How to increase level of innovative economy in Ukraine?

Author : Bohdan Danylyshyn

Source : 112 Ukraine

There are many talks that Ukraine should build an innovative economy. But no real actions, as it is evidenced by the rating results. Why it happens?
22:47, 27 January 2020

Open source

We rank the 56th out of 60!

As always, on the eve of the World Economic Forum in Davos, Bloomberg published a fresh ranking of economic innovation. Ukraine in it fell by three positions in comparison with last year’s rating, taking 56th position out of 60 participants.

There are many talks that Ukraine should build an innovative economy. But no real actions, as it is evidenced by the rating results. Why does it happen? In this article, I will try to dispel some popular myths and determine why Ukraine should start moving up in the ranking of innovative economies.

One of the reasons restraining the innovative development of our country, as is commonly believed, is the lack of investment in the innovation sector. At first glance, it is difficult to disagree with the statement that we need targeted state investments in zones of superfast growth.

But the question arises: who will determine what is a "zone of superfast growth" and what is not? For example, Apple before the return of Steve Jobs and the creation of the iPhone was stagnant and frankly gave up the position of a niche company, and now the company's annual income is greater than the GDP of Ukraine (in 2019, Apple’s revenue, according to preliminary estimates, amounted to $ 260 billion, and Ukraine’s GDP, according to the World Economic Outlook from the IMF, should be $ 150 billion).

On the other hand, for example, WorldCom was a thriving and fast-growing company. But it ended its existence with the third-largest bankruptcy loss in history! In fact, investment is the art of separating Apple from WorldCom. It is likely that investment should be done by private companies and individuals who risk their money, rather than officials who risk public money. And officials must create the conditions and infrastructure to promote innovative development.

It is important to understand that investments do not generate technological innovations in the absence of interest from entrepreneurs and workers. Investments would be simply spent to increase existing production, marketing and so on if there is no inclination for the "disruptive innovation" that Jobs had.

A comparative example is Nokia. I must say right away that the Nokia 1980s and Nokia 2010s are different stories and different investments. In the 1980s, they developed technology that already existed, and as a result, with “supportive” innovations achieved commercial success and calmed down. And Jobs made a “blast” of the market, first with an iPod, then with an iPhone. Because he always wanted to change the world. And at Nokia, engineers lost power to the financiers. And the result was poor.

Another superficial judgment, which has become widespread, is that in order for Ukraine to receive an innovative economy, it is necessary to ensure investment in inventions. But in the industry, it is not so important who first invented a thing - for example, the graphical user interface with the frame manager of windows was invented in the Xerox company.

But Microsoft and Apple made it commercial technology - I mean Windows. Jobs drew attention to the developments that existed before him and were not used on the scale that he believed it would be worth using them, and, applying them, created a world hit. On the basis of which the global application industry arose.

Or such an example - we are actively using the social network Facebook. But this is far from the first social network. However, Zuckerberg far surpassed all his competitors in this format. The important thing is not who first invented or made, but who first embodied this in commercial success - we are talking about business, not about pure inventions! And therefore, the "explosion" of the market, in a commercial sense, must be evaluated, paying attention to all the consequences of this innovation for commerce in the world.

But back to the investment. So, it is better to invest not in those who were the first to invent, but in those who improved what was already invented. Even faster in those who are going to maintain a constant process of product change and innovation. But this cannot be known in advance (all the more so, to know whether these innovations will be in demand by the market).

This is where the risks of venture capitalists lie. Even for private investors who risk their money, it is difficult to make the right investment choice. What can we expect from officials who risk other people's money (but really do not risk anything)?

In general, money is not the main thing. At the dawn of my career (at the time of the collapse of the USSR and the emergence of independent Ukraine), I drew attention to the following: engineers and scientists differed in a wide range and depth of knowledge, but few knew about the commercialization of scientific developments and about production - the conversion of technology into a product or service useful to the consumer.

Related: Ministry of Economic Development to publish inflation data monthly

Yes, now engineers and scientists are more prepared in these matters, but the business environment that has developed in Ukraine excludes the transition of engineers to entrepreneurs. The main thing in production is understanding what exactly needs to be done: knowing the needs of the market, anticipating these needs, and even shaping these needs. And also the choice of the market where this product will have massive demand.

Ukraine’s GDP is about 0.3% of the world’s, this is an extremely small market, on which serious competence in the field of product creation is rarely formed. And business is developing rapidly where there is a mass client. This is what our innovators and Ukrainian officials need to understand — we need to focus on high-margin foreign markets.

So what is the role of the state? We need to bet on two areas - state projects and an entrepreneurial source that is vibrant. The state’s task is to create national technological initiatives and centers (this is real in the countries of Eastern Europe, says the example of Belarus).

Having launched this process, it is necessary to attract innovative entrepreneurs in order to systematically transfer the management of these initiatives into the hands of those who should manage them. The task of entrepreneurs is to create new projects, travel the world and study, seek buyers and sell their products to the international market. An emphasis on these two areas should be the first step that will help Ukraine rise to a higher place in the ranking of innovative economies.

And further. In 1998, Michael Dell, a billionaire, and successful IT technology entrepreneur learned that Steve Jobs had returned to Apple. Then Dell said that it is unlikely that Jobs will be able to do something in this company, and it would be better for Apple to close and give money to shareholders. In 2004, when Mark Zuckerberg tried to create a new social network, it seemed strange to analysts, because the My Space social network dominated the world then, the positions of which seemed unshakable.

But Jobs and Zuckerberg did not agree with the estimates of influential analysts because they intuitively understood that in technological progress no one knows how consumers will behave in the future. They never know what they want, but they always understand whether they want what they are shown. So, without asking the opinion of consumers, Jobs and Zuckerberg created their innovative products.

And consumers with their money (Apple) and their time (Facebook) voted for them. Both Jobs and Zuckerberg guessed the unmet human needs for technology gadgets and communication. And they won. These examples should inspire Ukrainian innovative entrepreneurs. Only such a business psychology will help to build an innovative economy in Ukraine.

Related: EU should not force Ukraine to choose between EU and Russia, - ex-president of European Economic and Social Union

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