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Is this the way to the future? (Photo credit: bennylin0724)

The World Economic Forum meeting in Vienna this week will be grappling with the challenging problem of European innovation. The evidence is suggesting that rather than leading the world, Europe is worryingly backsliding. Worse, of course, is the public rhetoric is not backed up by actual real-world action by governments, who persist in the old ways. This has produced the current complex mix of disincentives for risk-takers with governments fearful of the disruptive impact of innovation on European preferences (ranging from employment to lifestyle), coupled with frequently ineffective and unreformed public sector organisations. This has been admirably addressed, too, in the WEF report on the future of government.

Rather than FAST government (flatter, agile, streamlined, tech-enabled) as the WEF calls for, we find hierarchical and bureaucratic, slow and sluggish, complex and unreformed, tech-naive government — these are hardly attributes needed if the public sector is to play a role in public/private partnerships to drive forward innovation. Our innovation culture instead gets:

  • social costs that burden small and medium businesses with a disproportionate share of social costs, which kill off risk takers because they can’t even afford the first day of business; this includes unreasonable start-up capital requirements (1€ should be enough), pointless company start up procedures, wrong-head bankruptcy laws, and inflexible employment laws;
  • unreformed central governments, which absorb productive capacity , require very high levels of tax funding to support, and which generate administrative and regulatory red-tape to little end other than to control;
  • public ownership of intellectual property as the default position for publicly funded research, coupled with the poor commercialisation record of state-owned research infrastructure, leading to hoarding of innovations within bureaucracies, and not accessible to risk-takers;
  • weak academic performance amongst the universities, with little competitive forces within academe to encourage researchers to move outside the university to become entrepreneurs, or to work with investors to generate new ventures, as it frequently jeopardises public sector employment contracts as in many countries academics are civil servants (that is itself is undesirable) — there are very few world-class European universities, based on recent global rankings.

I have some experience here, and while governments value stability in their civil services, what they often get instead is classic ‘rent-seeking’ behaviour, whereby civil servants seek to monopolise whole areas of the economy, ranging from failing to control regulatory creep, to governments having all sorts of pre-emptions rights over private arrangements. This latter point is particularly concerning when it comes to pre-emption rights over intellectual property created with public funds — as the Commission has noted, Europe badly needs its equivalent of the US’s Bayh-Dole Act.

I put my money in a few areas, not just because I know a little about them, but because they have the benefit of driving wider benefits — they act like breeders for other innovations, as well as magnets for innovations developed in other areas:

  • health technologies, including life sciences, devices, new materials, nano-tech, imaging, remote monitoring;
  • information technologies, including the internet (many governments are fearful of the disruptive influence of the internet);
  • new media as the convergence of technological delivery systems (potentially disruptive and problematic when the state is an owner of media).

There are no thousand kilo gorillas in Europe because Europe’s governments have become authoritarians that fear disruptive innovation that may challenge deeply held beliefs and challenge the European model. This is the type of pride that goes before a fall.  So, action is needed in at least four areas:

  • liberating the investment climate to encourage a higher tolerance of risk and acceptance that higher risks should lead to higher rewards, which has implications for taxation, capital gains/losses and bankruptcy;
  • liberating labour markets, to incentivise business to create experimental forms of employment, whereby firms in acknowledged startup situations can have greater flexibility retaining and rewarding staff without being confronted with first euro social costs and minimum wage regimes;
  • understanding the tremendously heavy burden unreformed government and excessively zealous taxation has on entrepreneurs and the need to liberate the entrepreneurial system from official structures as much as possible; this also means that government needs to understand what it can and should do (and of course what it shouldn’t do);
  • placing publicly funded intellectual property on the open market — I would suggest even creating an auction market for publicly funded IP.

The European Innovation Road is not a paved autobahn; it is full of holes, and in some places just goes over a cliff, but it has the potential to be a superhighway if we get the fundamentals right.

Uncertainty can never be removed from the innovation process. We shouldn’t act as though it can.

Want to know more?

Just searching on the internet will produce an avalanche of information. Regretfully, much academic research is still published in journals that are not open access which means accessing them requires either a subscription or the payment of a fee, despite the vast majority of this work having been publicly funded. These articles are not listed. However, authors of papers who would like to have their papers listed here, and provide a pdf for download are encouraged to provide a paper for listing here.

Also consider:

Martin Fransman, The New ICT Ecosystem: implications for Europe (Kokoro, 2007) presents a thoughful policy framework.

Anything by Annalee Saxenian, but her The New Argonauts: regional advantage in a global economy (Harvard 2006) is worth reading in the context of European regional development.

Josh Lerner, Boulevard of Broken Dreams: why public efforts to boost entrepreneurialism have venture capital have failed, and what to do about it (Princeton, 2009) offers a research-based critique of the role of government and why for every dollar/euro/pound government puts into commercialisation of research, the private sector takes one out.

