On Innovation, Entrepreneurship, Economic Growth and Democracy

Image credit: Aruinathan

The Economist, has posted a video interview with Vijay Govindarajan, the founding director of Tuck’s Center for Global Leadership, in which Govindarajan explains the concept of “frugal innovation” – the idea that while historically multinationals would innovate in rich countries like the US and sell to the developing world, in recent times this trend has reversed. 

“Frual innovation is where we innovate in poor countries and bring those products to rich countries,” says Govindarajan, citing GE’S low cost ultrasound machine, developed in Asia and now sold in the US.

According to Govindarajan, the idea of frugal innovation encompasses innovations that facilitate 300-400 percent decreases in the price point, rather than simply 30-40 percent decreases.

While conceiving of an innovation is important, Govindarajan emphasizes this is just "one percent" of the battle – the remainder falling to execution, which most companies tackle badly. 

He goes on to cite companies like Kodak, Sears and Microsoft as all having failed at executing innovation – whether this be in commercializing the digital camera, mass discount retail, or the ebook.

The most interesting part of the interview comes towards the end, when Govindarajan responds to a question about whether India could ever overtake China’s economic growth.

“The foundation of India is based on entrepreneurs. Indian economic growth is driven not by the central government but by individual entrepreneurs, and that is a more sustained form of growth,” he says.

He goes on to emphasize that democracy is essential for sustained long-term economic growth, a view the author of a recent Economist article entitled India’s surprising economic miracle, appears to share.

This interview comes at a particularly relevant time, given that the Commonwealth Games, currently taking place in New Delhi, have spotlighted India as the object of much criticism. The country's far from optimal preparation is particularly apparent when compared to Beijing’s 2008 hosting of the Olympics, a parallel that the media has conjured up many times.

That being said, a sliver of the free for all of criticism, including that by the Economist, has been tempered by the idea that India’s chaotic and rather corrupt handling of the Games, is at least a result of a democratic process -- decisions about how, when and where to spend money are made by many rather than a few, and thus hiccups and disagreements are inevitable.

In a recent Economist article entitled India’s surprising economic miracle, the author points out : “There are two reasons why India will soon start to outpace China.” One is demography. China’s workforce will shortly start ageing; in a few years’ time, it will start shrinking. That’s because of its one-child policy—an oppressive measure that no Indian government would get away with.

 “The second reason for optimism is India’s much-derided democracy… No doubt a strong central government would have given India a less chaotic Commonwealth games, but there is more to life than badminton and rhythmic gymnastics. India’s state may be weak, but its private companies are strong. Indian capitalism is driven by millions of entrepreneurs all furiously doing their own thing. Since the early 1990s, when India dismantled the “licence raj” and opened up to foreign trade, Indian business has boomed.”

Only time will tell, but the idea that the same process that largely drives India’s chaos, corruption, poverty and overpopulation is also the one that will ultimately fuel its long-term economic growth is both paradoxical yet heartening – not just for entrepreneurs and Indians, but also for proponents of freedom and democracy.