THE THIRD ANSWER
HOW MARKET-CREATING INNOVATION DRIVES
ECONOMIC GROWTH AND DEVELOPMENT
CLAYTON M. CHRISTENSEN, EFOSA OJOMO,
GABRIELLE DAINES GAY, AND PHILIP E. AUERSWALD
Two schools of thought have dominated the theory of economic growth over
the past half-century. The first and predominant philosophy—associated with
Paul Romer, corecipient of the 2019 Nobel Prize in economics, and others—
holds that ideas drive economic growth.1. Because ideas, once produced, can be
copied and shared with minimal cost (so the story goes), they can fuel sustained
economic growth in ways that are not possible for other factors of production.
The second school of
thought
acknowledges that ideas may be the seeds
of growth but points out that such seeds
cannot, and will not, grow in poor soil.
The most fertile soil for growth is quality
institutions—the lack of which is the ulti-
mate limiting factor in most places.
Institutions refers to a nation’s “soft”
infrastructure and includes entities that
make up the financial, judicial, legal,
politique, and even some social systems.
Institutions can be formal (nation-states,
schools, hospitals) or informal (pratiques
and structures of authority that derive
from custom and culture rather than laws
and policies). This line of argument has
been so persuasive that some internation-
al organizations, such as the United
Nations and the World Bank, collectively
spend billions of dollars trying to help
people in poor countries develop new
institutions or fix existing ones.2.
Both of these perspectives have evi-
dent merit—indeed, they are historically
linked. Economies expanded at a snail’s
pace globally until the 18th-century Age of
Enlightenment, when the simultaneous
emergence of scientific methods and pro-
cedures of modern democracy propelled
humanity into an era of learning and dis-
covery
far beyond any previously
known.3.
Donc, which is it—do ideas or institu-
tions fundamentally drive long-term eco-
nomic growth? In this essay, we propose
that the most historically accurate and
practically useful answer to this question
est, in fact, neither. In the place of these
two conjectured fundamental drivers of
long-term economic growth we propose a
troisième: market-creating innovation.
What supports this assertion? D'abord,
ideas result in economic growth and
development only when they are realized
through market-creating innovation. (Nous
explain below why we emphasize “mar-
ket-creating” innovation). The actual
process of market-creating innovation is
nothing like the zero-cost transfer of
ideas—knowledge spillovers—that are the
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centerpiece of ideas-based theories of
economic growth.4. Market-creating
innovation is costly and difficult.5. Il
involves highly specialized and skilled
agents working over extended periods of
temps.
En outre, contrary to expert con-
sensus but consistent with history, mar-
ket-creating innovation drives institu-
tional growth, not the other way around.
the adaptive
represent
Institutions
response of human communities to
changes in the environment.6. For exam-
ple, in every city in the world we observe
a complex set of institutions designed to
handle traffic—traffic-management sys-
thèmes (stoplights, railway crossings),
urban planning (crosswalks, overpasses),
a legal apparatus to enforce traffic laws,
and so forth. Cependant, these institutions
clearly did not create urban traffic; le
traffic came first, and human communi-
ties had to come up with ways to deal
with it. But what created the traffic?
innovation—in our
Market-creating
temps, the revolution in transport brought
about by automobiles and motorcycles.
This example generalizes broadly.
In very different ways, ideas-based
and institution-based theories of eco-
nomic development both fail to account
adequately for the central role of market-
creating innovation and its close relative,
individual agency. Individual agency and
innovation bring ideas into economic
practice and in so doing they shape the
evolution of institutions.
In this essay, we begin by offering a
definition and two examples of market-
creating innovation that provide a foun-
dation for the historically informed theo-
ry that follows. With this definition and
the examples in mind, we next assess the
two dominant theories of development—
essentially,
the currently dominant
answers to the centuries-old question of
why some countries prosper while others
do not. Building on this, we assess how
new influences such as Blockchain tech-
nology and emerging business models
ABOUT THE AUTHORS
CCllaayyttoonn MM.. CChhrriisstteennsseenn is the Kim B. Clark Professor of Business Administration at the Harvard
Business School. Christensen is the author of nine books and more than a hundred articles, most
recently including The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, avec
Efosa Ojomo and Karen Dillon.
EEffoossaa OOjjoommoo is a Senior Research Fellow at the Clayton Christensen Institute for Disruptive
Innovation. Ojomo holds an MBA from the Harvard Business School.
GGaabbrriieellllee DDaaiinneess GGaayy is the COO of Ensign College of Public Health in Kpong, Ghana; Director
of Emerging Market Strategies at Kensington Capital Holdings; and Executive Director of The
Schumpeter Center for Innovation and Development. Gay holds an MBA from INSEAD.
PPhhiilliipp EE.. AAuueerrsswwaalldd is an Associate Professor of Public Policy at the Schar School of Government,
George Mason University; cofounder and CEO of Zilla Global LLC; and the cofounder and coed-
itor of Innovations journal. His most recent book is The Code Economy: A Forty-Thousand-Year
Histoire.
© 2018 Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald
nouveautés / volume 12, number 3/4
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Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald
relate to market-creating innovation,
institutional evolution, et, finalement,
développement économique. We offer specific
examples of how Blockchain technology
is being deployed to support market-cre-
ating innovation. We conclude by consid-
ering how a better understanding of the
drivers of development prompts us to
reconsider the definition of development
lui-même.
RESCUING “INNOVATION”
FROM MISUSE AND
OVERUSE
Market-creating
The word “innovation” is routinely over-
used and “under-understood.” For clarity,
we use the definition that innovation is “a
change in the process by which an organ-
ization transforms labor, capital, materi-
als, or information into products and
services of greater value.”7. In essence,
innovation is not necessarily high tech,
overly advanced, or even entirely new,
and therefore is different from invention.
