Economic Freedom, Creativity and Development Yusuf Mansur November 2013
Jul 18, 2015
“Human Development, as an approach, is concerned with what I take to be the basic development idea: namely, advancing the richness of human life, rather than the richness of the economy in which human beings live, which is only a part of it.”
Amartya Sen
Development
Definition
Individuals have economic freedom when property they acquirewithout the use of force, fraud, or theft is protected from physicalinvasions by others and they are free to use, exchange, or givetheir property as long as their actions do not violate the identicalrights of others.
James Gwartney and Robert Lawson et al.
Economic Freedom of the World: 1996 Annual Report
Economic Freedom
Economic Freedom is for the protection of political rights, national security, and property rights. Among rights is intellectual property rights (IPRs).
Economic Freedom is also about freedom of exchange = Ease of Doing Business in a stable economy and a competitive environment.
Creativity: The process through which ideas are generated, connected and transformed into valued products.
Creative Economy: Arts and film; Sciences; Technology; Sports
Creativity
Scientific Creativity
Cultural Creativity
Economic Creativity
Technological Creativity
According to the UNCTAD Creative Economy Report 2010, creative
industries are defined as:
• The cycles of creation, production and distribution of goods and
services that utilize creativity and intellectual capital as main inputs
• A set of knowledge-based activities, focused on but not limited to
arts, that potentially generate revenues from trade and IPRs
• Tangible products and intangible intellectual or artistic services
that have creative content, economic value and market orientation
• Intersect the artisan, services and industrial sectors.
The contemporary creative economy cuts across the arts,
culture, industry, business and technology.
Forms of creativity
Creative and innovative economies provide a country with anedge in economic development and competitiveness. CreativeIndustries, if properly nourished, protected and cultivated,could endow Jordan with a powerful
Competitive Advantage
Creative Industries
Economic Output and Global Creativity Index
Source: Florida, Richard. “Greater Competitiveness Does Not Have to Mean Greater Inequality”. 11 Oct 2011. http://www.theatlanticcities.com/jobs-and-economy/2011/10/greater-competitiveness-does-not-greater-inequality/230/
Innovation: The implementation of a better, superior set ofsolutions that satisfies growing market needs/requirements.
Comes in these forms:
• Making additional changes to existing products (greatercompetition)
• Introducing new products (new segments)
• Developing a product in a way that changes doing businessor production
Encouraging Innovation
Four C’s, in a single country or different markets: Cost, Convenience, Caliber, Creative destruction
Major Indicators
Rank
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
(134
Countries)
(133
Countries)
(139
Countries)
(142
Countries)
(144
Countries)
(148
Countries)
Basic Requirement 47 46 57 61 66 76
Institutions 27 25 41 45 42 38
Infrastructure 44 42 61 59 60 54
Macroeconomic Environment 111 105 103 97 112 138
Health and Basic Education 56 57 65 72 56 65
Efficiency Enhancers 63 66 73 78 70 70
Higher Education and Training 42 42 57 59 55 56
Market Efficiency 44 43 46 54 44 39
Labor Market Efficiency 93 106 112 107 101 101
Financial Market Development 48 52 54 65 65 79
Technological Readiness 57 61 62 59 69 70
Market Size 88 82 84 88 84 87
Innovation & Sophistication Factors 47 51 65 70 52 51
Business Environment Development 47 49 66 68 55 47
Innovation 51 59 68 77 57 53
Competitiveness Ranking
Source: World Economic Forum, Global Competitiveness report 2008-2013, http://www.weforum.org
Major Indicators2009
(130 countries)
2010
(132 Countries)
2011
(125 Countries)
2012
(141 countries)
2013
(142 Countries)
Overall ranking 55 58 41 56 61
Institutions 35 43 62 57 59
Human Capital & Research 55 31 50 49 53
Infrastructure 58 60 96 97 90
Market Sophistications 61 82 44 85 65
Business Sophistications 41 57 77 116 47
Knowledge & Technology
Outputs
57 89 77 83 75
Creative Outputs - 76 10 24 59
Source: Global Innovation Report, 2009-2013, www.globalinnovationindex.org
Innovation Index Ranking
Doing Business Report Ranking
Major Indicators 2008 2009 2010 2011 2012 2013
Ease of Doing Business 80 101 100 111 96 106
Starting a Business 133 119 125 127 95 103
Dealing with Construction
Permits 71 116 92 92 93 102
Employing Workers 45 48 51 N/A 36 38
Registering Property 109 105 106 106 101 102
Getting Credit 84 125 127 128 150 167
Protecting Investors 107 114 119 120 122 128
Paying Taxes 19 22 26 29 21 35
Trading Across Borders 59 77 71 77 58 52
Enforcing Contracts 128 129 124 129 130 129
Closing a Business 87 96 96 98 104 112
Participating Countries 178 181 183 183 183 185
Source: Doing Business Report, 2011, World Bank Group
Source: Economic Freedom of the World, Annual report 2012
Economic Freedom
YearSummary
Rating & RankGov. Size
Legal Structure
& Security of
Property Rights
Sound Money
Freedom to
Trade
Internationally
Regulation
2000 34 68 38 7 62 43
