x Abu Dhabi, UAE Thursday 20 July 2017

History shows how governments chart a course for growth

Innovation does not translate into economic growth on its own.

Abu Dhabi has recognised that innovation does not translate into economic growth on its own. Governments must help it along. Governments must learn the alchemy of policy, institutions, and governmental support that will keep an economy growing; Abu Dhabi's leaders have done so. So what better place than Abu Dhabi for the recent Aspen Innovation Summit? I was at this week's event, which brought together policy-makers and innovators from all over the world and helped to provide templates for every nation that is serious about development.

Governments play a role in promoting the transfer of technologies from one sector to another. Governments must foster the connections between companies and industries. Governments can promote a healthy diversification in product innovation, and encourage industries and universities to link to each other to their own advantage. 

Most crucially, the Government of the UAE is improving its image in the world market as a place to do business, invest, work, live and spend. No business can create this appeal on its own. Yes, governments must know when to get out of the way but at the beginning they must help businesses get on their way to growth. Abu Dhabi is showing countries that want to get richer how to go about it.

To start with, every country should have an innovation strategy. A well-designed vision can do wonders for a country's development without damaging the vibrancy of free markets; one of the best examples is Singapore. They decided that they wanted to be the world's leader in life sciences so they invested in the educational resources to do it. And it has worked. Soon they will have 7,000 PhD graduates in disciplines as diverse as bio-engineering and computational neuroscience. To give you some idea of what an achievement that is, the US has 10,000 PhDs. A country with roughly the same population as the US state of Colorado can now compete with the US as a whole.

Of course, you might say that this is just common sense. No country has a monopoly on creative, talented people. But at the same time, in a global marketplace, no country has a right to keep those people. 

The creative, talented and entrepreneurial are those who, if given a chance, will travel in search of better opportunities if their own country cannot provide them. Look at the brain-drain in the 1970s from Britain or the sad departure of so many of Pakistan's most talented. The flow of labour and talent is not moved by patriotism. Just ask Poland.

Countries cannot keep the talent they have and attract the talent they don't without a strategy to do so. This, surely, is one of the central lessons of economic history. Rich countries didn't get rich because they traded their way from nothing. Their governments made conscious choices to support the economy with the right mix of institutions and policies. Think about Britain's decision to move away from protectionism and closer to free trade in the 19th century. Think of the United States's decision in the early 20th century to establish a Federal Reserve System to contain financial panics, which was then a controversial step.

The wider lesson is that countries who have grown rich have also developed in a deliberate, targeted way. Countries supported and protected those activities that bought their people increasing returns. To become rich themselves, or to maintain their wealth, the countries coming of age in the next few decades must learn these historical and economic lessons. The United Arab Emirates has shown how to do so today.

Every historical example of successful economic growth has relied on certain institutions and public policies. For one, you cannot develop entrepreneurship simply with "less" government intervention. Of course it's true that bad policy can stifle growth with irresponsible or burdensome regulations. But history shows that when government gets policy right, it helps an economy grow. And institutions and policies always matter in technological and economic development.

Each country will have its own advantages and priorities to consider but Abu Dhabi provides a model of a process and a framework that each nation can apply.

Azeem Ibrahim is a research scholar at the John F Kennedy School of Government at Harvard University. He is also a member of the Board of Directors at the Institute for Social Policy and Understanding