Innovation Meets Global Policy in the G20 Article by Feride İnan

The G20 leaders annual meeting is being held in Hangzhou. The city holds significance for its natural beauty – heaven on earth as the Chinese describe it – and for being the hometown of Alibaba, China's world famous e-commerce company, a symbol for Chinese transformation from the world's factory to a high-tech economy. Indeed, the Global Innovation Index(GII) 2016 released this month, placed China in the top 25 among 128 countries to become the first middle-income economy to join this group.

Considering China's dramatic transformative experience, it comes as no surprise that the Chinese government introduced innovation as a central leitmotif into the G20 agenda. According to the same GII report, China's transformation reflects the unique way in which China introduced international connections throughout its national innovation system. In global economic relations it is relatively new to emphasize innovation and technology which generally viewed as issues of national policy. It comes partly as a result of cross-border regulatory issues connected to the Internet and partly because of global developmental issues such as climate change and public health. These developmental issues have made the discussion on global collaboration for diffusion of technologies more widely pronounced as evident by the title of the Global Innovation Index this year , called 'Winning with Global Innovation'. Technology was also at the forefront of discussions at the COP21 in December 2015, where 19 countries launched the Mission Innovation initiative pledging to double funding in clean energy research to a total of $20 billion over the next five years.

Innovation was one of the Chinese Presidency's overarching four priorities in the G20 framework. On May 26, 2016, Foreign Minister Wang Yi announced a set of 'ten major results' that the Chinese Presidency strives to achieve at the G20 Hangzhou Summit. The first 'result' is the development of a G20 "blueprint" for innovative growth that was developed by the three taskforces, innovation, the digital economy and the new industrial revolution, that were set up this year. Specific action plans to boost innovation, new industrial revolution and the digital economy will also be laid out.

So what are the pressing issues?

First, we will see how actively the G20 will engage in issues related to international flow of innovation. Technology transfer to developing countries and the protection and enforcement of intellectual property rights, are central to this flow. Foreign direct investment flows can help developing counties upgrade their innovative capacity. On the other hand, 3,200 bilateral treaties that regulate international investment at present do little service to facilitating cross-border cooperation on investment. The Chinese Presidency's efforts to launch the G20 Guiding Principles for Global Investment Policymaking is an important step in kicking off the discussion for a transparent, and predictable multilateral investment framework that will address uncertainties associated with cross-border investment.

Equally important is to encourage international collaboration as part of the effort to deploy technology across the developing world to address global challenges including climate change and healthcare. In this regard the G20 could coordinate the existing climate change funds to finance the technology transfer costs of innovative low-carbon products to developing countries. As important is to build capacity in these countries so they can adopt innovative energy-efficient products and processes.

Furthermore, it is critical to ensure spread of digital payment technologies to developing countries to ensure financial inclusion. The Global Partnership on Financial Inclusion (a G20 initiative that began in the Korea Summit in 2010) made digital financial inclusion its priority in 2016. A G20 High-Level Principles for Digital Financial Inclusion have been drawn out. The G20's work in addressing digital infrastructure gaps in terms of physical infrastructure and skills will be critical.

Secondly, there are a set regulatory challenges brought about by new technologies. Regulatory challenges are emerging in cybersecurity, in cross-border flow of data and in protection of personal data. At the Antalya summit in November 2015, the word "Internet" was for the first time adopted in a leaders' communique which emphasized cooperation on cyber security. Earlier in September 2015, a digital security agreement was signed between the U.S. and China. This issue may also be highlighted in Hangzhou.

The regulatory environment (i.e. customs procedure and taxation) also needs to adapt to cross-border e-commerce, which is transforming trade. Similarly, setting global standards of digital payment systems, for instance over personal data risk interoperability, can help ensure that these services are used securely across developing economies.

In the years to come, new innovations (e.g. 3D printing, artificial intelligence, and robotics such as self-driving cars and drones, – as well as critical developments in biology and genetics) will challenge existing regulatory systems. The G20 needs to start addressing the impacts of new innovations beyond borders which can no longer be addressed by national policy.

Last but not least, is the impact of technology on labor markets and employment patterns. Technology is revolutionizing industries and creating new ones, triggering new skills requirements. The G20 Employment Working Group both last year and this year emphasized the need to address challenges on employment and education systems and to emphasize skills development to facilitate adjustment to the new conditions.

On the other hand, there is a need to better understand automation-driven labor market imbalances (within and between country asymmetries) and the impact of technological change on global employment and incomes in the long run. If technology is not only displacing but replacing jobs in the long run as some argue, we need to start thinking about the potential implications on social security systems for redistribution.

The new global context calls for integration of technology and innovation into all aspects of global economic debate. The G20 may very well be the right place to steer a global innovation agenda to promote inclusive and sustainable economic growth and development. Together, the G20 economies account for 85% of the global economy, 80% of world trade, and two-thirds of the global population. They also account for more than 80% of global R&D investment and 70% of the global patent applications. Those simple facts underline the significant potential of the G20 as a global platform to underline opportunities and challenges brought by technological change and to support international cooperation towards spreading the benefits of innovation globally. The Chinese Presidency has been an important starting point. Much more needs to be done.

Feride Inan
Think-20 Coordinator of TEPAV in Turkey, Visiting Fellow of RDCY. She conducted in-depth research and authored reports about G20 issues in areas including finance, trade, and investment. She published dozens of papers in journals.

This article was published in CRI English on September 05, 2016.