Beyond economic stability: Micro foundations for economic growth
Dr Densil A. Williams, Contributor
While there can be no disagreement that macroeconomic stability is necessary for economic growth, equally, it must be stressed that it is not a sufficient condition for economic growth. The Harvard economist-turned-strategist, Michael Porter, puts it well in his contribution to the World Economic Forum's Global Competitiveness Report.
Porter argued correctly that while stable political, legal and social institutions and macroeconomic policies create the potential for improving national prosperity, wealth is really created at the microeconomic level where firms produce valuable goods and services using efficient methods.
This is not happening fast enough in Jamaica. This is the major challenge facing the Jamaican economy. If we should restate our development problem, one could not disagree with Alvin Wint, professor of international business at the University of the West Indies, Mona, that it is the inadequacy of internationally competitive enterprises. Indeed, the productivity of any country is really a function of the productivity of the companies that operate in that economy whether they are locally owned or subsidiaries of multinational enterprises from abroad. Jamaican companies must upgrade their competitive strategies if the country is to attain successful economic growth and development.
Upgrading Competitive Strategies
The fundamental reason behind the low productivity in Jamaican firms and in the broader society is the fear of being innovative. By world standards, Jamaican companies are small and in some cases nano, as Ambassador Richard Bernal describes them. This limitation in size has forced many firms to view innovation as beyond their reach and so they compete merely on inherited endowments rather than advantages that arise from efficient and unique products and processes. This fear of innovation has hindered the productivity of Jamaican companies and by extension, the productivity of the Jamaican economy.
Jamaican companies can be more innovative if they do have a better understanding of the concept and refrain from seeing it (innovation) as the domain of large and multinational firms. In other words, they will have to demystify the concept of innovation.
Myths of Innovation
Innovation is possible in all firms. It is not the domain of a specific group of individuals or firms. Getting the right environment and the right human capital in place is condition for mastering innovation. A starting point is to first understand and debunk the myths surrounding innovation. According to Sawhney and Wolcott, experts in the field of innovation from the Kellogs School of Management, there are a number of myths that surround innovation. These include but not limited to the idea that: mistakes are costly, innovation is about creating new things, innovation is a radical departure from the past, you need to let people loose to innovate and, you need more new ideas, among others. However, when these issues are examined in a serious way, the reality does not support these claims.
Actually, this is why they are considered myths in the first place. The perpetuation of these myths over the many years has prevented small companies from thinking seriously about innovation and thus limited their ability to improve their own productivity. Understanding the reality of how innovation takes place will aid firms in overcoming the innovation phobia and eventually improve their productivity.
Debunking the Innovation Myth - The Reality
It is not true that when we speak of innovation we are always referring to a "Thomas Edison" moment. Coffee was not invented by Starbucks but its innovation came in the form of its customer experience. Firms will have to think broadly about their entire business systems when trying to improve their productivity. The business system does not only focus on the product, but it also looks at customer segments, needs and operating processes and capabilities. It is from all of these areas that opportunities for innovation will come.
Innovation rarely happens in the radical manner that most people think or expect. The reality is that innovation combines elements from the past. It does not happen in a vacuum. The past is an important source of inspiration for innovation. If we take telephone network system which transmits data as an example, we will recognise that it did piggyback on the rail system and the internet then use these networks to transmit data.
Making mistakes is also good for innovation. The saying, "you will miss 100 per cent of the targets you did not attempt" is quite apt. In essence, if you do not attempt something, you will not have a chance to be successful. Our risk-averse culture in Jamaica is inimical to innovation. We denigrate persons who make genuine mistakes. In a small, closed society where everyone knows each other, a negative attitude towards mistake makes people become afraid of doing something new. What we need to do is to minimise the cost of mistakes rather than trying to prevent mistakes from happening. Successful innovations make a lot of mistakes, but they generally happen early in the game when it is cheaper to do so. The greatest risk is not making the mistakes, but not trying.
The common belief that making people go wild is good for innovation is also a dangerous thing. It is important to give employees the latitude to think, but when those ideas are born, they must be given structure within which to develop. This is critical especially if the firm is not a naturally innovative organisation and is highly bureaucratic with lots of silos. Jamaican firms will have to put structures into place that can encourage their workers to develop in a meaningful way, the ideas that they generate. This may include committees that provide oversight for rapid approval of funding for innovative capital-intensive projects.
The myths that have surrounded innovation have, for a long time, held back productivity and competitiveness of Jamaican firms and by extension the Jamaican economy. The realities of the innovation process (mistakes are good, there are many paths to innovation, the past is a critical source for innovation, enable people through structure and processes etc.) as espoused by Sawhney and Wolcott must be trumpeted. These realities show that innovation is possible.
Jamaican firms do not have to develop a phobia towards innovation, but instead, embrace it as an important aspect of their quest towards improved productivity and competitiveness. This will also augur well for the Jamaican economy as more firms will be able to improve their productivity and as such improve the standard of living of the citizenry of the country.
If Jamaica is to achieve sustained economic growth and development, we will have to start paying more attention to the micro foundations of the economy which is where wealth is actually created. Having the right macroeconomic environment is necessary but not sufficient for growth and improved competitiveness of the Jamaican economy.
Densil A. Williams is a lecturer of international business in the Department of Management Studies at UWI, Mona. He may be contacted at email@example.com