Politics of Innovation

Recent public discourse frequently deals with complaints about prosperity constraints caused by the symptoms of de-industrialization, trade and payment deficits, the middle income trap and the extractive economic trap.

KOMPAS/RADITYA HELABUMI

Yudi Latif

Recent public discourse, including a speech by President Joko "Jokowi" Widodo, frequently deals with complaints about prosperity constraints caused by the symptoms of de-industrialization, trade and payment deficits, the middle income trap and the extractive economic trap.

However, there has been almost no political effort or strategic policy to transform the economy toward prosperity that continues to increase in a sustainable and inclusive way. To overcome the various problems, Indonesia must transform itself from an extractive-based economy, traditional agriculture and conventional manufacturing to a knowledge-based economy.

So far, measures related to total factor productivity and the Knowledge Economy Index show the low contribution of added value from science and technology and the level of Indonesian innovation to economic growth. Therefore, it is understandable that President Jokowi has demonstrated determination to intensify the development of human resources, including paying serious attention to research and innovation activities. A number of plans have been made, such as increasing the state research budget, uniting research institutions under one body and hiring foreign rectors to boost the quality of higher education.

Research-innovation policies and market needs

Before the policy measures are implemented, the government should determine the policy direction and strategy of the right approach as to how the politics of technological innovation must be developed to be effective in boosting national prosperity.

It should be understood that the main obstacles to efforts to enhance research and innovation in Indonesia are actually the considerable focus on initiatives and encouragement (push factor) by the state. There have been fewer breakthroughs to popularize research results or to stimulate research activities at the heart of the community (market). The history of the development of science and research activities in this country has been inherited from the tradition of European enlightenment apostles who worked in the interest of the colonial government. Andrew Goss in his book The Floracrats State-Sponsored Science and the Failure of the Enlightenment in Indonesia (2011), calls it the floracrat tradition; the power of flower-loving scientists working in colonial government science institutions.

Science remains a matter for government elites who may be fully occupied with interests and talent, but still unable to break through the high fences around the botanical garden.

Under such a tradition, professional Indonesian scientists/researchers gain legitimacy through the state. The government determines and controls research activities. The government is also the main consumer of research results. Therefore, even though scientists see themselves as "mentors" of society, in reality it is difficult to connect with the community in terms of introducing science and living research and innovation activities at the heart of society. Thus, "Science remains a matter for government elites who may be fully occupied with interests and talent, but still unable to break through the high fences around the botanical garden."

In such a tradition trap, no matter how high the research budget, any agency that coordinates research institutions, and which ever rector is brought in, would not be effective in encouraging innovation-technology activities within the framework of national prosperity. However, innovative research must reach the market (community).

Innovative research must follow the needs and pull factor of the market. Therefore, besides needing to get closer to the relationship between government research institutions and universities and market needs, it must also make research and innovation activities an organic part of the business world.

The relevance and urgency of shifting research-innovation and prosperity development policies from the government\'s push toward the market pull are explained by, among others, Clayton M. Christensen, Efosa Ojomo and Karen Dillon in The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty (2019). It is clearly illustrated that much effort and resources have been extended by both the state and international institutions to tackle poverty. Since 1960, Official Development Assistance has poured US$4.3 trillion in development assistance funds in the context of combating poverty in various poor countries.

Indonesia itself has mobilized so many programs and subsidies for the poor. Various recipes have also been given, ranging from encouragement to improve infrastructure (education, knowledge institutions, health, transportation), improve state governance, increase foreign aid (investment), increase foreign trade, and so on. However, the results have not been too encouraging.

More countries remain in the trap of poverty or the middle-low income trap because they are unable to transform their economies. Many countries spend too much energy on dealing with poverty but pay less attention to efforts to create prosperity. However, being a "prosperous" nation is different from being a "rich, wealthy" nation. Some countries are rich simply because they have an abundance of one or two natural resources. However, such wealth is not sustainable and cannot encourage widespread vertical mobility. To be "prosperous", an economy must be able to create sustainable added value that can expand vertical mobility more inclusively.

Through extensive comparative studies of countries that have successfully transformed themselves from poor to prosperous countries, Clayton et al conclude that efforts to grow prosperity cannot rely solely on state push factors. Encouraging changes in the constitution and democratic institutions, installation of new institutions, anticorruption institutions and various infrastructure by the state may be able to solve problems temporarily, but in general do not bring about continuous change. Development and prosperity can be more easily rooted in many countries when connected with innovation activities at the heart of the market, which in turn can attract various resources needed by the community.

Innovations like this are needed by a country and a company to remain competitive in retaining customers.

