Economic Freedom, Creativity and Development

Yusuf MansurNovember 2013

“Human Development, as an approach, is concerned with what I take to be the basic development idea: namely, advancing the richness of human life, rather than the richness of the economy in which human beings live, which is only a part of it.”

Amartya Sen

Development

Definition

Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.

James Gwartney and Robert Lawson et al.

Economic Freedom of the World: 1996 Annual Report

Economic Freedom

Economic Freedom is for the protection of political rights, national security, and property rights. Among rights is intellectual property rights (IPRs).

Economic Freedom is also about freedom of exchange = Ease of Doing Business in a stable economy and a competitive environment.

Creativity: The process through which ideas are generated, connected and transformed into valued products.

Creative Economy: Arts and film; Sciences; Technology; Sports

Creativity

Scientific Creativity

Cultural Creativity

Economic Creativity

Technological Creativity

According to the UNCTAD Creative Economy Report 2010, creative industries are defined as: • The cycles of creation, production and distribution of goods and

services that utilize creativity and intellectual capital as main inputs• A set of knowledge-based activities, focused on but not limited to

arts, that potentially generate revenues from trade and IPRs• Tangible products and intangible intellectual or artistic services

that have creative content, economic value and market orientation• Intersect the artisan, services and industrial sectors.

The contemporary creative economy cuts across the arts, culture, industry, business and technology.

Forms of creativity

Source: “Creative Economy Report 2010.” UNDP and UNCTAD. 2010.

Creative Industries

Creative and innovative economies provide a country with an edge in economic development and competitiveness. Creative Industries, if properly nourished, protected and cultivated, could endow Jordan with a powerful

Competitive Advantage

Creative Industries

Economic Output and Global Creativity Index

Source: Florida, Richard. “Greater Competitiveness Does Not Have to Mean Greater Inequality”. 11 Oct 2011. http://www.theatlanticcities.com/jobs-and-economy/2011/10/greater-competitiveness-does-not-greater-inequality/230/

The challenge of building an operational modelof the Creative Economy

Innovation: The implementation of a better, superior set of solutions that satisfies growing market needs/requirements.

Comes in these forms:• Making additional changes to existing products (greater

competition)• Introducing new products (new segments)• Developing a product in a way that changes doing business

or production

Encouraging Innovation

Four C’s, in a single country or different markets: Cost, Convenience, Caliber, Creative destruction

Major Indicators

Rank

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

(134 Countries)

(133 Countries)

(139 Countries)

(142 Countries)

(144 Countries)

(148 Countries)

Basic Requirement 47 46 57 61 66 76

 

Institutions 27 25 41 45 42 38

Infrastructure 44 42 61 59 60 54

Macroeconomic Environment 111 105 103 97 112 138

Health and Basic Education 56 57 65 72 56 65

Efficiency Enhancers 63 66 73 78 70 70

 

Higher Education and Training 42 42 57 59 55 56

Market Efficiency 44 43 46 54 44 39

Labor Market Efficiency 93 106 112 107 101 101

Financial Market Development 48 52 54 65 65 79

Technological Readiness 57 61 62 59 69 70

Market Size 88 82 84 88 84 87

Innovation & Sophistication Factors 47 51 65 70 52 51

 Business Environment Development 47 49 66 68 55 47

Innovation 51 59 68 77 57 53

Competitiveness Ranking

Source: World Economic Forum, Global Competitiveness report 2008-2013, http://www.weforum.org

Major Indicators 2009(130 countries)

2010(132 Countries)

2011(125 Countries)

2012(141 countries)

2013(142 Countries)

Overall ranking 55 58 41 56 61

Institutions 35 43 62 57 59Human Capital & Research 55 31 50 49 53Infrastructure 58 60 96 97 90Market Sophistications 61 82 44 85 65Business Sophistications 41 57 77 116 47Knowledge & Technology Outputs