The new report from NESTA, Atlantic Drift [here] is worth reading for its US/UK investment comparisons with important insights for other countries.  It is authored by Josh Lerner, Yannis Pierrakis, Liam Collins and Albert Bravo Biosca.

Lawton Burns, The Business of Healthcare Innovation (Cambridge, 2005), explains important innovation drivers in healthcare, which offers some thoughts on how Europe can succeed here, despite widespread government control of healthcare systems. It is worth noting that virtually all EU countries and their regions have prioritised biotechnology/healthcare/life sciences in at least their top 5 areas.

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Sticker advocating dissent: "dissent deve...

Something autocratic leaders don't understand

Another day, another perspective. The Guardian reports that another member of the select few advising the PM, Cameron, on health reform has been a bit off-message. It just goes to show that the people who held positions of power and authority in and around the NHS, when removed from that public duty, may just hold somewhat different views from they professed to hold. Did Mark Britnell think this way when we worked in the public sector? If so, why so silent?

Of course, part of the problem is the general lack of alternative perspectives within the NHS and the Department of Health, driven by the need to maintain a tight control on dissent (bad for decision-making). There is a somewhat natural and regretable tendency that when governments get into trouble, they behave like authoritarians, meaning they move to suppress dissent. Of course, the result is that they also legislate, or act in haste, and then repent at leisure, often courtesy of the courts, as decisions are progressively unpicked.

Britnell said things to please his audience, hardly unguarded, but certainly counched in language familar to Americans. Having chaired a conference on how to export American healthcare expertise to Europe, it is easy to get drawn into thinking that all things are possible when talking with Americans, something that folks familiar with the NHS would find seductive for its novelty.

Let’s look at what Britnell might have meant. There is nothing strange for the NHS to be a state insurer, since that is what it in effect is. Why were the premiums called ‘National Insurance’ anyway. The term insurance is also more easily understood in the US, and it more familar to those within the EU, as well. Perhaps the problem lies more in these shores, at not understanding the need to ‘translate’ language so people in fact can understand you. But then fog in channel, England cut off.

The NHS is highly politically polarising in the US; it is associated with rationing, queuing, and at least to many on one health discussion group, poor clinical outcomes. So the evidence, from the US side, is the NHS is not something to copy. The Canadian system is also highly politically polarising. Neither system particularly fascinates Amercians anymore, they are much more interested in the Netherlands. So it is with some courage that Britnell talked about the NHS in the first place — into the lion’s den and all that.

Would it be such a bad thing for the health system to thought more like an insurance system? Probably not. There is some evidence, controversial to some, that Bismarckian systems (i.e. insurance-based health systems), are more productive, easier to incentivise and provide better care than Beveridgean (i.e. the NHS, tax funded) systems, which are seen as better at managing costs. When Bismarckian systems get into financial trouble, they adopt centralised or other control systems familar to tax funded systems (cue recent reforms in France or Germany), while tax funded systems when they need to improve outcomes, shift toward insurance-type approaches, cue managed care, co-payments, clinical carve-outs (disease or medicines management) and so on.

The one big issue, hospital autonomy, or state ownership, is largely a non-starter if you really think about it. There is really no need for the public sector to own the means of production (i.e. the organisations that delivery health services), unless one is an unreformed Marxist. The NHS is probably better thought of as a guarantor of quality, access, and the purchaser of the care itself, something more akin to what proactive insurers should be doing. What appears to be interesting results from the last decades of reform is that public ownership of hospitals apparently concealed poor management, weak financial controls, convoluted clinical workflow, all of which led to poor productivity and value-for-money. These types of problems are not fixed by simply throwing more public money at them, but by changing the way they operate, the incentives that drive organisational behaviour. If you want to reduce emergency 7-day readmission rates (where most of the problems really lie, not at 30 days), some disincentives are appropriate, otherwise people don’t pay attention. A type of tough love.

One good thing is there is some possibility that this closet advisory group may not be breathing each other’s air, and that some original thinking may actually be taking place. However, I remain doubtful, since the people involved built their reputations within the very system they are now being asked to reflect upon. If they were that good at thinking this way, why weren’t they doing it before? Perhaps they were too obediant and on-message.

Regretfully, this mantra appears to be more important than the problem of NHS reform.

Compare the population pyramid of the USA whic...

The population pyramid reveals the pension challenge; each country has one.

Probably for the first time, thanks to baby boomers, we are entering a period with very large numbers of people entering various stages of retirement.

And with the expansion of the state over the past 30 years or so, large numbers of civil servants will also be retiring on pensions financed by the taxpayer.

And, to make it worse, rather than fully funding pensions, governments have failed to finance these pensions with contributions, preferring instead to treat pension deductions as a source of income in the short term, thinking that pensions would be affordable from future tax revenues.