From an economic development stand-
indiquer, innovations can be market-creat-
ing or sustaining, or improve efficiency.
innovations do
exactly what the term implies: they create
new markets. But these are not just any
new markets; they are new markets that
serve people for whom either no products
existed or existing products were not
accessible for a variety of reasons, inclure-
ing cost or a lack of the expertise required
to use them. Market-creating innovations
transform complicated and expensive
products into ones that are much more
affordable and accessible to an increased
number of consumers. In some cases,
such innovation can create entirely new
product categories.
Sustaining innovations are improve-
ments to solutions already on the market.
They typically target customers who
require better performance from a prod-
uct or service. Sustaining innovations are
ubiquitous and represent a critical com-
ponent of economies worldwide. Ils
often enable companies and their host
countries to remain competitive, but their
impact on an economy differs from that
of market-creating
nouveautés. Pour
instance, companies rarely need to build
new sales, distribution, marketing, et
manufacturing engines when they devel-
op sustaining innovations in a mature
market because they are using established
channels to sell to an existing customer
base within a familiar segment of the pop-
ulation.
Examples of sustaining innovations
are all around us: a new model of mobile
telephone, a new car model, a new flavor
at a local ice cream parlor, or a new dish-
washing detergent. While these innova-
tions keep economies vibrant and excit-
ing, they have a far more limited effect
than market-creating innovations on job
creation, profit generation, and changing
the economic climate.
Efficiency innovations enable com-
panies to do more with fewer resources.
More precisely, as companies squeeze as
much as possible from existing and newly
acquired resources, their underlying busi-
ness model and the customers they are
targeting remain the same. Donc, comme
market sectors become more crowded
and competitive, efficiency innovations
are crucial for companies to remain
viable. Efficiency innovations typically are
process innovations that focus on how a
product is made and not necessarily on
whom the product is sold to. Efficiency
innovations can make a company more
profitable and, critically, free up cash
flow. Outsourcing is one of the most com-
mon examples of efficiency innovation.
When a firm decides to move any part of
its operation to a region where costs are
lower, it is practicing efficiency innova-
tion. Another example is when an organ-
ization uses technology to reduce the cost
of operating so it can generate more prof-
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The Third Answer
its. Resource extraction and low-wage
manufacturing
industries are prime
examples of operations that thrive on effi-
ciency innovations.
TWO EXAMPLES OF
MARKET-CREATING
INNOVATION
In the 1850s, several American entrepre-
neurs were challenging one another in
court for patent infringement related to
the sewing machine. These entrepreneurs
continued to sue one another until they
realized that the strategy was pointless.
No one was making any money or any
progress—with the possible exception of
the lawyers who filed the suits. Dans 1856,
recognizing this impasse, the men had the
inspired idea to join together and create
the world’s first patent pool: the Sewing
Machine Combination. Each would build
their company using the pooled technolo-
gy and would pay a royalty to the patent
pool, to their collective benefit.8.
One entrepreneur who joined the
sewing machine patent pool was Isaac M.
Chanteur. Unlike the other entrepreneurs in
the pool, Singer’s genius stemmed from
the fact that he built a company focused
not just on making a good sewing
machine but on creating a market for the
machines. At the time, the sewing
machine was not only expensive for the
average American family, it was also not
part of the cultural norm. People had few
sets of clothing and organized their lives
around that fact. Singer was told time and
again by the experts of the time that he
would fail. Instead of listening to the
experts, he built the systems required to
create a new market. Some of his innova-
tion, many of which seem mundane
aujourd'hui, include branch sales offices, door-
to-door sales, lessons for prospective cus-
tomers on how to use the machine, selling
on credit, building distribution and trans-
portation infrastructure into his opera-
tion, and many others. Singer under-
stood that to create this market he needed
to build and manage a system that would
make it easy for customers to purchase
and use these machines. This also would
bring costs down and make the machine
accessible to many more Americans.
The key to Singer’s
success, cependant,
wasn’t simply the
technologie. It was in
his business model,
which targeted non-
consumption and
created a new market
for a whole set of
people who previously
had no sewing
machine.
The success of Singer’s company was
unprecedented. je. M.. Chanteur & Co.
became the first major multinational
American company built by an entrepre-
neur without major government support.
His operation led to the creation of many
other industries: the closet/wardrobe
industry so people could store their
clothes, the fashion industry, textile man-
ufacturing, clothing stores, and many
others.
Another outcome of Singer’s innova-
tion was that workers in the textile indus-
try, and in a few others such as steel, coal,
and other manufacturing, played a signifi-
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Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald
cant role in the labor movement to
improve workers’ rights and the condi-
tion in which they worked. The institu-
tions that led these changes emerged only
after market-creating innovators had cre-
ated enough workers and consumers. Il
didn’t happen the other way around.
The key to Singer’s success, cependant,
wasn’t simply the technology. It was in his
business model, which targeted non-con-
sumption and created a new market for a
whole set of people who previously had
no sewing machine. In Singer’s case, et
whenever that happens, society benefits
immensely.