What is meant by innovation is a change in the process, through which an organization transforms workers, capital, materials and information into products or services with greater added value. At least three types of innovations must be recognized. First, sustaining innovations: innovation in the form of improvements to solutions that already exist in the market, which are typically targeted at retaining customers who want better performance of a product or service. Innovations like this are needed by a country and a company to remain competitive in retaining customers.

Second, efficiency innovations, namely innovations that enable organizations to do (produce) more with fewer resources. The efficiency of innovation is very important for the survival of the organization (business) when the industrial field becomes increasingly crowded and competitive. Third, market-creating innovations, namely innovations that can create new markets because of the ability to present products or services that are not yet on the market, or products and services that are already on the market, but are cheaper and more affordable for a wider range of people (non-consumers).

Although sustaining innovations and efficiency innovations are needed for the sustainability of a company, they are not so promising for the expansion of the workforce and new business space. Therefore, prosperity efforts must encourage market-creating innovations. Cross-country experience shows that the latest innovation can generate a country\'s economic engine with the three following impacts. First, creating jobs -- as more people are needed to create, market, distribute and sell the results of new innovations -- is an important factor in assessing the prosperity of a country. Second, creating profit from the extensiveness of population spans, which in turn can bring in funds for public services, including education, infrastructure and health. Third, it has great potential to bring cultural and governance changes that are more conducive to the promotion of prosperity.

Therefore, the locomotive of prosperity lies in business innovators who are able to develop technological innovations that can create new markets. And in order to enable a nation to maintain prosperity in the long run, good governance is needed, which can maintain and support a culture of innovation. Government efforts in the procurement of policies, governance and infrastructure must be placed as supporting frameworks in promoting market-creating innovations.

Seen from that perspective, the direction of development policy, research and innovation in Indonesia so far has put much emphasis on the push factor strategy by the state. Infrastructure is built without being closely connected with the pull of market dynamics. Various state research institutions continue to be established, with research activities and products that are less connected to market needs; also without a policy framework that can encourage research and innovation activities in the business world, or provide an incentive framework for innovation ideas that lead to market-creating innovations.

In America, for example, young people who are bright with innovative technology ideas can build start-ups through venture capital loans. Not all have succeeded, but some have succeeded in developing knowledge-based companies on a global scale, such as Microsoft, Apple and Facebook.

Deficit in engineers and strategies to prevent mismatches

Efforts to improve the quality of higher education are also carried out through push factors from the state, by shortcuts to "import" rectors from outside, without considering the quality of education with its connection with the market (industry). So far, there have been many complaints about the low proportion of science-technology (engineering) students in our universities. The number of engineering students (and graduates) is only 14 percent of the total number of students in Indonesia (around 50 percent studying computer engineering), with the highest dropout rate (4.66 percent). Compare this with the proportion of engineering graduates in South Korea (38 percent), China (33 percent) and even Malaysia (25 percent).

As a result, Indonesia is experiencing an engineer deficit. On the other hand, even though the number of engineering students is relatively small, facts shows that of the around 100,000 engineering graduates, only about 5,000 people work professionally according to their fields.

No matter what efforts are taken to boost the number and quality of engineering students, they will not be effective without being connected to the expansion of technological-innovation needs in the industrial world.

Therefore, what must be seen is not only from the supply side but also from the demand side. To prevent a mismatch between the output of educational institutions and the world of work, what is needed is not only improvement of institutes of higher learning through push factors from the state, but also the design of strategies and industrial-economic development priorities that further encourage innovation-based knowledge economy. No matter what efforts are taken to boost the number and quality of engineering students, they will not be effective without being connected to the expansion of technological-innovation needs in the industrial world.

In South Korea, a world-class university, ranked below 50 of the 100 best universities in the world, is Pohang University of Science and Technology (Postech). The university was founded by a famous Korean steel industry owner, Posco, in order to meet its own technological needs for technological independence and create a close connection between the academia and industry.

Improving the quality of universities is more than an effort to increase the number of international publications, but rather from the ability of universities to respond to market pull -- which in close connection with the world of education and the world of innovation is at the heart of the market -- will give birth to many skills, inspirations and inventions, which in turn will provide a vehicle that is conducive to improving the quality and quantity of international publications.

In short, to be prosperous, we must see the difficulties and struggles in people\'s lives as opportunities to offer solutions. Through innovations that can create new markets, new jobs, new business opportunities, new cultures and good governance, many people who have only been spectators in economic activities can become involved. Economic prosperity and democratization occur with broad and inclusive vertical mobility. Therefore, it is time for the state to take on the role of Tut Wuri Handayani. Stimulate market-creating innovations to become the instigators of creating wealth, while the government can fan the flame with various policies, institutions and infrastructure that are connected to the pull of market-innovation needs. That is the new road to prosperity.

Yudi Latif, Director of Pancasila School