Prague
May 22, 2012

Your Excellency, Distinguished Ministers, and Ladies and Gentlemen:

It’s a great pleasure to join you here today, and to add my welcome to all of you, as we begin this important conference on “The ‘How To’ of Innovation, Technology and Entrepreneurship.”

Let me begin by expressing our thanks – on behalf of the World Bank – to our friends from CzechInvest and from the Korean Development Institute School.

Their support and collaboration have been instrumental in organizing this week’s discussions.

My colleagues and I – from the World Bank Institute, and from the Bank Group’s ECA an MENA regions – are delighted to see the strong interest, among this impressive audience, in innovation and economic growth.

Re-energizing the global economy, after the worldwide financial trauma of the past several years, is a vital priority – with job creation as the Number One issue for policymakers in every nation.

That’s certainly the case in both the MENA and ECA regions.

Renewing economic growth is so essential, that the World Bank Group has committed significant new resources to this area.

Throughout this conference, you’ll have a chance to share ideas with the leaders of one of the Bank’s newest Practice Groups: our group on Innovation, Technology and Entrepreneurship.

That new Practice propels knowledge-exchange globally – through engagements with country-clients worldwide, as well as through conferences like this.

We surely have a great deal to learn from one another. And it’s fitting that we should come together in Prague – where the spirit of creativity and innovation has historically been so strong.

For centuries, Prague has been a crossroads of culture in Central Europe.

The Czech people have built their society and economy atop ideas – not just from here in Bohemia – but from many neighboring countries.

That spirit of acceptance and adaptation – recombining ideas in all the arts and sciences, in technology and the economy – has been the key to creating a vibrant and vivid society.

Enriched through its openness to new ideas, it’s no wonder that the Czech Republic today has one of the strongest economies in Europe.

Those of you from the Middle East and North Africa can look to Central Europe for inspiration – in an era when your societies’ creativity is being energized.

Not too long ago, Central Europe went through a similar transition. In the 20 years since this region reasserted its independence and initiative, it has undergone a creative transformation – socially, politically and economically.

It was not an easy process, and many countries – including the Czech Republic –endured some severe growing pains as they integrated their countries into the global economy.

Yet, despite all its complexities, the transition has opened the way to more sustainable prosperity and a more inclusive society.

At this critical juncture in the history of the Middle East and North Africa – when millions of people are voicing their desire for profound structural change – you can look toward Central and Eastern Europe for lessons about how to achieve positive social and economic progress.

Many of those lessons are summarized in the report, published by our ECA region this winter, about the role of innovation in igniting economic growth.

I recently had the pleasure of discussing that report with senior government officials and private-sector leaders in Serbia, Bulgaria and Poland.

That ECA innovation report can be a useful resource for the MENA region, as well.

To help provide a framework for our knowledge-sharing this week – exploring practical ideas about how to harness innovation for economic development:

I’d like to explore three thoughts – two facts that need to be respected, and one fallacy that needs to be corrected.

Point Number One is a Fact.

It may seem obvious, but it is significant nonetheless.

Innovation is a critical element of economic growth, for every economy.

Empirical evidence shows that – on average, worldwide – half of a country’s long-term growth is due to innovation and technology enhancements.

To increase productivity, an economy does not necessarily have to apply more resources: It just has to make better use of whatever resources it invests by applying them more efficiently, with innovation becoming a catalyst for growth.

So there’s Point Number One – a Fact.

Now let’s consider Point Number Two – another Fact:

There is no “one size fits all” approach to innovation. Simply imitating models that have succeeded in other, highly innovative economies – without taking account of each country’s unique local conditions – is a recipe for disappointment.

For example: Many countries have dreamed of replicating the high-technology industries of Finland, or Estonia, or Israel. But other nations’ successful formulas cannot be simply taken “off the shelf” and duplicated.

At the Bank, just last week, a renowned innovation guru – John Kao, who spent decades at Harvard Business School researching this theme – quipped that many nations craft an innovation policy because “they want another Silicon Valley, all their own.” But it’s not as easy as that.

Realistically, what each country needs is a holistic approach to thinking about how it should innovate, in the context of its own particular conditions.

That process requires each country to make a candid assessment of its capacity to adopt policies that would encourage innovation and entrepreneurship.

It requires each country to adopt modern legal frameworks; to strengthen the institutions that allow ideas to easily spread; and to offer technology-transfer training for innovators.

It requires each country to identify opportunities for private investments to flow to micro, small and medium-sized enterprises.

And it requires each country to pursue inclusive innovation, promoting widely shared prosperity.

So there’s Point Number Two – another Fact.

Finally, let’s look at Point Number Three – which involves not a Fact, but a Fallacy.

A great policy debate is playing out these days across the world – and it has long been debated within the World Bank, itself.

It centers on the role of active government intervention in the economy.

Some voices insist that government action has a minimal role to play – that public policy makes little difference to a nation’s economic growth trajectory.

Those voices tell us that the private sector, on its own, can solve the innovation dilemma.

That notion, I believe, is a Fallacy.

Time and again, history has shown that constructive government intervention to support innovation is one important tool that can help transform faltering industries and develop new sectors of the economy.

Government action – if it is wisely targeted and effectively managed – can help ignite broader innovation.

If aspiring countries seek instructive role models: Two nations offer examples of how wise investment in innovation ecosystems can produce strong results.

First, consider Finland. The country has long committed exceptionally strong resources to investment in human capital, through its education system.

In addition, through TEKES – the National Technology Agency, founded in the 1980s – Finland has deliberately guided “applied R&D” investment toward commercial applications. That R&D funding emphasizes R&D collaboration between academic researchers and the private sector. Finland invests Europe’s highest percentage of GDP in R&D, and it has created a highly integrated and dynamic innovation ecosystem.

Second, consider the Republic of Korea. Since emerging from a war that left its economy in ruins, the South Korean government has devoted enormous resources to building a “knowledge economy.”

Education, advanced job-skills training, and innovation-focused R&D have helped South Korea climb from post-war poverty to wealthy-country status.

One critical element in this “evolutionary” development has been the country’s commitment to building a robust information infrastructure linked to industry.

In both of those success stories: Targeted public-sector interventions have been critical in driving innovation.

The combination is almost a chemical reaction: The necessary elements, brought to the table by the private sector, might remain inert – until they are energized by the catalyst of precisely targeted policy interventions.

History teaches us valuable lessons about economic transformation – and the Middle East and North Africa now stand at a hinge of history . . . just as Central Europe did, about 20 years ago.

Considering the positive transition that many Central and Eastern European nations have achieved, I can imagine no better collaboration, for knowledge-sharing, than your opportunity to share ideas here this week.

We are honored to convene this conference, and we will be pleased to help facilitate this creative collaboration in any way we can.

I wish you all the best – at this important inflection-point of history – as you exchange ideas about building stronger economies and more inclusive societies.

Thank you very much.