Ecosystem for Building Forward Better: A Conceptual Framework
By Ruth Kattumuri and Shantanu Singh
The Fourth Industrial Revolution has been accelerated in recent years and even more in the journey with Covid-19 toward maintaining and performance of essential work and services. Enabled and empowered by policies across countries that encourage initiatives for innovation, recent technological changes have allowed individuals opportunities to aspire to economic and social conditions toward goals beyond their immediate boundaries.
The Sustainable Development Goals (2015) provided an essential baseline toward a more equitable global development. Growing body of research and developments through a multi-disciplinary lens is enabling better awareness and understanding for opportunities and challenges across the world.
Studies related to innovation are enabling better understanding of the relationship with growth, entrepreneurship and its diffusion. However, there appears to be a lack of an inter-disciplinary exploration of innovation. Innovative technological services and solutions have been essential to mitigate the Covid-19 crisis and its impact on global economy and society. Technological solutions will become ever more central toward building forward better and the fourth industrial revolution takes on a higher gear. Hence there is a greater need for formulating an integrated approach toward better understanding of innovation and its impacts on society to enable sustainable development. In this article, we outline an inter-disciplinary framework within the context of technological advancements for an innovation ecosystem toward achieving inclusive and sustainable development.
We have categorised the impact of technological innovation into four aspects- Productivity Impact, Opportunity Impact, Prosperity Impact. Accessibility and Inclusion Impact. This categorisation of the impact of technological innovation on society is directly aligned to the sustainable development agenda, and the framework (Figure 1) suggests how it can facilitate a virtuous cycle of growth. The processes of innovation need to be catalysed through finance, innovation, and infrastructure, which ensure essential, efficient and effective implementation and impact. The framework also outlines the four agencies involved - the individual, firms, governments and public institutions, and community and non-governmental organisations.
Figure 1: POPAI – Ecosystem for Building Forward Better
1. Productivity Impact:
The Productivity Impact covers the effect that innovation has on the processes of production in an economy. This can be through changes in the quantity and quality of output, costs of input and nature of inputs. This could also be through the production of intellectual capital, that enables further innovation, famously referred to by Sir Isaac Newton as “standing on the shoulders of giants”.
This includes when individuals, enabled by formal education and skills training, then are able to generate technological developments and produce goods, services and ideas in innovative ways. This also occurs when firms make use of ongoing innovations to increase their production capacity and might also be able to reduce costs. A study among selected European countries by Graetz and Michaels (2015) showed that the increased use of robots in firms accounted for an increase in the annual growth of GDP and productivity of labour by approximately 0.37 percentage points for their countries.
2. Opportunity Impact:
Technological innovations began with the intent that the opportunities would enhance productivity and improve the welfare of people and society. These opportunities can arise from the very starting point of innovation, as disruptions to existing processes create space for change. They can also arise upstream and downstream from the starting point, in industries that are auxiliary to the innovative industry.
The successful deployment of these opportunities requires individuals to be enabled to harness their entrepreneurial energies. Entrepreneurs are able to locate and identify these opportunities and utilise them to generate new goods, ideas and profits.
For instance, the global remittance and money transfer industry was locked in a state of low competition and high rates. This has been recognised as an ongoing problem by the UN (2021), especially in the developing world. Advances in communications technology and supportive financial regulations in the UK enabled entrepreneurs in the country to innovate and TransferWise (now Wise), which was among the successful enterprises to have been set up in 2011 and is a platform for money transfers at very competitive rates. This system comprised a disruption to the ecosystem in Europe and the USA at the time, which succeeded and emerged as a major financial intermediary handling transactions up to GBP5 billion every month. They have recently expanded their services to India through a partnership with India’s Google Pay involving the India’s UPI (Unified Payments Infrastructure) interface.
3. Prosperity Impact:
Innovation enhances wealth and prosperity of individuals and enterprises and thereby contributes to the overall economy of society and state. This results in increases in income, improvements in consumption and spending patterns so that people are able to access better quality of goods and services. The impact of prosperity provides more opportunities for enjoying leisure and improving well-being and life satisfaction. At the firm-level, higher profits and incomes provides the opportunity to invest further into innovation and capital formation, enabled by economies of scale. A study by Sasidharan, Lukose, Komera, (2015) evidences that Indian firms invested more in R&D as their profits increased.
In the post-COVID world, sectors related to technology have experienced exponential grown as opportunities were escalated. expansions and greater salaries for employees. Recent evidence suggests that in most US cities, salaries have increased greatly for people working in technology salaries from 2020 to 2021 (Hired, 2021). This study also indicates a wider growth in incomes across regions, they find that the larger increases in salaries for candidates have been in tier 2 and tier 3 US cities. These findings are indicative of the prosperity impact spreading across a wider section of the population.
