The Long March to the future economy

The Long March was an arduous trek through some of the toughest terrains in China, which allowed Mao’s Red Army to escape Jiangxi after massive losses at the hands of Nationalist forces. It required innovative ways of thinking that allowed Mao’s battered forces to regroup and recover.

As we plan for the future economy – admittedly in a less hazardous environment – we recognise that creativity is key for innovation. At the same time, we must consider the role of government in driving economic initiatives.

The role of government is to ensure every potential “seed” is sown in the right soil to allow it the best chance to germinate and grow creativity.

While there is no doubt that government should be sweating the big stuff – driving fundamental research and development and the necessary regulatory frameworks – a less interventionist approach on the small stuff would probably serve Singapore well.

We are referring here to the incremental improvements to apps in social media or in the case of finance, robo-advisors, which provide automated, algorithm-based investment advice.

There is increasing evidence that incremental improvements is best left to free enterprise, private capital and entrepreneurs in true laissez-faire fashion. Market forces should be allowed to prevail to ensure the survival of the fittest and that the economy is more productive in the long run.

Seeds of creativity

In the 1980s, two of the leading technology corridors in the United States were California’s Silicon Valley and Massachusetts’ Route 128, both located in prime hubs of science and technology education, entrepreneurship and innovation.

One of them – Route 128 – doesn’t exist anymore, while Silicon Valley continues to flourish.

googleWhat is behind Silicon Valley’s success?The reasons for this are discussed eloquently by AnnaLee Saxenian in her book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128. She argues that Silicon Valley followed the path of encouraging and nurturing individual entrepreneurialism, competition, collaboration, innovation and informality. On the other hand, Route 128 carried the baggage of mass-production models and hierarchical management structures, and adhered to the theory of the firm as only a diehard bureaucrat or micro-economist would.

The true seeds of creativity lie in our younger generation who require the right educational setting and social environment. The role of government is to ensure every potential “seed” is sown in the right soil to allow it the best chance to germinate and grow creativity.

There are several ways to achieve creativity – by providing equal educational experiences for all children where enrichment activities are given within the school and available to all. Society must also adapt to celebrate creativity over conformity, learning over success and failure, and weighing expected costs against expected benefits. To push the markers out of bounds a little, is it also possible that the resulting personal asset-liability management needs from a 30-year HDB mortgage, while admirable in the context of home ownership, could perhaps stifle the creative juices of a young entrepreneur?

In the United States, government funding was and still is important in contributing to the development and success of science and technology hubs, spin-off technologies and commercially viable products. Case in point: roughly 86 percent of Massachusetts Institute of Technology’s (MIT) total research expenditure of US$1.6 billion in 2015 derives from Federal sources of funding.

Part of the reason is that the nature of capital is different. Government funding tends to be patient and long-lived. Its value is as a means to solving major science and technology problems that primarily benefit society, with the potential of a commercializable product at the end of a very long, windy road as a secondary outcome. Private capital, on the other hand, is impatient given the ultimate objective of private investors to quickly realize a high return on their investment.

Given one accepts this capital separation, it becomes clear that the error many governments are likely to commit stems from the belief that they, like Steve Jobs, can predict the future by inventing it.

The key to innovation success is threefold: have the resilience to change; inculcate the mind-set to innovate and succeed in a highly disruptive world; and adopt the need to constantly question the status quo. These are almost necessary conditions for truly disruptive jumps and “Eureka” moments to occur, but it is a line of thinking that is often alien to many governments.

Tools for talent

ThinkAloud4A government’s positive role is clearly one that provides the necessary ingredients and tools for talent, innovation and entrepreneurialism to thrive. It is less about leading with policies and prescriptions on innovation. A formulaic and standardized paint-by-numbers DIY kit does not create masterpieces.

Here in Singapore one key disruptive force that has the potential to undermine a pillar of the domestic economy is financial technology, or FinTech. According to a recent report, close to US$500 billion (approximately 5 percent) in annual global financial services industry revenues are at risk of disruption by technology-driven firms engaged in FinTech.

PwC’s latest Global FinTech Report notes that within the next five years, more than 20 percent of financial services business will be at risk from the FinTech industry, with consumer banking and payments the most likely to be disrupted first.

The good news for traditional financial institutions is that only a small fraction of that has actually been realised. Indeed, many financial institutions are now starting their own FinTech initiatives. DBS, Citigroup and MetLife have their globally-celebrated digital innovation centres and laboratories here, while some also have launched hackathons, incubators and accelerators to speed up the time-to-market for FinTech products.

Our prediction is that innovation labs of larger or better financial institutions will eventually crowd out or buy out the technology start-ups, along with their designer hoodies and faded jeans, per regulatory and consumer demands; just as some of us would feel more comfortable buying a premium electric car or self-driving vehicle from BMW, Mercedes or Caltech’s Jet Propulsion Lab (recall NASA’s fully battery-powered Lunar Roving Vehicle from the early 70’s?) over a Tesla or GoogleCar.

Considering the above experience, it is clear that different segments of society, business and government will likely need to have different priorities even as they focus on marching towards the same goal in the future economy. Each taking calculated risks and making errors along the way is okay, as long as they are dealt with maturely.

The key is for each to constantly evaluate and challenge the status quo. The dynamic nature of active constructive criticism and/or examination between government, academics, practitioners and opinion leaders is a hallmark of entrepreneurialism. This is even more important when steering the ship in the current choppy economic waters – even though coordinated on the bridge, each station has to sweat a different color.

Joseph Cherian is Practice Professor of Finance and Director of the Centre for Asset Management Research and Investments (CAMRI) at the National University of Singapore (NUS) Business School. Dr Lee Kang Hoe is Senior Consultant at Gleneagles’ Asian American Liver Centre who has a keen interest in medical education, particularly the use of technology and innovation in ICU and palliative care.

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