Today the frontier for market-creat-
ing innovation is arguably in the coun-
tries that have most recently become part
of the global economy—so-called devel-
oping countries. In the late 1990s, before
Sudanese entrepreneur Mo Ibrahim cre-
ated a market for mobile phones in
Africa, fewer than 20 million, ou 2.5 par-
cent, of the 800 million people living in
Africa had mobile phones. Le
Democratic Republic of Congo, pour
instance, with a population of more than
55 million people, had only 3,000 cell
phones. Nigeria had fewer than one mil-
lion telephone lines for its 126 million
people. Dans
just six years, cependant,
Ibrahim’s Celtel built mobile telecommu-
nications operations in 13 African coun-
tries—including Uganda, Malawi, the two
Congos, Gabon, and Sierra Leone—and
gained 5.2 million customers. It was com-
mon to see eager customers line up by the
hundreds for the opening of many of
Ibrahim’s stores.
Celtel was so successful that, par 2004,
revenues had reached $614 million and net profits were $147 million. Ibrahim
sold the company in 2005—for $3.4 bil- lion. Perhaps more impressive is the fact that the mobile telecommunications mar- ket in Africa now supports more than 950 million subscriptions, employs more than three million people, and is forecast to add more than $210 billion in value to
African economies. It is hard to believe
que, as recently as the turn of the century,
cell phones were largely toys for the rich.
To achieve his success, cependant, Ibrahim
first had to create the market. Once he
did,
the attendant benefits—taxes,
enforceable regulations, jobs, infrastruc-
ture, and so on—followed.
MARKET-CREATING
INNOVATION AS A VEHICLE
FOR CONVERTING IDEAS
INTO ECONOMIC GROWTH
AND DEVELOPMENT
In ideas-based theories of economic
growth, “ideas” are special in two ways.
D'abord, they augment production, as a larg-
er pool of ideas allows more output with
the same set of inputs. Deuxième, bien que
investment is required to generate new
ideas, once an idea is produced it is trans-
ferable at zero cost. In technical parlance,
ideas in such models are characterized as
being non-rival and non-excludable.
Non-rival means that one person’s use of
an idea does not keep another person
from using it; non-excludable means it is
impossible to keep a person from using an
idea once it is out in the open. Another
term, “knowledge spillovers,” refers to the
free transmission of ideas that are non-
rival and non-excludable. In contrast, un
product is rivalrous if its consumption by
one person precludes its consumption by
another; it is excludable if access to it can
be limited. An automobile, Par exemple, est
rivalrous and excludable; sunshine is nei-
ther.9.
Let’s now reconsider the story of Mo
Ibrahim and Celtel in light of the argu-
ment that, because ideas are non-rival and
non-excludable, economically relevant
innovations are characteristically subject
to knowledge spillovers. The idea for the
mobile phone and for mobile phone net-
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The Third Answer
works—which in this context we’ll con-
sider the “invention” of the mobile
phone—existed
long before Ibrahim
began to bring mobile phone service to
the African continent. Cependant, it is a
gross over-simplification to say that the
idea for the mobile phone and mobile
phone networks simply “spilled over”
into Uganda, Malawi, and Sierra Leone,
ultimately creating a $3.4 billion company that provided service where it was previ- ously unavailable. What was required to bring the mobile phone to sub-Saharan Africa to provide service to those who had no access to telecommunications of any type and in so doing to propel economic growth was not the idea for the mobile phone and for mobile phone networks. What was required was market-creating innovation. As pioneering evolutionary econo- mist Sid Winter wrote fully 50 years ago, “‘Knowing how to bake a cake’ is clearly not the same thing as ‘knowing how to bring together all of the ingredients for a cake.’ Knowing how to bake a cake is knowing how to execute the sequence of operations that are specified, more or less closely, in a cake recipe.”10. Much of the work of executing the “recipe” for mar- ket-creating innovation is not available in any “innovation recipe book” and cannot be transferred at a low cost. To the con- trary, the ideas (or recipes) that are criti- cal to market-creating innovation, and that actually propel growth and develop- ment, are overwhelmingly uncodified, context dependent, and transferable only at significant cost—which is to say that tacit knowledge dominates, information asymmetries are the norm, and transac- tion costs are significant.11. There is no disputing that ideas creat- ed by one person or one firm can reach other people or firms through multiple pathways, many of which do not involve the beneficiary directly compensating the innovator. If we define such pathways as knowledge spillovers, then evidence of spillovers will be everywhere. Cependant, the critical point we are making is that, when such pathways involve economic benefit derived from market-creating innovation, they usually also involve sig- nificant costs: recruiting a key employee from a competitor firm or industry leader; undertaking research to invent around an existing patent; reverse-engineering a product; paying for employees to attend conferences; hiring consultants; and building trusted relationships with buyers and suppliers. What was required to bring the mobile phone to sub-Saharan Africa … was not the idea for the mobile phone and for mobile phone networks. What was required was market- creating innovation. Market-creating innovation thus nec- essarily and systematically involves the search for ideas that are, in fact, rivalrous and excludable (at least temporarily), out of which ventures with proprietary value can be created.12. The impediment to mar- ket-creating innovation that matters most is not a lack of appropriability of returns (as default New Growth formulation would suggest) but the everyday battles involved in communicating ideas, build- deals.13. ing Consequently, while knowledge spillovers of the type emphasized by Romer are and making trust, nouveautés / volume 12, number 3/4 15 Téléchargé depuis http://direct.mit.edu/itgg/article-pdf/12/3-4/10/705272/inov_a_00272.pdf by guest on 07 Septembre 2023 Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald present everywhere, they are unlikely to be relevant to the activities that are most critical to economic growth and develop- ment.14. In this sense, there is almost total contrast between the view of productive knowledge that emerges from the micro- theory of entrepreneurship and the view that characterizes dominant macro-theo- ries of economic growth. MARKET-CREATING INNOVATION AS A DRIVER OF INSTITUTIONAL EVOLUTION Our simple definition of innovation and its categorization into three types provides a frame for how innovations impact an economy and, more specifi- cally, the