4. Accessibility & Inclusion Impact:
Innovation advances equity, including through reducing cost of technologies and increasing the affordability of essential facilities across economic and social spectrum of the population, including vulnerable groups and persons with different abilities. Thus technological advancements significantly impact access and inclusion (Acemoglu, 1998; Acemoglu and Autor, 2011; WDR 2016).
Individuals are able to access more facilities and services for welfare, consumption and training at lower costs through enhancements in technology. They can learn, train and equip themselves and gain skills and expertise as resources and access to knowledge increases and becomes widespread. Inclusionary technological change enables small and medium firms and individuals gain access to advancements, aid connectivity and enhance access to new opportunities and markets.
A key advancement in recent years pertains to adoption and access to new technologies such as AI and smartphones. Some technologies have enabled expansion of financial services to the unbanked populations. For example, the UNICEF programme “Fintech for Impact” have supported fintech firms in Philippines to provide services such as loans, micro-insurance and support for health and education to those who did not have access. Further financial technologies were rapid advancements as the world grappled with Covid-19 and strived with provision of essential services. Figure 2 presents scenarios for gains that can be made through the four impacts for individuals, firms and governments (in order, moving radially outwards).
Figure 2:Impacts Through Agents
The provision of resources of finance, innovation and infrastructure are essential to catalyse economic and social growth and enable the fruition of innovation. A multi-sectoral resource provision is central to enable inventors and entrepreneurs to translate abstract ideas into practical solutions.
The availability of credit is vital for firms and inventors to be able to finance innovation. Studies have found credit supply to be positively linked with innovation in corporate firms (Amore, Schneider and Zaldokas, 2013). For small and medium firms in developing firms, credit availability is even more essential (Sasidharan, Lukose, Komera, 2015). Inequality in access to capital can hinder inclusive growth through entrepreneurship. In this context, different models of access to capital can help spread the benefits of technology advancement to a wider population. Alternative models include impact investment, crowdfunding, and venture capital. UNCTAD (2021) reports the importance of capital investments and highlights examples of African tech start-ups having received equity funding of over $1 billion.
Most recently, governments across the world attempted to attenuate the economic impact of covid-19 pandemic through furlough and other job retention schemes. These schemes, which provided essential safety nets for people, have also offered the scope for individuals to review their skills, scope and opportunities and accordingly navigate entrepreneurial and innovative directions for their future. Covid-19 has been an unprecedented period of global economic and socio-political churning. As the world recovers from this crisis and changes irreversibly, it provides exceptional cross-sectoral opportunities for building forward better.
The relationship between infrastructure, both physical and digital, and industry is also well recognised. Thus, Sustainable Development Goal 9 is intended to address innovation and infrastructure in an integrated manner. As a measure of the increase in the use of mobile-based access to the internet, Figure 3 shows that the percentage of mobile-device-based traffic worldwide has increased exponentially from 32% in 2015 to 54% in 2021. Thus the development of sustainable infrastructure is key to enhance productivity and keep up with the growing demands for digital services needed for the growing global population, currently at 7.9 billion.
Figure 3:Percentage of mobile device website traffic worldwide, Source : Statista, 2022
Circular Model and Ecosystems:
The POPAI framework of sustainable innovation outlines a circular process through technological advancements which enhance the welfare of society and enhance further innovation. The impacts can thus create a virtuous self-driving cycle of innovation.
The productivity impact allows individuals and firms to achieve greater prosperity, and generate more productive ideas. The Opportunity Impact opens new avenues, and in the process of using these, entrepreneurs and incumbents generate further innovation. The Prosperity Impact creates greater wealth, demand and markets, while also being able to offer more time and leisure to allow new ideas to be fostered. The Accessibility and Inclusion Impact enhances the scope of innovation, increases the availability of opportunities by enabling participation of the wider section of population, bringing fresh new occasions for innovation.
Figure 4: Virtuous Circle of Innovation
Conceptualising technological advancement through these four impacts provides a comprehensive framework of technology’s cross dimensional and global influence. As with everything, technological change can be greatly beneficial, at the same time it has to be managed proactively in order to be effective and ensure equitable and sustainable development. To allow a virtuous circle to foster and persist requires active management of innovation and its outputs and outcomes. This includes creating the right environment for the agents to prosper, ensuring availability of the core resources of finance and infrastructure. Further, it is essential to make sure any frictions that might arise in the circular virtuous cycle of innovation are addressed at every stage as soon as they are detected and ideally before causing any detrimental effect.
This multidimensional framework suggests an integrated approach for the creation of an ecosystem to enhance innovation toward achieving the global agenda of inclusive and sustainable development.