The Digitization of Innovation and the Role of Advanced Human Capital

deployment of technologies. Digital technologies and new business models, such as platforms and e-commerce, allow self-employed and small producers, including food delivery, repair services, and passenger transportation, to trade goods and offer services that can help them grow and formalize, create better jobs, and raise incomes. To the extent that digitalization of government services helps to reduce the transaction costs of accessing these services, it may also incentivize formalization. On the other hand, automation within services could create new opportunities for data-driven business backed by large technology firms and potentially displace numerous small and medium enterprises.

Further analysis of the potential impacts of technology on these sectors is important because they employ the majority of the poor, who already face many hurdles in accessing better-quality jobs in the formal sector. Greater adoption of technologies requiring higher levels of cognitive, technical, and socioemotional skills could further deepen inequalities in the labor market, unless countervailing public policy measures are put in place. These include improving opportunities for better-quality preemployment education and skills training, massive reskilling of the existing workforce, as well as social protection for workers who are displaced from their jobs.

Another feature of South Asia is the low labor force participation rate of women. This low rate means that no matter how much human capital is accumulated by girls in their early and adolescent years, much of it remains underutilized and does not benefit either the country’s growth or the empowerment of women. How digital technologies will affect women’s labor force participation and empowerment depends on several factors. On the one hand, by enabling women to work from home, such technologies may help them to raise their income. On the other hand, lower levels of digital skills and limited access to devices and broadband can accentuate disparities between men and women, while confining women to the home may prevent broader social participation.

Although more analysis is essential to understanding the implications of the deployment of technologies in each South Asian country, especially their effects on equity, gender, and inclusion, it is also clear that South Asia needs to invest heavily in dynamic social protection systems and in adaptive reskilling of the population. It is impossible to predict exactly the future course of the economy and the sectoral reallocation of labor. But having in place the institutional mechanisms for protecting vulnerable populations is the best insurance against the backdrop of an uncertain future.

The national innovation system plays a crucial role in the application and deployment of technologies in the economy and society. It comprises many actors and has become increasingly complex. A recent conceptualization highlights the interaction of different components of the technical infrastructure, including information and communications

technology (ICT); the interplay of government, firms and entrepreneurs, research institutes and universities, and civil society and consumers; the role of finance and enabling regulations and policies; and the importance of human capital and knowledge and innovation networks (UNCTAD 2018). However, even this conceptualization does not adequately reflect the fact that the innovation system has become increasingly global as a result of international research programs and the globalization of knowledge and its diffusion through multinational companies, foreign direct investment, trade, the internet, and the international movement of skilled individuals. Furthermore, although innovation was driven earlier primarily by military and economic objectives, there is a growing realization that inclusiveness and environmental sustainability should be important goals of innovation systems. Taken together, these trends raise the importance of rethinking the concept of a national innovation system.

Apart from India, South Asian countries have nascent or nonexistent innovation ecosystems. Among other things, they lack the advanced, specialized human capital to adapt existing technologies to national and local needs, as well as the firms that can use them. One indicator of the contribution to global innovation is expenditure on research and development (R&D). India accounts for just 4 percent of the global total (compared with China which accounts for over 23 percent), while Pakistan and Bangladesh account for 0.3 percent and 0.2 percent, respectively. However, India is gaining ground rapidly in terms of new technology start-ups, including in education and health (R&D World 2020). The number of technology unicorns (privately held start-up companies with a value of over US$1 billion) in India for the period 2009–18 was 14. This figure puts India in fourth place globally, after the United States (261), China (114), and the United Kingdom (21)—see World Bank (2018). India therefore has strong potential if it can improve its high-level technical human capital and innovation capability, including the overall environment for innovation.

South Asian countries lag in the accumulation of advanced human capital as shown by the slow growth in the overall tertiary education ratio, advanced degrees in natural sciences and engineering, and the number of researchers per million population. India’s tertiary education enrollment ratio in 2019 was about 28 percent, increasing from about 15 percent 10 years earlier. This contrasts with the rapid growth in China from about 20 percent 10 years ago to over 50 percent in 2020. This ratio is less than 10 percent in Pakistan and Afghanistan, similar to the median level in Sub-Saharan Africa.3 For other South Asian countries, the ratio is between 10 and 20 percent. As for annual doctoral degrees awarded in natural science and engineering, in 2016 India had about 10,000, compared with 30,000 in China. In 2013 (the latest year available), Bangladesh had less than 300 and Sri Lanka less than 100.4 In contrast to China’s 1,225 researchers per million population (2017), India had 253 (2018), and Sri Lanka, 106 (2015).5 According to the Global Innovation Index, the South Asia region ranks poorly, except for India, which is ranked 52nd (China is ranked 14th).

Digitalization is profoundly changing all stages of scientific discovery and innovation. As in other aspects of the converging technology revolution, there is great potential for

transformative discoveries and catch-up but also the very real risk that poor countries will fall even further behind. Historically, the transition from scientific research to adoption at scale and development impact has taken decades. Box 4.1 and figure 4.2 show the long trajectory from the discovery of improved wheat seeds, which launched India’s Green Revolution, to significant reductions in rural poverty. A similar lag is evident in the discovery of knowledge about HIV/AIDS to lowering the number of deaths.

Admittedly, several sociopolitical factors affect the speed of transition from discovery to application. But digitalization is speeding up both the discovery of new solutions (for example, the speed of discovery of COVID-19 vaccines is unprecedented) and potentially their applications in society. High-speed connectivity, computing power, shared data, and advanced human capital are required, as well as a reorientation of the innovation system to address the most pressing human capital challenges—inclusiveness, sustainability, and resilience. The convergence of technologies constitutes an urgent mandate to higher education institutions in the region to adapt teaching content, research collaboration, and cross-disciplinary engagements to remain competitive.

Currently, most innovations involve new products, processes, or business models, partially enabled by digital technologies or embodied in data and software. These innovations are being driven by the large reduction in the costs of collecting and processing data and of producing and distributing knowledge and information. Data are a key input in innovation. They help businesses to explore new areas of product and service development and to adjust products to market demand. However, despite the promise, technological innovations driven purely by market considerations of profitability are not addressing the immense human capital challenges in South Asia.

As the discussions with country experts revealed (chapter 2), these technologies offer the alternative possibility of democratized, frugal innovations from the bottom up that address local needs and build community resilience. Digital innovations such as virtual simulations, 3-D printing, sensors, and data collection instruments provide new opportunities for experimentation and can be achieved at the local level using universities, community labs, and maker spaces. Furthermore, innovation is becoming more collaborative because a greater variety of expertise in different fields is required, and, with digitalization, lower-cost communication and collaboration are possible, even across countries (OECD 2019a). Innovations that help improve human capital outcomes can increasingly be generated through multistakeholder collaborative ecosystems that operate at the local level and are supported by national and even global flows of knowledge.

A related development is the increasing use of big data and artificial intelligence (AI) to increase the productivity of science. AI is being applied to all phases of the scientific process, including automated extraction from scientific literature and large-scale data collection to optimize experimental designs and even to create new knowledge. AI is also being combined with robotic systems to automate some areas of scientific research requiring intensive experimentation such as molecular biology (OECD 2018).6