development of institutions in an economy. Our experience has revealed that innovation is not some- thing that happens on the fringes of society after society has “fixed” itself— that is, after it has developed function- ing and trusted institutions. Innovation is, rather, the process by which institu- tions that are critical to development emerge. It is through innovations that create or connect to new markets that societies can create jobs, pay taxes, et, finalement, build strong and lasting institutions. Innovation, we have found, is what keeps economic engines rolling and a society progressing, as illustrated by the following cases. Japanese Transportation Regulations Today, Japan has more than one million kilometers of paved roads and thousands of traffic laws that help manage the 69 million motor vehicles operating in the country. These roads and laws not only regulate traffic in Japan, they also help keep Japanese drivers safe. Par conséquent, the country has one of the lowest traffic fatal- ity rates in the world—6.5 fatalities per 100,000 vehicles each year. To put that into perspective, the United States has twice the rate of fatalities, Europe has almost three times as many deaths per vehicle, and China has a fatality rate approximately 16 times that of Japan. From that vantage point, the Japanese institutions that manage the nation’s traf- fic and transportation are working. But that was not always the case. Japan’s traf- fic laws have in fact evolved to solve the specific challenges brought about by the proliferation of motor vehicle innova- tions in the country. Jeffrey Alexander’s book, Japan’s Motorcycle Wars: An Industry History, provides a brilliant summary of how the Japanese government developed traffic institutions first as a response to the pro- liferation of all wheeled vehicles and later specifically to motorized vehicles. In the early 1900s, it was common to find “cars, trucks, motorcycles, horses, horses, ox- drawn vehicles, rickshaws, men pulling wagons, and pedestrians” on urban roads. Alexander writes, “Improved traffic enforcement was thus required in urban centres such as Tokyo, and the motorcy- cle came to play a key role.”15. He explains that the government responded to the spread of vehicles by legislating who could access and operate motor vehicles. Par 1918, Tokyo had established a traffic police squad, instituted traffic police uni- forms, and provided traffic stations for these new government employees. At first the enforcement of these laws was hap- hazard, but standardization improved over time. Today Japan finds itself in the enviable position of having one of the safest traffic systems in the world. Low- and middle-income countries would do well to study the effect on Japanese society of the proliferation of motorcycles and other vehicles before the 16 nouveautés / Blockchain for Global Development II Downloaded from http://direct.mit.edu/itgg/article-pdf/12/3-4/10/705272/inov_a_00272.pdf by guest on 07 Septembre 2023 The Third Answer country developed institutions to enforce traffic laws and regulations. The innova- tions came first, then the institutions that helped to manage the impact of the inno- vation. European Parliaments and Courts A lack of rule of law, corrupt judiciaries, and untrustworthy parliamentary bodies are the hallmarks of many low- and mid- dle-income countries. Rich and prosper- ous nations in Europe boast much better systems, at least relatively speaking. How did they get these systems? In Prosperity and Violence: The Political Economy of Development, Robert Bates describes the sequence of events that led to the develop- ment of Europe’s distinctive political institutions.16. Consider, Par exemple, how our understanding of the risks associated with sovereign debt has changed over the past few centuries. Today we may see sov- ereign debt, especially that of prosperous European nations, as less risky than pri- vate debt. Cependant, that was not always the case. Hundreds of years ago, when most of Europe was made up of individ- ual monarchies where rulers could take, plunder, and kill at will, investors grew increasingly unwilling to lend money to kings and to those subject to these social conditions. As measures of wealth expanded landholdings (unmovable assets) to include precious metals and currency (assets more easily moved), investors became more powerful and selective in choosing the monarchs to whom they loaned money. This led mon- archs to figure out new ways to extract resources from their subjects. Bates writes that “monarchs innovated new ways of tapping the private wealth of their citi- zens. Among the most significant was the creation of parliaments—fora in which they could trade concessions in public policies for the payment of public rev- enues.”17. royal from Parliaments were created to be insti- tutions that could negotiate with investors, manage the public purse, and provide guarantees on the debt taken up by monarchs. The era of bullying gave way to an era of seduction because, all of a sudden, citizens could move their assets (nouveautés) more easily. A new type of economy had emerged, from one that plundered wealth to one that sought to create it. A similar sequence of events happened with the establishment of the European courts. Originally established to resolve disputes expeditiously, the courts became more relevant as they resolved more and more disputes. The fees they charged in time caused the courts to become profit centers for many European monarchs. When first estab- léché, parliaments and courts did not sat- isfactorily represent the will of the people. Over time, cependant, as the citizenry became more prosperous, these institu- tions became more effective and repre- sentative. We must remember that inno- vation and prosperity came first, and the institutions—at least the well-functioning ones—followed. Once again, the innovation of mov- able currency resulted in the creation of new economic features and, subsequently, more institutional stability in the region. U.S. Food and Drug Administration Consider the emergence of the U.S. Food and Drug Administration (FDA). Because of the nature of foods and drugs and how they are integrated into our lives, fewer industries are more important when it comes to protecting public health and safety. History provides too many exam- ples of how allowing “bad foods” into the market can be fatal, often with little or no warning. A similar case could be made for drugs. If any industries made it necessary to force regulations on them in order to innovations / volume 12, number 3/4 17 Téléchargé depuis http://direct.mit.edu/itgg/article-pdf/12/3-4/10/705272/inov_a_00272.pdf by guest on 07 Septembre 2023 Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald protect the population’s health and safety, it was food and drugs. Mais, in fact, even the FDA did not push regulations onto these industries before entrepreneurs had discovered market-creating innovations