ASIA
26 March 2014
Betting on biotech for development
Betting on biotech in Korea, Singapore and Taiwan is easier said than done, according University of Toronto's Joseph Wong.
The very rapid development of these three economies was propelled by activist government policy, often referred to as the "developmental state". Governments guided development by "picking winners" and assisting firms and industries considered to have potential. There were of course failures, like the attempt to develop an automobile industry in Taiwan. But overall, it worked.
True, when Korea, Singapore and Taiwan were ramping up their domestic capabilities in the information technology and electronics sectors, they confronted risk scenarios and risky investments. But they were able to mitigate this risk rather effectively through government subsidies, investment and protection -- because they were essentially reverse-engineering existing technologies developed elsewhere. While it wasn't clear that a Taiwanese firm could make semiconductors at globally competitive prices, it was known how to make semiconductors.
As these economies climbed the development ladder, their wage costs rose, and labor-intensive activities were outsourced to the next tier of Asian emerging economies, ASEAN and China. This is known as the flying geese pattern of development, with younger geese taking over the lead of the fast flying flock.
Policy makers then turned their attention to promoting biotechnology, seen as "the next big thing" with great market potential. But industrial upgrading when you have reached the global technological frontier is vastly different from adapting and copying established industries.
You are faced with conditions of primary uncertainty. Decision-makers are making bets on things about which they know very little, if anything at all. Conditions of primary uncertainty are those in which “you don’t know even know what you don’t know”.
Government and industry in these economies have invested billions of dollars in biotech industries since the 1990s. But the profound uncertainties of life-science-based industries have forced these Asian economic dynamos to confront a new logic of industry development -- one in which past strategies of picking and making winners have given way to a new strategy of throwing resources at what remain very long shots.
Compared to developing electronics, developing biotechnology is proving to be a much more difficult task for these three economies, and their success in the field is far from assured. Commercial blockbusters and commensurate profits have not followed. In fact, very few countries can claim to have a successful biotech sector.
The general public in these countries has been losing its appetite for the expensive uncertainties of biotech innovation and cutting-edge innovation more generally. It is not clear to the general public how billions of public dollars spent on basic science research are generating any public goods of importance such as economic growth, job creation or even better health. In the US, for example, the NIH and NSF fund upwards of $30 billion per year on life sciences R&D.
The real lesson is however that innovation is a very uncertain enterprise. It is very expensive. It takes a long, long time. And a key driver of innovation is learning from failure. But we do not know, as yet, how to value failure as a positive attribute. New metrics must be developed to measure and evaluate the impact, both negative and positive, of failure. It is, in the end, about normalizing failure.
Scale also matters. It is much easier to find gold in big countries like America and China, with vast research activities, than in small countries like Singapore -- even if the policy environment for IPR and other issues is much better.
One issue that Wong did not delve into in depth is the innovation capacity of Asian countries. As the OECD has argued in its innovation strategy, there is much more to innovation than spending money on research and development.
In this regard, many Asian economies do not have eco-systems that are conducive to innovation. They put too much of a premium on government controls and planning, and less on individual actions and initiative.
A challenge for China in particular is whether truly transformative innovations can occur under institutional and political conditions that put a high premium on controls rather than on discussion and debate.
Asian education systems have generated "creativity deficits". They have come under severe criticism for their emphasis on rote memorization and test-taking.
Innovation in Japan and Korea, the most technologically advanced Asian economies, is based on continuous improvement and incremental innovation. Radical innovation is much less common. Factors holding back innovation include strict management hierarchies and seniority control.
The close collaboration between universities and industry that is required for successful innovation and entrepreneurship is rare in most economies in Asia, as compared to the experience in the US.
In short, there are many reasons for thinking that betting on biotech for development in Asia will always be a long shot!
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
True, when Korea, Singapore and Taiwan were ramping up their domestic capabilities in the information technology and electronics sectors, they confronted risk scenarios and risky investments. But they were able to mitigate this risk rather effectively through government subsidies, investment and protection -- because they were essentially reverse-engineering existing technologies developed elsewhere. While it wasn't clear that a Taiwanese firm could make semiconductors at globally competitive prices, it was known how to make semiconductors.
As these economies climbed the development ladder, their wage costs rose, and labor-intensive activities were outsourced to the next tier of Asian emerging economies, ASEAN and China. This is known as the flying geese pattern of development, with younger geese taking over the lead of the fast flying flock.
Policy makers then turned their attention to promoting biotechnology, seen as "the next big thing" with great market potential. But industrial upgrading when you have reached the global technological frontier is vastly different from adapting and copying established industries.
You are faced with conditions of primary uncertainty. Decision-makers are making bets on things about which they know very little, if anything at all. Conditions of primary uncertainty are those in which “you don’t know even know what you don’t know”.
Government and industry in these economies have invested billions of dollars in biotech industries since the 1990s. But the profound uncertainties of life-science-based industries have forced these Asian economic dynamos to confront a new logic of industry development -- one in which past strategies of picking and making winners have given way to a new strategy of throwing resources at what remain very long shots.
Compared to developing electronics, developing biotechnology is proving to be a much more difficult task for these three economies, and their success in the field is far from assured. Commercial blockbusters and commensurate profits have not followed. In fact, very few countries can claim to have a successful biotech sector.
The general public in these countries has been losing its appetite for the expensive uncertainties of biotech innovation and cutting-edge innovation more generally. It is not clear to the general public how billions of public dollars spent on basic science research are generating any public goods of importance such as economic growth, job creation or even better health. In the US, for example, the NIH and NSF fund upwards of $30 billion per year on life sciences R&D.
The real lesson is however that innovation is a very uncertain enterprise. It is very expensive. It takes a long, long time. And a key driver of innovation is learning from failure. But we do not know, as yet, how to value failure as a positive attribute. New metrics must be developed to measure and evaluate the impact, both negative and positive, of failure. It is, in the end, about normalizing failure.
Scale also matters. It is much easier to find gold in big countries like America and China, with vast research activities, than in small countries like Singapore -- even if the policy environment for IPR and other issues is much better.
One issue that Wong did not delve into in depth is the innovation capacity of Asian countries. As the OECD has argued in its innovation strategy, there is much more to innovation than spending money on research and development.
In this regard, many Asian economies do not have eco-systems that are conducive to innovation. They put too much of a premium on government controls and planning, and less on individual actions and initiative.
A challenge for China in particular is whether truly transformative innovations can occur under institutional and political conditions that put a high premium on controls rather than on discussion and debate.
Asian education systems have generated "creativity deficits". They have come under severe criticism for their emphasis on rote memorization and test-taking.
Innovation in Japan and Korea, the most technologically advanced Asian economies, is based on continuous improvement and incremental innovation. Radical innovation is much less common. Factors holding back innovation include strict management hierarchies and seniority control.
The close collaboration between universities and industry that is required for successful innovation and entrepreneurship is rare in most economies in Asia, as compared to the experience in the US.
In short, there are many reasons for thinking that betting on biotech for development in Asia will always be a long shot!
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com
REFERENCES:
- Wong, Joseph. Betting on Biotech: Innovation and the Limits of Asia's Developmental State.- Wong, Joseph. Betting on Biotech: Innovation beyond the Development State. Boston University Center for the Study of Asia. Video.
- Joseph Wong, Canada Research Chair and Professor of Political Science, University of Toronto. Director of the Asian Institute, Munk School of Global Affairs.