Two truths about innovation: it directly contributes to economic development positively. However, innovation can also inhibit equitable development, at least in the short term.
How does innovation lead to development? We create better products, put them on the market, and if they appeal to consumers, they will adopt them to substitute older, inefficient products. Competition results as firms, new and old, fight for larger market shares by developing better products at lower cost. The aggregate quality of products on the market, offered at lower prices, is increased as a result. While improving the quality of life of consumers, such dynamics in the market lead to more vibrant, expanding, profitable industry. Hence economic development.
But that is only once side of the coin. Things work like this in industrialised economies that have achieved a certain standard of living, and operate transparent markets and public institutions. The picture is quite different developing nations, where innovation can be exclusionary.
How can innovation be exclusionary? Innovative activity requires a skilled workforce. It requires sophisticated consumers who are also in a sense, highly skilled. It also requires consumers who have sufficient discretionary income to engage in the market, to make choices between products on offer. In a country with big wage inequalities, a large swath of the population is incapable of engaging in the ‘mainstream’ market both as producers and consumers. Therefore as the mainstream, ‘blue-chip’, white-collar, high-tech urban market develops and manifests the market dynamics discussed above, certain consumers are driven further into poverty and exclusion through their non-participation in this market.
Concerted effort must be made to draw these consumers back into the mainstream, to give them purchasing (and therefore bargaining) power. This means education, healthcare, water and sanitation, energy, transport and telecommunication infrastructure, etc. Such effort is incredibly arduous and costly, and ideally, that is the work of governments, their inefficiencies notwithstanding. Nevertheless, the private sector, local communities and non-profit organisations have found a different way to slowly reverse this exclusion—through inclusive innovation.
Inclusive innovation is developed with the sole objective of creating sustainable social inclusion. Such innovations are ground breaking in the particular local context (and internationally in some cases), as they substitute or extend conventional products to these marginalised users enabling them to engage in the mainstream economy. Inclusive innovations are typically low-cost, bare-boned, easy to use, are easily reparable, use local materials, and are usually developed in conjunction with local communities to address local needs. Therefore they are inherently demand-oriented. Ramesh Mashelkar aptly referred to inclusive innovation as “more for less for more“. Several terms have been used to refer to these kinds of innovations: pro-poor innovation (a term I highly-dislike because it ex-ante presumes that such innovations only diffuse among the poor), grassroots innovation, social innovation, frugal innovation, social entrepreneurship, appropriate technology, etc targeting the so-called ‘bottom of the pyramid’ or the ‘bottom billion’.
The Indian-Pakistani Jugaad movement is one widely acclaimed example of a system stimulating the development and commercialisation of such products and services. Check here for a few examples. There’s also the Chinese Shanzhaiism, referred to as “bandit” or “guerrilla” innovation due to intellectual property infringement (of mostly Western knowledge), which also offers a different brand of inclusive innovation (good or bad…be the judge). Other examples include branchless banking and money transfer systems such as Kenya’s M-Pesa, and the micro-finance business models such as Bangladeshi revolutionary Grameen Movement, and innovation in household energy (e.g. biogas and biomass), among others.
Large multi-national entreprises have also jumped into the frugal innovation bandwagon, some to capitalise on the ‘fortune at the bottom of the pyramid’, others as philanthropic initiatives. There’s Siemens with their Osram‘s off-grid lighting systems, General Electric’s frugal healthcare innovation, Tata Motors’ Tata Nano, Dell’s social innovation challenge, among many others.
This kind of innovation has been ignored in academic literature and policy makers for a long time, maybe due to it’s perceived marginal measurable effects on the economy. Thankfully there’s a small, but growing community of scholars and practitioners interested in understanding the dynamics of inclusive innovation further.