that impacted millions. The innovations came first. In his short paper, “History of Food and Drug Regulation in the United States,” Marc T. Loi, an economist at the University of Vermont, notes that from colonial times to the mid-19th century most food and drug regulations in the United States were enacted on the state and local level and focused on limited types of food.18. À ce moment-là, a majority of U.S. households grew their own food, thus it would have made little sense to enact sweeping food production regula- tions when most foods were not produced for the mass market. Regulations at the time focused on products produced and distributed by industry, such as beef, pork, fish, bread, wine, etc.. It wasn’t until the second half of the 19th century that the scale and scope of regulation increased considerably. Law notes that regulation increased for three reasons: specialization and urbanization, techno- logical change in food manufacturing, and the average consumer having difficul- ty detecting foods gone bad. Again we see that as innovation improved production it also increased the variety of foods available to millions of people. En même temps, it led to greater negative consequences from tainted foods or unintended reactions to drugs. As the technology and complexity of food and drug production increased, it became more difficult for the average observer to detect harmful products. This created a growing perception that regulation by experts was necessary.19. Entre-temps, in order to increase barriers to market entry, traditional manufacturers disadvantaged new competitors by calling for more reg- ulations. While these events led to an improved regulatory environment, it is also clear that regulations and the enforc- ing institutions can stymie innovation and new entrants. In each of these circumstances, inno- vation preceded regulation. It was only after an innovation was introduced into the market, thereby reducing costs and expanding product availability, that regu- lations began to take hold. Even for industries as sensitive as food and drugs, it is hard to make the case that regulations preceded innovation. En fait, the decision to create the FDA was made only after events led the U.S. Congress to pass the 1906 Pure Food and Drugs Act and the 1906 Meat Inspection Act.20. Nollywood Most of the world is unaware that Nigeria has a thriving movie industry, largely because Nigerian movies are primarily created to entertain Africans and Africans in the diaspora. Nollywood’s production of 1,500 movies annually is second only to India’s Bollywood—a surprising statistic in a country where fewer than 60 percent of the population has access to electricity and only 40 percent of households have a television. Nollywood has been able to thrive precisely because many in the industry focused on creating a new mar- ket that targeted non-consumers. Before the rise of the Nigerian movie industry, most Africans viewed movies produced in Hollywood and Bollywood. Few movies from these markets reflected the lives of average Africans or considered their cul- tures and collective experiences. En tant que tel, although Western and Indian movies were interesting, they were not relevant. Nollywood changed that. Nollywood’s annual revenues have reached $1 billion and the industry cur-
rently employs more than one million
people, second only to the country’s agri-
culture industry. Nollywood’s success in
democratizing access to Nigerian movies
18
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The Third Answer
and entertainment is a win for everyone
legitimately participating in the industry.
As a result, Nollywood has been able to
pull in better governance as it relates to
piracy and copyright laws. Appreciating
the industry’s importance as a major
source of employment and potential
income from the sale of movies, le
National Export Promotion Council, le
Nigerian Copyright Commission, et le
National Film and Video Censors Board
are now collaborating on programs to
reduce piracy in Nigeria’s film industry.
Governments clearly have a role to
play in ensuring that their nations
become prosperous, but our experience
suggests that a government’s enabling
role often follows the success of innova-
tors. And thus the classic chicken-or-the-
egg question arises: What comes first—
building institutions or investing in inno-
vations? Our view is that market-creating
innovations act as a magnetic force that
pulls in the institutions that have the
capacity to trigger further investment and
innovation. Without market-creating
nouveautés, it is incredibly difficult to
build and sustain such institutions. Quand
we put the proverbial cart before the
horse, neither the cart nor the horse can
move forward.
BLOCKCHAIN-BASED
INNOVATIONS TO DRIVE
ECONOMIC DEVELOPMENT
Blockchain technology has garnered sig-
nificant attention as of late because it is
the foundation on which cryptocurren-
cies are based, and the foundational tech-
nology on which many applications aside
from cryptocurrencies can be built. Dans ce
section, we strip Blockchain technology
down to its elemental functions by pre-
senting use cases in which Blockchain
drives
economic development by
enabling market-creating innovations.
dans
Chaque
“block”
D'abord, a definition: a Blockchain is a
public, decentralized, distributed digital
ledger that is used to record electronic
un
transactions.
Blockchain contains specific information
that cannot be altered, due to the distrib-
uted nature of the technology. For exam-
ple, your personal bank account contains
information about deposits, withdrawals,
and other transactions such as bank fees.
These transactions are either stored on a
server that is managed by the bank in a
central location or, increasingly, distrib-
uted among servers in “the cloud.” The
bank spends millions of dollars on securi-
ty to reduce the likelihood that bad actors
can steal your account information by
getting into its systems or accessing its
cloud-based resources. Cependant, même
with these massive and ever-growing
investments in cybersecurity, instances of
large-scale intrusion (most of which are
never known to the public) continue to
increase. When successful, the bank’s
ability to keep your information and
transactions safe and secure builds trust
between you and the bank. When not suc-
cessful, this mode of service points out the
inherent vulnerabilities of large-scale
scale centralized databases. Trust is
expensive to earn and even more costly
when lost.
A similar thing happens with the reg-
istries that manage most of our personal
information, from property to healthcare
records. The “managers” store this infor-
mation, and how we transact with it, in a
centralized location. Et, bien sûr, ils
strive to protect it; their ability to protect
our information impacts how much we
trust them. In many poor countries,
where governments are often under-
resourced, there is a lack of trust in the
institutions that manage these registries.
