A 10-Point Plan to Grow Your Economy Through Innovation Mercantilism

November 16, 2016

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To the commerce minister of a developing nation:

I write to you today from International Institute for Innovation Mercantilism to send my congratulations! Your party has just gained power and you have been appointed commerce minister in your developing nation’s cabinet. Your prime minister has just charged you with growing your nation’s technology economy. She complains that too much tech is the province of U.S. firms and that for your country to develop you need to find a way to grow tech industry jobs. She has given you one week to come up with a plan. What should you do?

You have three choices: 1) tell the prime minister that the best way to grow jobs and income is to encourage all sectors to be innovative and that it’s a mistake to focus principally on tech jobs per se; 2) say that you can do this, but that she shouldn’t expect immediate results because growing innovation industries through investments in science, education, infrastructure, and related areas takes a number of years to pay off, but when they do, the growth is sustainable; or 3) say, “Yes, prime minister.”

If you don’t mind risking getting sacked you should answer number one because, as the scholarly evidence shows, for most nations, more than 90 percent of economic growth comes not from tech production, but from the broad-based use of technology by all sectors. Moreover, many tech-development policies, such as tariffs on high-tech imports and government domestic procurement preferences, actually reduce the use of tech in other sectors and slow growth. You might answer number two because for many fast growing technology economies—such as those of Ireland, Israel, and Singapore—these “framework” policies laid the groundwork for strong, sustained growth.

But unfortunately, your PM wants a high-tech sector pronto! So what are you going to do? Well, here’s a 10-point plan based on global best-in-breed innovation mercantilist strategies and policies:

Step 1: Keep foreign firms out so your domestic firms can develop their own learning bases.

Step 2: Whatever you do, don’t let your fellow ministers buy high-tech goods and services from foreign firms.

Step 3: Don’t let foreign firms sell in your market unless they agree to give your domestic firms technology.

Step 4: Enlist other government agencies to weaken foreign firms.

Step 5: Set up a weak patent system so your companies can file patent suits against western companies.

Step 6: Pile on the subsidies for your domestic champions.

Step 7: Don’t forget cash to buy foreign intellectual property, often for a hefty price premium.

Step 8: Remember, the enemy of my enemy is my friend.

Step 9: Play the leading foreign technology companies off against each other.

Step 10: When in doubt, steal intellectual property.

Only one or two downsides:

First, this involves systemically violating the principles and in some cases the rules of the World Trade Organization (WTO), which your trade ministry is committed to. But don’t worry, if you play your cards right you can probably get away with an aggressive innovation mercantilist strategy, in part because the international community is pretty toothless when it comes to enforcing WTO rules. And, the United States, your main tech competitor, “speaks loudly, but carries a small stick.” Or at least until Donald Trump was elected president. You might want to get cracking because even though the Washington trade establishment continues to turn a blind eye toward foreign innovation mercantilism, the new Trump administration is not likely to hold such sanguine views.

Second, tech mercantilist strategies often fail and even when they succeed they come at a high price, both from government spending and restricted growth in other parts of the economy. But I wouldn’t worry, you and your PM will likely be out of office long before people notice!

(For the full memo, see parts 1, 2, and 3.)