Friday, September 4, 2020

Reform narratives, global innovation index and some random thoughts

Some readings this week:

Jennifer Hillman, former member of the Appellate Body, writing in the Council for Foreign Relations website on the future of the WTO and the challenges for the new Director General opined:

They will inherit a WTO that has failed to reach any significant pacts (other than the Trade Facilitation Agreement) since its founding in 1995. Critical agreements are needed to curb fishery subsidies that are contributing to the depletion of the world’s supply of fish, and to write rules of the road for e-commerce and digital trade. These are “must-do” items, along with fixing the WTO’s dispute settlement system following a U.S. decision to destroy its Appellate Body, which could allow countries to avoid complying with decisions they do not like. The director-general will also need to find ways to address growing concerns over China’s unfair trade practices.

The reform agenda seems to be centred around fisheries, ecommerce rules, addressing concerns around China and fixing the AB. They have been called "must-do" items. I am not sure if there is consensus on the reform agenda itself amongst the 164 WTO members leave alone agreeing on what needs to form the substantive response to this agenda. Some members feel the agenda narrative is not in their interest and the WTO needs to be addressing more "inclusive" agenda items including reduction of agricultural subsidies as well as ensuring interests of developing and least developed countries are protected in future global trade rules. Can the Members get consensus on what the agenda is first?

The Global Innovation Index for 2020 is out.Switzerland tops it once again. 

Some excerpts:

Sovereign Wealth Funds and Innovation - An interesting observation on the impact of geopolitics and the behaviour of SWFs:

However, while geopolitics remains a major consideration for SWFs investing in foreign technology companies, there is a new frontier for political considerations—those of major global technology companies. As firms such as Alphabet, Facebook, and Amazon gather ever more data about their users, they are increasingly shaping people’s lives and politics. For a government-owned investor looking to back major new technologies in an era where start-ups can quickly emerge as dominant global players—and big data can have unforeseen or unintended consequences—it is essential that they look ahead to these considerations and understand the potential reputational and political implications, both for them as an investor and for their government as an owner. 

I found the chapter on government funding of innovation by Josh Lerner interesting as it  raises the difficulties government officials have in handling the innovation bubble - the different world of entrepreneurship, innovation and venture capital!

The final challenge reflects the nature of people who often are associated with the greatest entrepreneurial success. Government officials may have many valuable talents and play incredibly important roles, but the skill sets associated with successfully identifying and funding entrepreneurial businesses are very different from those encountered in their typical daily work. The ambiguity, complexity, and specialization associated with these ventures make these tasks quite challenging. 

In many instances, officials may be manifestly inadequate to selecting and managing entrepreneurial or innovative firms. Many examples can be offered of government leaders who did not think carefully about realistic market opportunities, the nature of the entrepreneurs and intermediaries being financed, and how the subsidies they offered would affect behavior. Whether they affect the ability of firms to accept outside financing, offshore routine coding work, or the response to shifts in customer demand, well-intentioned officials can make rules that prove to be very harmful to those they mean to help. 

But beyond the inability of governments, much of economists’ attention has been focused on a darker problem that affects these and similar programs: the theory of regulatory capture. This hypothesis suggests that entities, whether part of government or industry, will organize to capture the direct and indirect subsidies that the public sector hands out. Subsidies geared towards entrepreneurial firms are no exception.

These issues are exacerbated by the fact that the most creative entrepreneurs are often outsiders. For instance, extensive literature has documented the disproportionate representation of immigrants in U.S. entrepreneurship, both in general and among high-potential enterprises.These may be people who are less likely to be well connected or less able to lobby successfully for public grants.

Solutions like independence of decision making in selecting innovation projects, insisting on matching funds (from informed funders and not government entities!) by the private sector are some of the solutions provided to overcome the government deficit in understanding the innovation world! Good lessons for government's around the world.



 

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