete the process.

Technology transfer specialists are part of national and regional systems of innovation. Other key actors in these systems are:

  • the research institutions (whose policies and incentive structures can encourage or hinder innovation)
  • incubators, innovation centres and science parks (which can nurture individual tenants and act as nodes for wider networking)
  • seed and venture capitalists
  • specialist business advisers
  • established firms that are keen to adopt new processes and develop new products
  • regulatory bodies (regulation plays a crucial role in stimulating and facilitating innovation)
  • other public bodies (which, through their purchasing policies, can greatly assist in creating new markets – by taking the risk of being an early adopter).

The links between the various elements of an innovation system are vital for its effectiveness; providing positive responses at all levels to entrepreneurial individuals and firms. A culture of trust, a willingness to share and engage actively in networks all help to generate a creative “Buzz” which helps firms already in the system, encourages new ones to form and attracts others to move in.

Not all innovation systems are focussed on particular areas, there are sectoral systems of innovation which cross national boundaries, but many of the best known ones are identified with specific places. These are the competitive clusters identified by, amongst others, Professor Sebastiano Brusco and Professor Michael Porter.

The best performing clusters are to be found in places that are ambitious in their development goals and offer a lifestyle and functionality which retain and attract able people who are keen to “make a difference|”.

Friday, May 14, 2010

Thursday, May 13, 2010