“Inclusive growth” has been at the forefront of policy discussions in OECD and non-OECD economies. These discussions reflect a concern that economic growth does not necessarily improve the welfare of all citizens as income inequalities have risen to unprecedented levels over the past decades. The richest 10% of the population in the OECD area earn almost ten times more than the poorest 10%.
Throughout history, innovation has been the main engine of improved living standards and the current period of digital innovation offers similar opportunities. At the same time, periods of substantial technological change are known to be highly disruptive as new technologies render old technologies obsolete. This process creates winners but also losers within and across countries.
How is digital innovation affecting wellbeing? What can innovation policy do to support inclusive growth?
Here are 5 observations that provide answers to these questions.
1. Digital innovations strengthen the welfare of disadvantaged and low-income groups.
Digital technologies have improved opportunities for consumers to find best products at affordable prices, and have also improved education, health and government services in ways that have favoured social inclusion.
Further contributions that emerging digital technologies are making toward inclusive growth include:
- the Internet of Things (IoT) – devices and objects that can be manipulated via the Internet, with or without active human involvement
- big data analytics – a set of techniques used to interpret large volumes of data generated by the increasing digitisation of content, greater monitoring of human activities, and the spread of the IoT
- artificial intelligence (AI) – the ability of machines and systems to acquire and apply knowledge and to carry out intelligent behaviour
- blockchain – a database that enables value transactions within computer networks and without the necessity of a central institution or third party.
Digital innovations disrupt the way markets operate, by changing competition dynamics. Digital innovations give rise to extreme scale economies and network effects, which in turn can result in winner-take-all market structures characterised by strong market concentration and creative destruction.
Winner-take-all markets are a source of innovation-based rents. How do the rents from digital innovation affect income distribution? Paunov and Guellec (2017) argue that they are shared among shareholders of the winning firms, top executives and some key employees, hence contributing to increased income inequalities. In the United States, shareholders have benefitted from a steady increase in dividends and share prices over the past decades. The share of capital (vs. labor) in national income has also increased, particularly in innovation-intensive economic activities.
3. Disparities in regional innovation capacities are a challenge in several OECD countries
Regions within many OECD countries show significant differences in their innovation capabilities and investments. Overall, the top 20% of regions in OECD countries concentrate 40% of total R&D spending and half of all patent applications.
Traditional innovation policies might unintentionally favour leading regions by rewarding excellence. Such policies should also take account of the impacts they have on the regional distribution of innovation.
4. Innovation policies that strengthen opportunities of disadvantaged and excluded groups to innovate can help support more inclusive growth
Many countries have implemented “inclusive innovation policies” – innovation policies that aim to boost the capacities and opportunities of disadvantaged individuals to engage in innovation activities. These policies tackle the systematic under-representation of some groups in innovation activities, such as women, minority groups and migrants, among others. These also take an industrial or territorial focus by providing tools to less innovative firms and regions to engage in innovation activities. Planes-Satorra and Paunov (2017) provide a comprehensive characterisation of these policies.
5. Higher education systems, enrolment in quality education and the potential of online education tools
Higher education systems can help reach wider inclusion in innovation activities by building the capacities of disadvantaged and lower-income groups. Leveraging on the potential of the opportunities offered by online education tools may help.
This blog post is based on the report Making Innovation Benefit All: Policies for Inclusive Growth
The Inclusive Innovation Policy Toolkit on the OECD-World Bank Innovation Policy Platform provides a practical and interactive guide to designing and implementing inclusive innovation policies.
The findings expressed in this blog are those of the author and do not necessarily represent the views of the OECD or its member countries.