2005 26 53 42 37 40 25
2006 45 97 47 44 26 35
2007 33 83 44 41 25 32
2008 40 87 35 58 22 24
2009 50 104 41 36 44 54
2010 20 14 49 43 44 37
2011 16 9 47 46 39 36
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Factor Conditions
Strategy, Structure &
Rivalry
Demand Conditions
Clusters & Clustering
Government
Mapping Creativeity Competitiveness
Demand Conditions
• A slight majority of demand originates locally
• In all industries, the majority of demand is patterned except for Books
and Press in which half of the demand is patterned
• Cyclical demand is the prevalent type of demand in all the industries except in Performance and Celebration
• Price is the main factor affecting demand in all the industries except in Performance and Celebration in which trends is the main factor
• Quality is the driving factor in the pricing of creative services and products
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Demand Conditions
• Customers are not adequately knowledgeable of industry trends
• The Arab Awakening has increased demand
• Jordan is capable of handling increased demand
• The Arab Awakening has changed the work culture and environment
• The nature of the creative content has changed with the advent of the Arab Awakening
• The quality and sophistication of the creative content has increased
17
Factor Conditions
• Equipment is new, yet lacking in sophistication
• Focus is mainly on a few small projects
• Projects are small in size and scope
• A majority views the global market as open to their activities
• Global connectivity is high
• Regional markets are open
• However, connectivity to global markets is higher than connectivity to regional markets
• Medium to low availability of quality human resources
• Medium availability of technology
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Factor Conditions
• ICT usage penetration is limited by high computer prices and mobile tariffs in relation to average income
• Internet penetration is only at 38%– Internet penetration in Qatar and the UAE is at 81% and 77%
respectively
• Low levels of e-commerce– Mainly due to SMEs, especially small family run businesses, not
utilizing IT
• Knowledge content of ICT applications is unsophisticated (a by-product of the lack of sophisticated demand)
Factor Conditions• Jordan possesses a significant entrepreneurial class• Poor technology and science basis• Low investment in R&D
– Equates to 0.3% of GDP
• R&D is conducted by 10 public universities, 12 private universities, and 12 scientific centers
• R&D governance is split between the Ministry of Higher Education and the Higher Council for Scientific Research
• Jordan possesses a strong human capital base, but institutional weaknesses are constraints on investors
• The human capital base includes:– Substantial high skilled diaspora– Large numbers of engineers – IT proficient younger generation
Clusters and Clustering
Clusters
• Governments must invent various ways to encourage firms andindividuals to utilize innovation in ways that creates economicgrowth in the country. A lot of which can be implemented by“Clusters”
• Clusters focus on improving productivity in both emerging andadvanced economies
Examples: Silicon Valley, Boston’s Route 128, Taiwan’s HsinchuPark, South Korea’s Daedeok Science Town are all
Clusters proved successful in various economies:
• The achievements of Silicon Valley are more of a function of a uniqueculture than a government policy.
• South Korea, and Taiwan government’s interventions, like planning andsubsidies and state ownership aren’t found in many countries.
• Though the government role in innovation is very important, there isevidence in the various innovation successes some succeeded w/o statebacking or a uniquely creative business culture. Our own Samih Toukanand Hussam Khoury, who created Maktoob, combined Jordan’scomparative advantage in creative talent and low cost with the quality andconvenience of Dubai’s infrastructure and business networks.
Clusters and Clustering
Clusters & Clustering
• In all industries except in the Audio-Visual and Interactive Media, less than 15% of the stakeholders have agreements in place with supporting industries
• Between 31%-44% of stakeholders in all industries utilize services and products from supporting industries
• Those stakeholders using products and services from supporting industries, use them frequently
• Supporting industries are reliable
• Relationships with suppliers from other industries are long term
• The large majority of relationships are project based
• Suppliers are relatively reliable in terms of quality consistency
• The majority of suppliers are local
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• R&D institutions are too isolated to satisfy productive needs of the economy
• University-industry collaboration in Jordan is low
– Scored as 35.8 (from 10-70 scale) in the Global Innovation Index
– Tunisia scored 51.8, while Morocco scored 34.9
Clusters & Clustering
R&D: Certain activities that a business chooses to conduct with the intentionof making a discovery that can either lead to the development of newproducts or procedures, or to improve an existing product or procedures.