Land disputes are particularly common.
Disputes may arise over overlapping
ownership claims, tenancy-based and
use-based assertions of rights, deliberate
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Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald
land grabs, and a simple lack of proper
recordkeeping, among other causes. Le
prevalence of such disputes results in a
systematic lack of confidence in the insti-
tutions of land administration. Absent
reliable institutions, investors have little
assurance that their property rights will
be registered accurately and subsequently
protégé. This in turn adversely impacts
investment not only in real estate but in
other related asset classes.
Blockchain technology
has the potential to
reduce uncertainty
around land ownership
and other property
claims by providing
verified records, et
thereby strengthening
institutions.
Blockchain technology has the poten-
tial to reduce uncertainty around land
ownership and other property claims by
providing verified records, and thereby
strengthening institutions. The likelihood
of corruption, misunderstanding, et
administrative errors
is significantly
reduced when a transparent, distributed,
and immutable system is used to manage
the transfer of assets from one party to
another. The clarity and reliability of
claims and the increased strength of insti-
tutions that follows from the introduction
of Blockchain-based data systems can
dramatically reduce the frequency of dis-
putes and accelerate the adjudication of
disputes when they do occur.
More
fundamentally, Blockchain
technology dramatically reduces the gap
between market-creating innovation and
the institutions that evolve in response to
those innovations. In a Blockchain-based
economy, the market-creating innovation
and the institution governing it are fun-
damentally intertwined. The following
two use cases serve to illustrate.
Blockchain Use Case #1:
Converting Land Occupancy to
Land Ownership
Decades ago, acclaimed Peruvian econo-
mist Hernando De Soto wrote, “Without
an integrated formal property system, un
modern market economy is inconceiv-
capable. The inefficiencies of non-Western
markets have a lot to do with the frag-
mentation of their property arrangements
and the unavailability of standard repre-
sentations.”21. In line with institution-cen-
tric theories of development, De Soto
argued that the key to unlocking the
latent potential of development in poor
places is for governments to improve the
systems that enable citizens—particularly
the poor—to assert and defend property
claims of all types, especially those related
to land.
Decades later, economists generally
recognize that De Soto’s dream remains
far from a reality in most of the world.
Many fail to appreciate two additional
facts. D'abord, inadequate land administra-
tion systems undermine development for
all actors in society, not just the poorest.
Deuxième, realizing De Soto’s dream is far
more likely to be achieved through mar-
ket-creating innovation than through
international donor-driven institutional
reforms.
One coauthor of this essay (Gabrielle
D. Gay) oversaw the later stages of the
construction of the Ensign College of
Public Health, un $15 million private col- lege campus in Kpong, Ghana, quelques 45 20 nouveautés / Blockchain for Global Development II Downloaded from http://direct.mit.edu/itgg/article-pdf/12/3-4/10/705272/inov_a_00272.pdf by guest on 07 Septembre 2023 The Third Answer miles outside Accra, only to discover that the title to the land on which the campus was built was tied up in a dispute involv- ing at least three other parties. The col- lege’s effort to secure a clear land title turned into three-year process that involved hiring legal teams on both sides of the Atlantic and frequent journeys between continents, courthouses, and various government agencies. All the while the college operated under a threat of property seizure and the revocation of its accreditation. After the disputes were resolved, the college purchased the land with a full and legitimate title. Due to remaining concerns about institutional weakness and the ongoing and unre- solved threat of expropriation through squatting, Ensign College did as most Ghanaians do to signal their indisputable claim to land—it erected a mile-long wall around the perimeter of the 50-acre cam- pus. Scenarios like this one illustrate why property rights are foundational to socie- tal development and are the reason many well-intentioned and even well-funded endeavors in sub-Saharan Africa end in failure.22. Unclear property ownership and property registration not only deter foreign investment, they also curb the entrepreneurial initiative of citizens. If one cannot clearly lay claim to land, what incentive does one have to build on and invest in that land? De plus, how can one use one’s land as a verified asset and employ that asset for the purposes of finance and investment? This story illustrates that demand exists in the private sector for improved land administration services. While the source of that demand in this case was an organization focused on social invest- ment, in many other cases the source of the demand is purely commercial. Blockchain Use Case #2: Ensuring the Integrity of the Pharmaceutical Supply Chain Sadly, and with tragic results, the African continent has become a dumping ground for counterfeit pharmaceuticals. UN 2017 World Health Organization report esti- mates that at least one in ten drugs in low- or middle-income countries is either sub- standard or fake. The organization also found that, in Nigeria in 2007, at least 64 percent of antimalarial medications were fake or substandard. A former director general of Ghana’s National Health Service estimated that up to two-thirds of the drugs on the shelves in that country are either degraded or counterfeit, noting that making a more precise estimate is difficult due to the lack of accurate sup- ply-chain data. The market for drugs has long attracted bad actors. The pharmaceutical industry is particularly vulnerable to fraud, due to the high markup associated with pharmaceutical products, the com- plexity and increased fragmentation of pharmaceutical supply chains, and the almost total inability of consumers— many of whom are poor and have few options—to assess the authenticity of pharmaceutical products. The distributed architecture of Blockchain technology has the potential to enable traceability and transparency in the pharmaceutical supply chain. A chain-of-custody log can trace a drug’s provenance, not only to its manufacturer but to the source of its raw ingredients. Individual permissioned logs can trace the drug through raw material sourcing, manufacturing, packaging, registration, procurement, and the end stages of distri- bution. This means that a drug’s authen- ticity can be determined with confidence. The transformational potential of this technology is enormous: millions of lives innovations / volume 12, number 3/4 21 Téléchargé depuis http://direct.mit.edu/itgg/article-pdf/12/3-4/10/705272/inov_a_00272.pdf by guest on 07 Septembre 2023 Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald could be affected and thousands of lives saved. Dans ce cas, again, the market-creat- ing innovation and the institution that manages it are essentially the same, as the innovation is related to improved gover- nance. THE BEST WAY TO PREDICT THE FUTURE IS TO CREATE IT Technology alone rarely solves social challenges; cependant, the application of technology through innovation has often done so. Blockchain is no exception. Blockchain’s potential to transform many sectors of the world’s economies—espe- cially in low- and middle-income coun- tries—is immense. The two examples above demonstrate that Blockchain can advance development through better recordkeeping, particularly in economies where systems either don’t exist or the systems that do exist are untrustworthy. Blockchain technology also has the potential to spark a whole new set of entrepreneurial activities we can barely fathom today—much as it was difficult to imagine 15 years ago that a company such as Facebook would emerge and grow to have a valuation of nearly $400 milliard (à
the time of writing). During the early days
of the Internet, there were many skeptics
who neither understood what the World
Wide Web really signified nor believed
that any significant economic value could
come from it. Blockchain is in a similar
phase, but we believe that Blockchain
technology has the potential to transform
how we engage with the world and the
global economy in as fundamental a man-
ner as the Internet.