57 89 77 83 75

Creative Outputs - 76 10 24 59

Source: Global Innovation Report, 2009-2013, www.globalinnovationindex.org

Innovation Index Ranking

Doing Business Report Ranking

Major Indicators 2008 2009 2010 2011 2012 2013

Ease of Doing Business 80 101 100 111 96 106

Starting a Business 133 119 125 127 95 103Dealing with Construction Permits

71 116 92 92 93 102

Employing Workers 45 48 51 N/A 36 38

Registering Property 109 105 106 106 101 102

Getting Credit 84 125 127 128 150 167

Protecting Investors 107 114 119 120 122 128

Paying Taxes 19 22 26 29 21 35

Trading Across Borders 59 77 71 77 58 52

Enforcing Contracts 128 129 124 129 130 129

Closing a Business 87 96 96 98 104 112

Participating Countries 178 181 183 183 183 185

Source: Doing Business Report, 2011, World Bank Group

Source: Economic Freedom of the World, Annual report 2012

Economic Freedom

Year Summary Rating & Rank Gov. Size

Legal Structure & Security of

Property RightsSound Money

Freedom to Trade

InternationallyRegulation

2000 34 68 38 7 62 43

2005 26 53 42 37 40 25

2006 45 97 47 44 26 35

2007 33 83 44 41 25 32

2008 40 87 35 58 22 24

2009 50 104 41 36 44 54

2010 20 14 49 43 44 37

2011 16 9 47 46 39 36

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Factor Conditions

Strategy, Structure &

Rivalry

Demand Conditions

Clusters & Clustering

Government

Mapping Creativeity Competitiveness

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Demand Conditions• A slight majority of demand originates locally • In all industries, the majority of demand is patterned except for Books

and Press in which half of the demand is patterned • Cyclical demand is the prevalent type of demand in all the industries

except in Performance and Celebration• Price is the main factor affecting demand in all the industries except in

Performance and Celebration in which trends is the main factor • Quality is the driving factor in the pricing of creative services and products

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Demand Conditions

• Customers are not adequately knowledgeable of industry trends

• The Arab Awakening has increased demand • Jordan is capable of handling increased demand• The Arab Awakening has changed the work culture and

environment• The nature of the creative content has changed with the

advent of the Arab Awakening • The quality and sophistication of the creative content has

increased

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Factor Conditions

• Equipment is new, yet lacking in sophistication• Focus is mainly on a few small projects• Projects are small in size and scope • A majority views the global market as open to their activities• Global connectivity is high• Regional markets are open • However, connectivity to global markets is higher than

connectivity to regional markets • Medium to low availability of quality human resources • Medium availability of technology

Factor Conditions• ICT usage penetration is limited by high computer prices and

mobile tariffs in relation to average income• Internet penetration is only at 38%

– Internet penetration in Qatar and the UAE is at 81% and 77% respectively

• Low levels of e-commerce– Mainly due to SMEs, especially small family run businesses, not

utilizing IT

• Knowledge content of ICT applications is unsophisticated (a by-product of the lack of sophisticated demand)

Factor Conditions• Jordan possesses a significant entrepreneurial class• Poor technology and science basis• Low investment in R&D

– Equates to 0.3% of GDP • R&D is conducted by 10 public universities, 12 private universities, and 12

scientific centers• R&D governance is split between the Ministry of Higher Education and the

Higher Council for Scientific Research• Jordan possesses a strong human capital base, but institutional

weaknesses are constraints on investors• The human capital base includes:

– Substantial high skilled diaspora– Large numbers of engineers – IT proficient younger generation

Clusters and ClusteringClusters• Governments must invent various ways to encourage firms and

individuals to utilize innovation in ways that creates economic growth in the country. A lot of which can be implemented by “Clusters”

• Clusters focus on improving productivity in both emerging and advanced economies

Examples: Silicon Valley, Boston’s Route 128, Taiwan’s Hsinchu Park, South Korea’s Daedeok Science Town are all

Clusters proved successful in various economies:• The achievements of Silicon Valley are more of a function of a unique

culture than a government policy.

• South Korea, and Taiwan government’s interventions, like planning and subsidies and state ownership aren’t found in many countries.

• Though the government role in innovation is very important, there is evidence in the various innovation successes some succeeded w/o state backing or a uniquely creative business culture. Our own Samih Toukan and Hussam Khoury, who created Maktoob, combined Jordan’s comparative advantage in creative talent and low cost with the quality and convenience of Dubai’s infrastructure and business networks.

Clusters and Clustering

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Clusters & Clustering• In all industries except in the Audio-Visual and Interactive Media, less than

15% of the stakeholders have agreements in place with supporting industries

• Between 31%-44% of stakeholders in all industries utilize services and products from supporting industries

• Those stakeholders using products and services from supporting industries, use them frequently

• Supporting industries are reliable • Relationships with suppliers from other industries are long term • The large majority of relationships are project based • Suppliers are relatively reliable in terms of quality consistency• The majority of suppliers are local

• R&D institutions are too isolated to satisfy productive needs of the economy

• University-industry collaboration in Jordan is low– Scored as 35.8 (from 10-70 scale) in the Global

Innovation Index– Tunisia scored 51.8, while Morocco scored 34.9

Clusters & Clustering

R&D: Certain activities that a business chooses to conduct with the intention of making a discovery that can either lead to the development of new products or procedures, or to improve an existing product or procedures.

