1. 1 THE NEEDS FOR ADAPTIVE INNOVATION POLICY Under Free Market Complexity: The Indonesian Experiences The Globelics Africa Conference, October 31 th - November 4 th 2005 Pretoria, South Africa By Erman Aminullah The Indonesian Institute of Sciences (LIPI)

2. 2 POINTS OF PRESENTATION INTRODUCTION POLICY MAKING UNDER COMPLEXITY INNOVATION POLICY UNDER FREE MARKET COMPLEXITY PAST EXPERIENCES AND FUTURE POLICY NEEDS

3. 3 Introduction The reality of policy matters 1.Complexity 2.Resistance Dealing with complexity & resistance  Policymaking process shift from ‘rational’ to ‘learning’

4. 4 Introduction Current reality 1.Economic complexity 2.Some resistances toward free market Economic complexity & policy resistance toward free market  Needs of ‘Learning’ to softening the pressure of free market  Innovation and Technology Learning

5. 5 POLICYMAKING UNDER COMPLEXITY The emergence of unintended events and behaviors (butterfly effect) Because…… Complex system sensitivity against initial condition (the rule of initial condition) Lorentz Curve Complex sistem behavior

6. 6 Dealing with complexity Seeing the elements as parts of the wholeness, containing: -interconnection, -non-linearity, -uncertainty Like…… Seeing the trees viewing from the forest POLICYMAKING UNDER COMPLEXITY

7. 7 THE WAYS OF THINKING (in solving a complex system) OUTPUT BOUNDED RATIONALITY PROCESS ORIENTED RATIONALITY UNDERSTANDING THE WHOLENESS BY LEARNING CREATING RATIONAL POLICY TO PERFORM CREATING ANTISIPATIVE AND ADAPTIVE POLICY TO EVOLVE POLICYMAKING UNDER COMPLEXITY PERFORMING CAN BE UNEVOLVING, BUT EVOLVING CAN BE PERFORMING 

8. 8 Input-output model PRECISE CALCULATION: Output processed from inputs because …… Process is perfect (black box) Environment is stable POLICYMAKING UNDER COMPLEXITY

9. 9 RATIONAL POLICYMAKING (in Input-Output model) POLICYMAKING UNDER COMPLEXITY SUCCESS ! Because….. Process is perfect, Environment is stable, to: - running the inputs - producing the output

10. 10 Information feedback model HIGH STABILITY: always seeking the reference Process ……like orchestra Autonomous control Correcting the discrepancy Seeking the reference POLICYMAKING UNDER COMPLEXITY

11. 11 RATIONAL POLICYMAKING (in information feedback model) SUCCESS ! Because….. Capacity to control the rhythms by design, to: - producing the output - maintaining the reference POLICYMAKING UNDER COMPLEXITY

12. 12 Adaptive feedback model CONTINOUS EVOLVING: by anticipative and adaptive capability process……like surfing and herons flying responsive toward environment anticipative and adaptive toward environmental change POLICYMAKING UNDER COMPLEXITY

13. 13 ANTICIPATIVE POLICYMAKING (in adaptive feedback model) SUCCESS ! Because……. Capability gained by learning to surf at the edge of wave POLICYMAKING UNDER COMPLEXITY

14. 14 ADAPTIVE POLICYMAKING ( in adaptive feedback model) SUCCESS ! Because….. Capability gained by learning to mutually maintaining the direction, distance and speed without design POLICYMAKING UNDER COMPLEXITY

15. 15 INNOVATION POLICY UNDER FREE MARKET COMPLEXITY EASINESS! to.. Escalating the competition Degrading the resources Creating the self interest DIFFICULTIES ! To.. Anticipating and adapting the pressure of disappointment of the common Free market complexity

16. 16 The pressures of disappointment of the common FIVE TYPES... Expectation differing from reality Disputes arising from unfair practices Acceleration creating deterioration Solution creating problems Resistance and delay INNOVATION POLICY UNDER FREE MARKET COMPLEXITY

17. 17 INNOVATION POLICY UNDER FREE MARKET COMPLEXITY The slowness of past recovery: Indonesian experience The slowness of recovery can be arranged and displayed systematically How to understand it… 1. What rules systemically underpinning the slowness of recovery  A systemic model 2. What basic structure determining the strategic change  A point of leverage

18. 18 INNOVATION POLICY UNDER FREE MARKET COMPLEXITY Systemic obstacles: Indonesian experience

19. 19 Paradigm sift from mechanism toward organism INNOVATION POLICY UNDER FREE MARKET COMPLEXITY

20. 20 Adaptive Innovation policy model (organic perspective) Strong body with high calorie but lack of nutrition, can be unhealthy (due to lack of antibody) Strong economy with high power of financing but lack of technological innovation, can be unhealthy economy (due to lack of competitiveness) INNOVATION POLICY UNDER FREE MARKET COMPLEXITY A simple rule in the model

21. 21 Adaptive innovation policy model (Indonesian case) INNOVATION POLICY UNDER FREE MARKET COMPLEXITY Increase in financing for innovation to: softening the competition pressure, and; cutting the protection

22. 22 Adaptive innovation policy (simulation results) INNOVATION POLICY UNDER FREE MARKET COMPLEXITY

23. 23 PAST EXPERIENCES AND FUTURE POLICY NEEDS FIRST, innovation policy making in complex economic system needs an ‘adaptive innovation policy model’ SECOND, dealing with complexity of free market competition needs an adaptive strategy to apply free market along with to salvage the domestic interest. THIRD, a possible future policy problem (in Indonesia) would be low domestic supply due to lack of competitiveness in the free market. POLICY NEEDS, ‘innovation policy for equitable development’, in addition to implementing ‘growth policy by capital investment’  innovation policy instrument on HRD to create innovator in private sector, especially innovation-based SMEs.

24. 24 PHRASE (The nature is a wise teacher) THANK YOU For the Sustainable future by equitable economic development