Innovation-Led Economic Growth

September 5, 2017

Executive Summary

The world faces a confluence of changes and technological advances that are fundamentally altering the relationship between individuals, economies, and society. Innovations in a diverse set of fields including robotics, genetics, artificial intelligence, Internet-enabled sensors, and cloud computing are individually disruptive. Collectively they are world changing. Experts around the world have come up with different names and descriptions for this phenomenon: Klaus Schwab calls it the “fourth industrial revolution”; Alec Ross points toward the “industries of the future”; Steve Case recognizes it as the “third wave” of the Internet; and Martin Ford looks toward the “rise of the robots.”

Although these thinkers have slightly different visions for the future, there is a shared recognition that existing assumptions and economic models need adjustment. For both developed and developing countries, the innovation- and technology-driven economy offers significant risks and opportunities. On the one hand, this change offers the potential for increased global prosperity, efficiency, and quality of life. On the other hand, if poorly managed, this transition could disrupt employment models, pathways out of poverty, and stability around the world.

The good news is that the developing world is richer, freer, and more capable than at any other time in history. The center of gravity for the emerging global middle class will be in places like India, China, Southeast Asia, and East Africa. The future of development will not be focused on the basic human needs agenda—although there are critical and pressing human needs still to be met. Meeting the hopes and aspirations of these changing economies will require new forms of cooperation beyond traditional foreign assistance. Today, developing countries are seeking partnerships around trade and investment, education, and science and technology.

This means that it will be critical for developing countries to build the capacity to participate in—and benefit from—the modern innovation- and technology-driven economy. Traditional models of development relied upon agriculture, commodities, and cheap labor as part of an incremental process to build skills, move up global value chains, and increase national income. Although these disciplines will remain important, integration into the knowledge economy requires new skills and education to develop a modern workforce, connectivity with global knowledge networks, and a willingness and ability to embrace rapid change.

For developing countries that want to escape the middle-income trap¹ and seize new opportunities in the transforming global economy, the time to look to the future is now. The World Bank recently estimated that up to two-thirds of all jobs in developing countries are susceptible to automation.² Similarly, the World Economic Forum estimates that nearly two-thirds of current primary school students will be employed in jobs and industries that do not currently exist.³ In response to these pressures, developing countries are seeking to change their economic trajectory and industrial mix through innovation and technology. Today nearly half of all developing countries have released national science, technology, and innovation (STI) strategies, and there is a growing global consensus that innovation and technology need not be the sole province of advanced economies.⁴ Achieving this diffusion of capability, however, will require effective policymaking and good governance.

The United States can (and should) position itself as the partner of choice for developing countries that want to transform their economies through science, technology, and innovation. It has unique assets that it can offer to help developing countries achieve this goal: American universities, research, and companies are the envy of the entire world. Large foreign student and diaspora populations in the United States could also serve as natural connectors for future partnerships that help build diplomatic and economic ties.

It is clearly in the U.S. interest to assist and partner with countries seeking this kind of transformation. Emerging economies are future markets for trade and investment, and promoting economic growth abroad creates jobs and wealth back home. Helping developing countries meet their hopes and aspirations also strengthens friendships and alliances that help with burden sharing and global public goods. Rich countries do not have a monopoly on innovation, and we need more brain power from around the world focused on solving our shared global challenges.

Education, science, and technology will be a large part of our future engagement with the developing world, and policymakers in the United States need a deeper understanding of how these issues fit in with our global interests. Through effective cooperation, the United States can plug new countries into the liberal rules-based international order. It is this brand of soft power, global network building, and technological leadership that will lead to another “American Century.”

At the crossroads of this critical juncture in human social and economic development, CSIS and RTI International formed a research partnership to examine global trends, best practices, and emerging issues around innovation- and technology-led economic growth

The findings presented in the following report suggest that there are clear opportunities to accelerate and expand opportunity through innovation and technology around the world. Although the specific nature of the opportunity varies by setting—Kenya, Malaysia, and Gujarat each had very different visions for their respective economic futures—there are common insights and approaches to promoting innovation-led economic growth around the world. Transforming tomorrow’s developing economies through technology and innovation will not necessarily require huge investment but rather catalytic interventions, sustained partnerships, and long-term vision.