Global R&D spending grew at an average annual rate of 7% Between 1999 and 2009, accelerating to 8% during the last five years.

During the entire period, R&D spending grew significantly faster than global output, reflecting both increasing government support and a rising share of technology-intensive industries in global production and trade

Research and Development (R&D)

Global R&DAbout R&D Spending• Within Asia, R&D spending in China grew at an astounding 20% annual pace.

Spending on R&D also grew rapidly – about 10% annually – in South Korea. • The US is the leader country in R&D investment, in 2009 the US spent an estimated

$400 billion, higher than China, Japan, and Germany combined. • R&D spending grew by 4% in Japan, 5% in the US, and roughly 6% in Europe. • The business sector is the predominant performer and funder of R&D investment.

In 2009, business accounted for 75% of R&D funding in Japan, 73% in South Korea, 72% in China, 67% in Germany, and 60% in the US.

• Multinational companies, whether headquartered in the US or elsewhere, accounted for about 84% of private (non-bank) R&D investment in the US in 2009, about the same as a decade earlier. And US multinationals still locate about 84% of their R&D activities in the US, often in innovation clusters around research universities.

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Government• The majority say there are no policy restrictions on new entry • The government is not responsive to stakeholders’ needs • Government agreements with other countries do slightly harm

stakeholders• Monopolistic practices are apparent and harm businesses• It is difficult to find both local and regional investors• The regulator limits the growth of companies• Customs are very high and higher than those of surrounding

countries • Government legislation and procedures do not help exports

reach their potential• Intellectual property rights are not protected• Problems faced with regard to IPR are not being solved

• Jordan fails to attract high value added FDI – Small market size– Instability of the region– Weak and inefficient institutional environment– Government bureaucracy

• FDI inflows are mainly in low value added and no-tradable sectors– Construction– Textiles– Basic Minerals

• This led to 55% of jobs created in the private sector in 2000-2010 going to foreign workers

Government

Examples:In 1714, 7 years after one of the worst naval accidents in the history of Britain’s Royal Navy, the UK launched the Longitude Prize, a £20,000 reward (US$5 million today) for developing a simple and practical method to determine a Ship’s Longitude reliably.

In 1795, the French gov. with an army debilitated more by hunger than enemies, offered prizes to develop an effective food-preservation method. After experimenting for 15 years, Nicolas Appert won the prize with his ground breaking technique for Preserving Food in Glass Jars. Later, England’s Peter Durand built upon Appert’s method by using Metal Cans.

In 2008 the UAE created the “Zayed Future Energy Prize”. An annual award for achievement in developing and Deploying Renewable Energy And Sustainable Technologies. Since its launch, nearly $10 million has been awarded for innovations that have changed the lives of people worldwide.

Government: Role of Prizes

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Strategy, Structure, & Rivalry• The main competitors to Jordan are Lebanon, United Arab

Emirates (UAE) and Egypt• Price is the most important factor in being competitive with

regional competitors• The majority of stakeholders are not members of professional

associations• Stakeholders receive minimal support from professional

associations • Information on industry trends is widely accessible • Insufficient finance and limited markets are the main factors

affecting demand

What to do?• Create a Comprehensive Policy on Creativity and Innovation • Promote Industry and Academic Linkages • Promote R&D. • Provide Tax Credits for R&D • Ease Credit Availability• Promote an Entrepreneurial, Innovative Environment: Increased government

support for incubators, coordinate among them, develop entrepreneurship as an academic subject, invest in science and technology education, encourage risk taking, develop an ‘entrepreneurship cluster zone’, greater number of venture capital funds, support value chains and cluster units

• Utilize ICT Capabilities: Provide access to international databases, develop ‘entrepreneur cafes’, create centers of R&D, connect the nation’s SMEs.

• Increase Government Spending and Funds: divert some foreign aid to R&D activities, promote partnerships between foreign firms and Jordanian firms, in terms of R&D, invest in new products or services to be jointly produced by foreign and Jordanian firms, Establish an investment fund, to be paid for with funds from the private sector, offer loans for R&D purposes from the public sector at low interest, government could take the 1% tax it levies on shareholding companies, for R&D purposes, and invest it in more applied research

Thank you