Open to all: How an innovation prize policy could yield results

Approach of rewarding results gives people strong motivation to work on challenges

Faran Mahmood November 22, 2015

ISLAMABAD: In recent debates on sustainable development goals, the strategy of ‘inclusive growth’ has been hailed as a panacea to global problems like poverty and hunger.

However, as most policymakers dabble in the lexicon of sustainable development, no one is presenting the policy blueprint for a remedial action plan based on a sound economic model.

The strategy for sustainable development involves decoupling of economic development from environment degradation. This is only possible if large investments are made in clean production technologies and green energy. But the question is; what policies would lead to such investments?

The scope of the problem

Globally, the industrial sector often uses efficiency-focused strategies to improve revenues. Producers are not willing to invest in a completely new technology which does not lead to significant improvements in efficiencies. They are continuously looking for standardised and automated production processes based on economies of scale - leading to efficiencies and cutting of costs by substituting labour.

Goods become cheaper, but at the cost of displacing labour with a surge in unemployed population. The lower price can increase demand in the short run but the decrease in prospects of employment for the labour force itself reduces local demand, as their average purchasing power is affected.

Also, from the environmental perspective – in any market cycle, from manufacturing to shipping to distribution and sales – the largest contributor of carbon footprint is usually the consumer itself. This is because manufacturing, shipping and distribution are done in bulk, so carbon foot print per unit product is very low as compared to the foot print when a consumer visits a retail store in his car.

This shows that the scope of problem is not only economic or ecological but has a social element as well. In fact, our social habits and mental models have helped sustain a US-style high mass consumption economy – a model which is not feasible for a planet with finite resources.

The hope for disrupting innovation

Policymakers need to analyse the complex relationships between 4Es i.e. economy, energy, environment, and employment, and how appropriate policy measures can be taken for sustainable development on a mutual-gains basis.

Policies are needed that act as a leverage to translate the present industrial economies towards a disrupting innovation one – to cater for the changing consumer taste and increasing the demand for new products. However, the bounded rationality and self-interest of consumer can yield to radically different outcomes in presence of various policy instruments such as carbon taxes.

Historically, such disruptive innovations come from new market players and entrepreneurs. They address the low-end of value network and displace not only large companies completely but also change mental models by creating new eco-systems such as iPods and iTunes replacing the Walkman phenomenon. Disruptive innovations often compromise on traditional ‘performance metrics’ such as industrial efficiencies, but they address some other variable so well that they can make a large corporation struggle.

Innovation prize policy – a new policy tool

Recently, there has been a strong increase in the use of ex-anti prize competitions to stimulate innovation. In an innovation prize, the government shares details of a complex problem with the public and seeks an innovative solution from the crowd with a promise of big prize purse for the best concept.

Innovation prizes are a proven tool which can provide incentives to solve key social problems and development challenges especially in areas where market signals are quite weak.

The prize-based approach of rewarding results gives people a strong motivation to work on challenges that have the best chance of success.

Teams tend to focus on developing a product, rather than pursuing ancillary goals, such as publishing journal articles. An appropriately designed prize can help ensure that the results of innovation are shared in public domain and the diffusion of technology is very quick.

Prizes are instrumental in providing investment leverage by attracting research and development (R&D) investments from the private sector and the crowd, which can far exceed the actual cash purse.

Being result-based financing, prizes set targets which are very objective and should be able to focus the public’s attention on a problem. Big prizes, such as the X-Prize, offer good incentives, but the R&D investments by the crowd and private sector typically far exceed the value of the prize for example, the teams for suborbital spaceflight X-prize collectively spent over $100 million for a $10 million purse.

The writer is a Cambridge graduate and is working as a management consultant

Published in The Express Tribune, November 23rd,  2015.

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