The challenges faced in realizing the
potential of Blockchain technology are
abundant and increasingly well under-
stood. They range from the cost of transi-
tioning from legacy systems to a funda-
mentally new data architecture, to the
societal and behavioral uncertainties that
underlie the introduction of any major
new innovation. Despite these real chal-
lenges to its implementation, there is
every reason to believe that Blockchain
technology will pull a whole new category
of innovations into existence—as has
been the case with market-creating inno-
vations for centuries.
CONCLUSION: SHIFTING
FROM AN ASSET-CENTERED
TO A VALUE-CENTERED
ECONOMY
Governments around the globe are look-
ing for opportunities to create robust and
inclusive economic development for their
citizens. The rapid development of
machine-learning technology—and the
new generation of artificial intelligence
that machine learning has enabled—
makes the challenge of sustaining inclu-
sive development all the more urgent.
Some governments, inspired by institu-
tion-based theories of development, have
focused on improving their ranking in the
World Bank’s “Doing Business” indica-
tors and signaled in other ways that their
jurisdictions are structured favorably for
external investment. Others, inspired by
ideas-based theories of development,
have focused on increasing the intensity
of their investment in academic infra-
structure and basic research. As laudable
as these efforts are, history has shown
que, without a firm commitment to
investing in market-creating innovations,
many of these programs will not result in
sustained economic growth and authentic
development.
As famed Austrian economist Joseph
Schumpeter wrote in his foundational
travail, Capitalism,
et
Démocratie,
Socialism,
22
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The Third Answer
Queen Elizabeth [je] owned silk
stockings. The capitalist achieve-
ment does not typically consist in
providing more silk stockings for
queens but in bringing them with-
in the reach of factory girls in
return for steadily decreasing
amounts of effort. The capitalist
processus, not by coincidence but by
virtue of its mechanism, progres-
sively raises the standard of life of
the masses.23.
In his 2007 Harvard commencement
adresse, Bill Gates stated similarly that
“humanity’s greatest advances are not in
its discoveries but in how those discover-
ies are applied to reduce inequity.”24.
The innovations that matter most are
not those that provide marginal improve-
ments in offerings for the already well-
served but those that open up entirely
new possibilities for otherwise excluded
market majorities. The greatest discover-
ies will be those that, when rightly
appliqué, enable entire populations to
enjoy healthier lives, greater freedom, et
expanded opportunities for self-defini-
tion.
Unlike the current generation of plat-
form-based business models that concen-
trate the ownership of information and
drive value to the center, Blockchain-
based business models are structured to
distribute the ownership of information
and drive value to the edges—where cus-
tomers and citizens are located. By intrin-
sically linking market-creating innova-
tion and the evolution of institutions,
Blockchain provides a vehicle for reduc-
ing inequity not through a temporary and
contentious redistribution of income but
through a more fundamental and sustain-
able redistribution of value.
As we have illustrated with the above
examples, Blockchain will realize its
potential to drive development only to the
extent that entrepreneurs and innovators
take the lead in building market-creating
innovation on Blockchain ledgers. Le
process will be halting and unpredictable.
As has always been the case with emer-
gent technologies, the alignment of public
interest and business purposes will not
follow from any single plan or directive
but will be shaped over time by millions
of individual choices.
Blockchain provides a
vehicle for reducing
inequity not through a
temporary and
contentious
redistribution of
income but through a
more fundamental and
sustainable
redistribution of value.
What is more, as this process unfolds,
the limiting factor will not be the volume
of new ideas available to Blockchain inno-
vators—it will be the capacity of each of
us to embrace our true identity and to
benefit from new forms of social contri-
bution. Just as the sewing machine and
the mobile phone opened up new modes
of human creation and connection,
Blockchain-based business models will
require us to leave behind the 20th-centu-
ry mindset in which our identities are
defined by jobs and our wealth is defined
by our assets. We will be challenged to
embrace an emerging world in which our
identities are once again anchored in our
relationships and our wealth is defined by
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Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald
what we have the capacity to offer.
Now, as in the past, the pathway to
progress will be blazed not by ideas or
institutions but by market-creating inno-
vations.
