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LEARNING ECONOMIC LESSONS FROM SMALL NATIONS

As those who regularly read this column will know, I am a strong advocate of learning from the experiences of others, especially when it comes to regional development.

That is why the latest report from the UK’s innovation agency Nesta is of particular interest in understanding how other small nations have developed their economies successfully.

"When Small is Beautiful – lessons from highly innovative small countries" makes a compelling case that when it comes to innovative economies, it is not only the giants of USA, Germany, Korea and Japan that dominate.

Indeed, if we examine various indices on competitiveness and innovation, economies with populations of less than ten million such as Sweden, Finland, Singapore, Switzerland and Israel are usually ranked highly.

So what can be learnt from the experiences of the most innovative smaller nations and are there lessons for Wales from such experiences?

According to Nesta, the first common feature of these countries is the ability to turn good ideas and early-stage innovation into commercial successes. This is largely undertaken as a partnership between the public and the private sector with innovation within businesses co-funded by government or its agencies.

This is in sharp contrast to the failed Technium experiment in Wales that relied predominantly on hundreds of millions of pounds of government funding for its operations. The good news is that since that debacle, there are have been successes such as the Alacrity Foundation in Newport where venture capital and government support are working hand-in-hand to develop the technology businesses of the future.

The second important feature of small innovative economies is openness especially in trading with the rest of the world and, more importantly, in learning from others.

Despite the presence of international giants such as Tata and Airbus, Wales’ private sector has the lowest number of exporting companies of any UK region and this remains a major weakness in growing the economy.

Whilst a programme such as Ser Cymru is to be applauded for trying to bring the best scientists to Wales, there is nothing similar which places our brightest young researchers into the best universities in the world, as happens in Singapore where PhDs are funded to work in top overseas labs before returning home.

Similarly, Aalto University’s incubator programme in Finland has created strong relationships with Silicon Valley that now allow its new fledgling ventures to set up operations in one of the innovation hotspots of the World.

Unfortunately, we do not have anything comparable in Wales despite the efforts of some in the past.

The third feature is that innovation within smaller nations is not just limited to the private sector but encompasses the whole of society and government.

Whilst there have been some improvements in recent years, it would be fair to say that the Welsh civil service has not embraced innovation in the way that their counterparts in places like Finland, Estonia and Israel have.

Fortunately, Nesta has employed one of Wales’ most talented thinkers, Adam Price, to look into public sector innovation and it can only be hoped that he can make a dent in the way that government embraces innovation for the good of the nation.

Another key feature is that of having effective, entrepreneurial innovation institutions that are part of the state but removed from direct political control.

One such example of a successful intervention is the presence of Tekes as a dedicated innovation agency within Finland that encourages and develops greater linkages between large firms, universities and SMEs.

In Wales, there is currently no such agency and given the growing ambivalence towards the resurrection of the Welsh Development Agency, it is unlikely that such a body will be established in the near future. Some would argue that is unfortunate as it is clear that the ability of such organisations to bring together the public and private sectors does make a difference to the way that innovation is driven within these economies.

Finally, all of the small nations that were examined in this study had, according to Nesta, a sense of national mission that required them to be innovative to overcome the disadvantage of size, especially given the proximity of powerful economic neighbours. Despite fifteen years of devolution, perhaps this is the one thing that we are still trying to grasp here in Wales, namely what is the economic vision for the nation? Is to be an entrepreneurial, innovative economy that thrives on the talent and hard work of its population?

Is it to create a sustainable economy that sets the green agenda that others will follow? Is it to be the best place to work and live so as to attract some of the best companies in the World to locate here?

Getting this right could have a major economic impact on the prosperity of the nation and Nesta argues that if Wales were to enjoy the same growth rates that other small innovative nations had experienced during the period 2007-2012, then our economy would be £5 billion better off every year.

Certainly, if Wales is to follow in the footsteps of other small successful innovative economies, we must understand what are our strengths, build on them, and ensure that, whilst learning from others, we find our own path to economic prosperity over the next few years.

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