Oh dear, and to make it even worse, civil servants enjoy considerably preferential working conditions, again courtesy of the taxpayer, so they are retiring earlier with more stable and assured pensions.

All this compared to those who chose other careers.

The meaning?

Well, fast forward a few years, and I suspect we will see civil servants with their somewhat more assured retirement income, enjoying life a bit more easily while large numbers of other people will be still at work, probably still at it when the grim reaper calls.

Will this disparity lead to pension envy — the lusting after preferential pension entitlements by those who did not take tax-subsidised jobs in the public sector? I wonder. Could it cause social unrest. I think it just might, as the income governments need to fund these pensions for essentially idle retirees, will come, wait for it, from those still working. So even as people try to make ends meet in retirement, they’ll still be paying taxes to finance the lifestyles of retired civil servants.

Of course, this is not to deny the importance or meaningfulness of much public sector work. My point is to highlight the behaviour of governments as employers, who essentially have been irresponsible by not establishing funded pension schemes, in order to lift the pension burden from future generations of taxpayers. What is galling, I suspect, for many folk, is the duplicity of government is revealed, as they have legislated on the one hand for good private sector pension regimes, while neglecting to deal with their own house.

If the government were a company, would anyone bail them out?

Perhaps the next economic ‘bubble’ is governments as they come to grips with their own poor future financial planning despite knowing all this was coming. Now that their backs are against the wall, they are prepared to read the writing on it, but with powerful vested interest groups, will the taxpayer be fleeced yet again?

The problem with governments, though, is that they are monopoly suppliers of this chaos, and the individual taxpayer cannot escape this irresponsible behaviour.

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Graph of the locations of water on EarthI attended the European Foundation for Management Development conference at Advancia 22-23 February 2010, to meet new colleagues as well as participate in a panel discussion on the challenges facing entrepreneurs. I organised my presentation around the question: “what sort of the future will the entrepreneur invent?”  I used two pictures to start my talk, one a 1530 Utopian painting and the other a poster of Fritz Lang’s dystopian film Metropolis.

Everything around us is invented, discovered, or created by the mind of people making sense of the world, so while it may be too much to see the entrepreneur as a super-human force of nature (as some discussed at the conference), the point is that human ingenuity is behind the world we live in, and our ability to be ingenious drives the

entrepreneurial spirit. I raised these issues in my presentation:

  • crises are really opportunities, especially for entrepreneurs;
  • the growing networking and interconnectedness of the world offers amazing opportunities for entrepreneurs to look at ways to bring people, information and services together; concerns about digital divides, social exclusion etc., in my view are transitional features of the current world, and not defining features, and that in time, these will be replaced with other forms of exclusion; the point being that technologies themselves are not exclusionary, but what people do with them is;
  • rising educational attainment is upon us, and there will be a substantial decline in the percentageof the population globally with only primary education, and doubling in the next decade or so of numbers of people with tertiary education; again, this offers amazing opportunities for learning in new ways, also considering the networking of the planet;
  • agricultural innovation is seriously important as over the next 20 or so growing seasons (years), the planet’s population will rise by about 30%, per capita food consumption will rise by 50%, dietary preferences will change, water and energy demand will also rise; this points to the need to ensure that fresh water is where the people are (right now, the fresh water is located mostly where people are fewer), and that each agriculturally productive hectare can add 50% of productive capacity — in very few growing seasons; with climate change, too, factors such as what grows where comes under stress, as different areas will need to learn to grow non-traditional crops, and other areas will become unproductive;
  • I also showed pictures of intelligent machines such as an autonomous GPS-guided farm tractor, and a similarly autonomous mining truck; the autonomous military robot with its gun on top is a telling reminder of the progress in military science, while the Utopian picture of the smart city of the future offers a different sort of hope;
  • finally, I showed a map of the world 4 degrees warmer, and wondered how we were going to deal with social displacement indicated by the growing numbers of people who will come to live in unihabitable or hostile environments (at risk of flooding, heat stress, and so on).

Having said all that, I am left to wondering though how we bridge the entrepreneurial challenges facing the public sector.  In many cases the challenges entrepreneurs face are caused by governments, and by regulation, as well as by restrictive banking practices which make access to capital so very hard. While we look to the entrepreneurial spirit in the private sector, and feed and encourage creativity, we find the opposite is true in the public sector. Indeed, Martin Lukes, from Prague, presented an excellent paper, with a telling conclusion that public sector people have less organisational support for innovation and entrepreneurial activity than their private sector counterparts. In some respects the elephant in the room is the public sector, consuming huge amounts of taxpayers’ money, yet often failing in two ways, failing to ensure entrepreneurial growth through poorly thought out rules and regulations (red-tape, regulatory burden and so on), and failing to get their own house in order.  Given the current state of affairs in some the world’s major economies, I don’t think the public sector can excuse itself from the need for entrepreneurial reform and effort.

The invention of the future requires all hands on deck, and no one can be spectator any more.