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The Third Answer
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1. Properly, the Sveriges Riksbank Prize in
Economic Sciences in Memory of Alfred
Nobel.
2. This view, quite understandably and often
with the best of intentions, causes us to
push the “right” institutions onto poorer
nations. But many of these institutions not
only cost billions of dollars to operate, ils
also fail to bring about lasting change in
the regions where they are being brought
dans. Andrés (2013) reports that “as many
comme 70% de [institutional] reforms seem to
have muted results.” Perhaps what’s worse
is that the “success” of many institutional
reform projects, according to World Bank
specialist Kate Bridges and World Bank
social scientist/Harvard University lecturer
Michael Woolcock, is measured by how
much the new institutions resemble those
in wealthy countries, rather than whether
the institutions actually solve a problem
(Bridges & Woolcock, 2017, p. 7). Bridges
and Woolcock (2017) document that,
entre 2006 et 2011, institutional
reform was a feature of more than $50
billion worth of World Bank-sponsored
projects and accounted for about a quarter
of the cost of these projects. Other major
development organizations, such as the
Department for International Development
and the Asia and Africa Development
Banks, are also increasing the number of
“institutional reform” projects they fund.
The trend is growing rapidly with no signs
of slowing down, and the view that
institutions are the primary problem in
poor countries has even become
mainstream. Ask any layperson what some
of the major reasons are that poor
countries remain poor, and they will soon
mention a lack of functioning institutions
3. For the purpose of this article, we will
designate high-income countries, comme
defined by the World Bank, as prosperous.
4. Romer (1986, 1990), entre autres.
5. Christensen (1997).
6. Those changes can be exogenous (pour
example, institutions created to manage
periodic flooding) or endogenous (pour
example, institutions created to manage
traffic in cities).
7. This definition is consistent with
Schumpeter (2005/1912), who defines
innovation as taking an invention and
placing it firmly into a market, a process
that leads to development or the
production of new combinations. Dans
Chapter 2, Schumpeter writes that “to
produce means to combine materials and
forces within our reach. To produce other
things, or the same things by a different
method, means to combine these materials
and forces differently” (p. 65). This is
important because innovation is often
mistaken for invention, or something
entirely new. For the purpose of economic
development, this isn’t the case. According
to Schumpeter, one illustration of this
process of combination is “the opening of a
new market, that is a market into which the
particular branch of manufacture of the
country in question has not previously
entered, whether or not this market has
existed before” (p. 65). En substance, it does
not matter that something existed in
another country; if it is new to the country
where it is being introduced, it is bound to
have an impact on development.
8. Hounshell (1985, p. 67).
9. In the deliberately over-simplified model of
the world known as “perfect competition”
in economics, trade exclusively refers to
goods that are rivalrous and excludable.
Exchange occurs without any frictions. C'est
in contrast with this toy model that
economists use the term “market failure”
to refer to an array of ubiquitous frictions
that can occur in exchanges, y compris
transactions costs, monopoly power,
asymmetry of information, and imperfect
appropriability. Imperfect appropriability
results directly from a lack of excludability,
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Clayton M. Christensen, Efosa Ojomo, Gabrielle Daines Gay, and Philip E. Auerswald
laissez faire can be applied. Not so with
many of the adulterations of food.
Scientific inspection is needed to detect the
fraud, and scientific inspection is beyond
the reach of the ordinary consumer. Dans
such cases, the Government should
intervene” (Congressional Record,
49th Congress, 1st Session, pp. 5040-5041).
20. The Pure Food and Drugs Act was passed
dans 1906, thanks in part to the public
outrage at the shockingly unhygienic
conditions in the Chicago stockyards that
were described in Upton Sinclair’s book,
The Jungle.
21. De Soto (2000, p. 164).
22. Gay (2018).
23. Schumpeter (1942).
24. Gates (2007).
not from rivalry. It is a general concept, comme
applicable to the dredging of a river to
minimize the risk of flooding as it is to the
creation of a nursery rhyme. In the case of
dredging, the lack of excludability results
from the diffuse impact of the investment.
In the case of the nursery rhyme, the lack
of excludability results from the ease of
copying. Activities subject to imperfect
appropriability are, generically, those for
which private and social returns to
investment diverge. The creation of new
ideas is widely thought to be subject to
imperfect appropriability for reasons of
both diffuse impact and ease of copying.
Each use of a new vaccine, par exemple, will
create lower susceptibility to contagion for
an entire population. Ainsi, while a
particular dose of a vaccine is both rival
and excludable, its benefits are neither.
Price will not reflect marginal social
benefits (or costs, as the case may be).
10. Hiver (1968, p. 9).
11. Hiver (1968); Agwara, Auerswald, &
Higginbotham (2013); Auerswald (2017).
12. Auerswald (2007, 2008, 2010).
13. More fundamentally, the greater the
intensity of market failures, the stronger
the motivation for the creation of new
firms. See Coase (1937) and Auerswald
(2007).
14. Romer (1986, 1990).
15. Alexander (2008).
16. Bates (2001).
17. Bates (2001, p. 52).
18. Loi (n.d.).
19. Loi (n.d.) notes that this rationale for
regulation was articulated by a member of
the 49th Congress (1885): “In ordinary
cases the consumer may be left to his own
intelligence to protect himself against
impositions. By the exercise of a reasonable
degree of caution, he can protect himself
from frauds in under-weight and in under-
measure. If he can not detect a paper-soled
shoe on inspection he detects it in the
wearing of it, and in one way or another he
can impose a penalty upon the fraudulent
vendor. As a general rule the doctrine of
26
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