The Hindu Business Line : Economic lessons from the hotspots of innovation

SILICON Valley, Ireland, Cambridge, Munich, Sophia Antipolis, Sweden, Israel, Taiwan and Bangalore — these are the places you would find mentioned in a new book, not as tourist destinations but as showcases of `models, perspectives and best practices.'

Titled Creating Regional Wealth in the Innovation Economy, the work by Jeff Saperstein and Dr Daniel Rouach, published by Pearson Education (www.peasrsoned.co.in) , aims to answer "the most crucial questions about the world's entrepreneurial hotspots." Such as: What makes these places `so special'? What are the inherent `local characteristics'? And, simply, what are the portable lessons?

IE is not Internet Explorer but `innovation economy' for the authors. The phrase `new economy' has perhaps become clichéd, so here is the IE that is based on the entrepreneurial application of innovative technology.

Behind the success of the nine regions the authors look at are "individual champions in business, venture capital, universities, government, and non-profit organisations," working collaboratively to create inexorable wealth "based on technology, globalisation, and deregulation".

If IE is to excel in product development and marketing, speed is crucial. It is a `valuable currency', points out the book. "Government can either slow down or speed up the process of business." Law is no less important, as we have seen in some of the important judicial pronouncements impacting the IT sector.

With English as the "universal language for knowledge workers everywhere", information dispersal is greater and faster. "Genie of information is out of the bottle," so governments are driven to diminish bureaucracy and corruption, finding it tough to hide `ineptitude'. An optimism that may not be out of place, if e-governance gets into all nooks.

Football rivalry between Stanford Cardinals and Berkeley Bears is common lore; but not many know about "the high level of cooperation between the two educational behemoths in the laboratory and in scientific endeavours," write the authors.

Such collaborative effort, right up to the community colleges, enables Silicon Valley, the `magnetic force', to have "one of the most comprehensive and vertically integrated educational systems of any region in the world." Do not, therefore, belittle the role of `higher educational consortium' in providing the IE with a continual supply of knowledge workers and serving as research incubators.

Ireland, with only 1 per cent of Europe's population, is now `the enterprise isle' after remaining for long `a backwater of Europe and an economic appendage to the UK'. Reason, IE. The `Celtic Tiger' attracts "a quarter of the US' high-tech investment into Europe," and achieves 24 per cent ROI. Only half a century ago, the country was on the verge of bankruptcy, with 35 per cent of tax revenues swallowed up by debt servicing. The turning point, note the authors, came when Ireland decided to adopt "the tough supply-side economic policy", and won the support of trade unions for tax cuts in return for pay restraint. Numbers speak for themselves: "Between 1987 and 2000, there was an 80 per cent increase in real take-home pay and a 12 per cent drop in income-tax rates... Number of days lost due to strikes, dropped from over a million in 1979 to less than 35,000 in 2000." One wished Kerala or West Bengal could boast of such progress.

Stockholm is `the high-speed globile innovations community', being both global and mobile. It was only in the early 1990s that Sweden was "fighting an economic and ideological crisis", bleeding from a failed social democratic experiment. Information and communication technology (ICT) was the saviour, and it leveraged the country's "traditional set of commercial skills and existing communications infrastructures", to create seven large "mobile ICT clusters".

The government initiative of allowing Swedish employees to buy home PCs at 50 per cent discount, using `pre-tax income' helped in achieving high level of IT penetration. It was not just `industry subsidy', state the authors; providing every single home with a PC "was actually a long-term social democratic ambition". A pre-Budget tip for the FM, if he's listening.

Munich is `the hidden champion' you would read about in the book. "Leading even the greater London area, the Munich region boasts the highest venture capital density in Europe." The cluster is very young — with about 80 per cent of high-tech start-ups less than five years old. Minutes from the city centre is Martinsried, a town that boasts of 50 biotech companies in one square kilometre! "On average, between 1997 and 1998, one new biotech company was founded every 14 days in the cluster."Cambridge, the UK version of Silicon Valley, is an incubator for innovation that believes in `small is beautiful'. The initial spark, according to the book, was from local heroes who took the risk. More than `critical mass', the Cambridge phenomenon was due to `critical commitment'. Government too helps by letting "market players drive development".

Sophia Antipolis is the French version of a tech-park, and "is second only to Paris in terms of job creation and business growth in France." A few vital stats about this hotspot: 2,300 hectares (1/4 of Paris) of which 2/3 is reserved as green space; 1,300 companies, of which a quarter is in IT, providing 50 per cent of jobs; employing 40,000 people; 4,000 public researchers in more than 50 institutions; 52 per cent executive employees, 40 per cent of which are foreign, 63 nationalities represented; Nice airport is 18 km away, with 45 airlines serving 90 direct destinations worldwide including direct flights to New York. All the right ingredients!

Towards the end of the tome is India, but the authors are positive that no other country has staked as much hope and relative financial resources on the IE as we have done. Unlike the rest of the regions profiled in the book, which are all in the top 25 nations for competitiveness, India is at rank 41.

The country is seen as `a low-cost service provider', so it must move up the value chain — towards innovation, product development and marketing — rather than stay at the current `knowledge' level. That "India has the combined support of government leadership in education and an actively involved worldwide Diaspora that invests and develops financial and intellectual capital back and forth," is a compliment which can stir up faith.

For the long-standing problems of the world, such as "poverty, ignorance and societal dysfunction" that lead to "despair, anger, and fanaticism", the authors see IE as a workable alternative. A book worth logging on to, at least for its optimism.

Economics@TheHindu.co.in

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