Global R&D spending grew at an average annual rate of 7% Between 1999and 2009, accelerating to 8% during the last five years.
During the entire period, R&D spending grew significantly faster than globaloutput, reflecting both increasing government support and a rising share oftechnology-intensive industries in global production and trade
Research and Development (R&D)
Global R&DAbout R&D Spending
• Within Asia, R&D spending in China grew at an astounding 20% annual pace.Spending on R&D also grew rapidly – about 10% annually – in South Korea.
• The US is the leader country in R&D investment, in 2009 the US spent an estimated$400 billion, higher than China, Japan, and Germany combined.
• R&D spending grew by 4% in Japan, 5% in the US, and roughly 6% in Europe.
• The business sector is the predominant performer and funder of R&D investment.In 2009, business accounted for 75% of R&D funding in Japan, 73% in South Korea,72% in China, 67% in Germany, and 60% in the US.
• Multinational companies, whether headquartered in the US or elsewhere,accounted for about 84% of private (non-bank) R&D investment in the US in 2009,about the same as a decade earlier. And US multinationals still locate about 84% oftheir R&D activities in the US, often in innovation clusters around researchuniversities.
Government• The majority say there are no policy restrictions on new entry
• The government is not responsive to stakeholders’ needs
• Government agreements with other countries do slightly harm stakeholders
• Monopolistic practices are apparent and harm businesses
• It is difficult to find both local and regional investors
• The regulator limits the growth of companies
• Customs are very high and higher than those of surrounding countries
• Government legislation and procedures do not help exports reach their potential
• Intellectual property rights are not protected
• Problems faced with regard to IPR are not being solved
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• Jordan fails to attract high value added FDI – Small market size
– Instability of the region
– Weak and inefficient institutional environment
– Government bureaucracy
• FDI inflows are mainly in low value added and no-tradable sectors– Construction
– Textiles
– Basic Minerals
• This led to 55% of jobs created in the private sector in 2000-2010 going to foreign workers
Government
Examples:
In 1714, 7 years after one of the worst naval accidents in the history of Britain’s RoyalNavy, the UK launched the Longitude Prize, a £20,000 reward (US$5 million today) fordeveloping a simple and practical method to determine a Ship’s Longitude reliably.
In 1795, the French gov. with an army debilitated more by hunger than enemies,offered prizes to develop an effective food-preservation method. After experimentingfor 15 years, Nicolas Appert won the prize with his ground breaking technique forPreserving Food in Glass Jars. Later, England’s Peter Durand built upon Appert’smethod by using Metal Cans.
In 2008 the UAE created the “Zayed Future Energy Prize”. An annual award forachievement in developing and Deploying Renewable Energy And SustainableTechnologies. Since its launch, nearly $10 million has been awarded for innovationsthat have changed the lives of people worldwide.
Government: Role of Prizes
Strategy, Structure, & Rivalry
• The main competitors to Jordan are Lebanon, United Arab Emirates (UAE) and Egypt
• Price is the most important factor in being competitive with regional competitors
• The majority of stakeholders are not members of professional associations
• Stakeholders receive minimal support from professional associations
• Information on industry trends is widely accessible
• Insufficient finance and limited markets are the main factors affecting demand
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What to do?• Create a Comprehensive Policy on Creativity and Innovation
• Promote Industry and Academic Linkages
• Promote R&D.
• Provide Tax Credits for R&D
• Ease Credit Availability
• Promote an Entrepreneurial, Innovative Environment: Increased government support for incubators, coordinate among them, develop entrepreneurship as an academic subject, invest in science and technology education, encourage risk taking, develop an ‘entrepreneurship cluster zone’, greater number of venture capital funds, support value chains and cluster units
• Utilize ICT Capabilities: Provide access to international databases, develop ‘entrepreneur cafes’, create centers of R&D, connect the nation’s SMEs.
• Increase Government Spending and Funds: divert some foreign aid to R&D activities, promote partnerships between foreign firms and Jordanian firms, in terms of R&D, invest in new products or services to be jointly produced by foreign and Jordanian firms, Establish an investment fund, to be paid for with funds from the private sector, offer loans for R&D purposes from the public sector at low interest, government could take the 1% tax it levies on shareholding companies, for R&D purposes, and invest it in more applied research