Technology is integral to economic development. But who actually creates technology and what can be done to facilitate more? Commissioner Young-sang Lee explores the critical role between innovation, policy and economic development…

Stimulating the World Economy – A Matter of Trust

by | Sep 6, 2016 | Insight

Ask someone what drives the world’s economy and you’ll often hear names of the big corporations.  Certainly those companies have a great impact on how the economy operates, but it is often the small or medium sized companies that deliver industry innovations.  According the World Bank, “Formal Small to Medium Enterprises (SMEs) contribute up to 45 percent of total employment and up to 33 percent of national income (GDP) in emerging economies.”[1]  If our economies are to grow and prosper, we must encourage these small and medium sized companies, and remove artificial barriers that they may currently be facing.

History has shown that in developing economies it may be beneficial for governments to enact legislation that aids companies to become big.  This can be seen in the history of Korea and in Japan, to name just two countries.  Efforts to stimulate the economies favored some of the big companies, enabling them to grow even bigger, offer more employment to the local population, and to compete on the world stage.  Unfortunately, as these companies have continued to grow, they have, in some cases, implemented predatory policies, eliminating small competitors and, perhaps unintentionally, stifling innovation.  These large conglomerates may also have strayed from their original areas of expertise into widely different areas, again possibly crushing small competitors who might otherwise have developed significant innovations.

There is certainly a place in the economy for large companies and conglomerates, but the time has come to eliminate some of the policies that provide them with unnatural advantages.  Rather, we must enact legislation that encourages small to medium businesses, and allows them the opportunity to prosper.  An excellent analogy is that of a forest, with tall, stately trees.  The trees provide stability, but they can also block out all of the sun light to the smaller plants and new trees, thereby stunting their growth or suffocating them.  So in industry, the conglomerates often provide an economy with stable labor demands and constant revenue, but they might also, by their very nature, prevent new, smaller companies from emerging.  This has a detrimental effect on the economy as a whole, and is not sustainable.

Small businesses produced 16 times more patents per employee compared to larger patenting firms.

A number of countries, such as China, India, and Viet Nam have focused on manufacturing, and as this expands they have to employ additional people, so those economies can grow.  Other countries, however, are focusing more on the knowledge industry, and growth here is more problematic.  To foster growth in these economies we need innovation in education, as well as government policies that protect intellectual property while at the same time encouraging sharing of ideas to foster growth.  While these two ideas might, at first blush, seem diametrically opposed, they in fact can support each other and form the underpinnings on which a knowledge-based economy can grow.  Certainly the originators of new ideas have a right to be rewarded for their ideas, be that in the form of royalties or in tightly controlling the use of their ideas.  This type of protection can be found in international patent law.  But inventors should also recognize that their ideas can be the springboard for other ideas, that shared ideas usually grow far beyond the original idea, and that they stand to gain far more than they could lose by sharing ideas. “A candle loses nothing by lighting another candle.”[2]  By making operating systems open, a company opens itself up to be used by many, possibly bringing in additional revenue.

A variant of the UNIX operating system, originally developed by AT&T Bell Labs, was first shared by the University of California at Berkley, and became the basis for many software developments, spreading both the use of UNIX and the fame of Berkley.  Linux is another example of open source and is now considered a mainstream operating system.  Shared knowledge potentially increases employment rates, and provides momentum to proceed to new stages of economic development and status.

To enable this type of sharing, two things are necessary.  First, there need to be guidelines on what should be protected and what should be shared.  While legislation dealing with this needs to be enacted by government, the foundational ideas for this legislation need to come from industry.  Industry deals with these types of issues on a daily basis, so industry’s input is essential to creating policies that encourage this sharing.  It is also imperative that this input comes not only from large corporations, but from the small and medium businesses as well.  In the United States, when evaluating “high patenting firms” over a four-year period, small businesses produced 16 times more patents per employee compared to larger patenting firms. Small business accounts for 43 percent of high tech employment.[3]  These numbers certainly support the case for having them strongly represented at such discussions.  I look to the governments of the developed countries to enact legislation that will offer both the needed protection and the incentive for sharing.  Further, to be effective in a global economy, this legislation needs to be coordinated across borders, providing global protection.

The second requirement, and the most important, is trust.  No amount of legislation will incent inventors to share their ideas if they don’t trust the process, and trust those with whom they are sharing.  Trust is difficult to establish, and quick to be broken.  Forums such as the GIIC are invaluable in establishing trust, bringing together leaders of disparate industries and cultures, and providing a forum for trust to be established.  I call upon my fellow GIIC commissioners to join me in working to establish that trust.

[1] http://www.worldbank.org/en/topic/financialsector/brief/smes-finance

[2] James Keller

[3] http://www.inc.com/jared-hecht/are-small-businesses-really-the-backbone-of-the-economy.html

 

young-sang-leeCommissioner Young-sang Lee is the Honorary Chairman of the Korean Software Enterprise Association (KOSEA)… (read more)