Grand Challenges and Systems Change Summary

This is my summary of the course Grand Challenges and Systems Change, one of the core classes at the UCL Institute for Innovation and Public Purpose’s MPA in Innovation, Public Policy and Public Value.

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Summary

• This course spoke about how to use the idea of solving grand challenges through missions, which bring people together and spur innovation through many different avenues of attack.
• Instead of working on a linear path and targeting one intervention in what is a very complex system, the state needs to look at how to leverage its full toolkit to make interventions across the system — including procurement, regulation, credit guidance, and development banks.
• With new technologies, we cannot assume that the previous way of doing things will work. New challenges require new institutions, and coalitions of actors from outside of government to make substantive change.
• This course provided a toolkit on how to design missions.

Systems-change

A system consists of interconnected and interdependent patterns of action involving many institutions. Changing one part of a system affects the others. Systems-change is more important than ever because of the growing complexity and interdependence of modern societies and economies. Leverage points are places in a system where a small change in one thing can make a big change across everything. According to Meadows, there are 12 leverage points in a system, with different levels of power — this includes low-hanging fruit, like changing how much money you spend or how many people you accept into a program, and then more powerful interventions, like changing the goals of a system or the paradigm of society regarding an issue.

Grand challenges

A grand challenges approach is needed to tackle the world’s biggest problems. Grand challenges are

• Complex — involve many interactions, associations, emergent understandings, and nonlinear dynamics, where no one actor can solve the challenge by itself;
• Uncertainty — radical uncertainty of results if they’ll be appreciated, and no certainty about the final state;
• Evaluative — must cut across multiple jurisdictions (e.g. political, social and economic), and have multiple criteria of worth.

To address these challenges, we need to take a systems-based approach — focusing on relationships between many different actors and actions, over heros and a linear response. Grand challenges are not just about solving missions, but also about bringing people together, and experimentation.

Missions

Grand challenges can be broken down into many different missions. These missions must be well defined, targeted, time-bound and use a broad suite of tools. They involve making specific choices on what to focus on, so should be bold. Missions should be set by diverse groups and unusual innovators, instead of through a top-down approach. To achieve them, consortia of different sectors and actors need to be forced to focus on advancing the technology frontier, not near-term improvements. As a result, solutions include the development and deployment of many different technologies. Innovation/industrial policies have 2 mixes: vertical/sectoral; and cross-cutting/helping every sector (e.g. skills). Missions are vertical but need to consider problems horizontally too.

Governments must use their full toolkits in supporting new solutions, including procurement, R&D, taxation, regulations, and more. Change doesn’t happen overnight so missions require long-term, stable support. Success factors include pick the willing; co-shape don’t fix markets; welcome experimentation and risk taking; structured engagement; and quality not just quantity of financing.

Financing innovation

Large scale firm growth cannot be financed by returns from previous investments like has been done in the past. Unfortunately, the financial system does not meet the current needs of the innovation system, which requires patient capital and a mission-oriented direction. At the same time, mission-oriented policies have focused too much on the demand side and the role of procurement, and not enough on the role of banks and creating access to capital in new challenge areas. Banks have grown so big because they have been lending to themselves, finding larger returns from hedge funds, private equity, and subprime mortgages, than industry investments. The tax system must be reformed to encourage long term over short term private sector investment, deter stock buybacks and pump and dump M&As. Investors should get returns based on actual risk.

State investment banks can also help with market shaping, as firms require long term commitments to develop technological solutions in emerging areas that the private sector does not offer. 97% of firms looking for finance get it — it’s the other 3% that are more risky that the government could support. Because these are risky, the government should also explore ways to get returns on its investments. An innovation fund could be created that is initially government funded and then supported by returns on successful investments.

Public R&D should help overcome specific roadblocks and be at stages firms don’t invest at but returns are high — areas far from commercialization. In addition, research should not be patented that is far from commercial application to allow for more innovation.

Tackling climate change

We need to look at how we measure growth and value differently. Greening and the productivity of resources isn’t reflected in total factor productivity so policymakers see it in conflict with growth. This isn’t to say that we need to degrowth because future growth doesn’t have to be resource based.

We need a global shift in how we support a greener global economy, tilting the playing field to favour green goods. This could include:

• Regulating to ensure more product durability;
• Creating cartels around natural resources to increase their prices, help developing countries develop, and disincentivize a reliance on resources;
• Re-examine our taxation system by not heavily taxing good things (e.g. labour or consumption) but focusing on bads (e.g. use of energy and materials);
• Support cleaner economies in developing worlds through a new marshall plan;
• Test-bed green solutions, which would also attract world leaders in the space to your country;
• A green kite mark; or
• Grand challenges based on SDGs and societal challenges. The state usually acts when there is a crisis — like war — but the environment could be the crisis for the state to create new institutions.

There is a social foundation of things that are needed to have a good life (e.g. water, food, health, education) but there is also an ecological ceiling to consumption in order to be sustainable (e.g. freshwater withdrawals, air pollution, biodiversity loss). We need to balance the two.

The Sustainable Development Goals (SDGs) are better than the Millenium Development Goals (MDGs). The MDGs are getting a lot of criticism because they were so top down and more focused on survival than changing power dynamics. The SDGs have the ability to be more transformational. Their goals, targets and indicators are not perfect, but an improvement to the MDGs. The SDGs’ indicators are unique because they involve a mix of inputs, outputs, outcomes and impacts.

Technology feasibility

Technologies need to be technologically, socially and economically feasible. Sometimes a new technology may just be a revitalized old one that is now right-for-the-times. The Government should intervene when technologically and socially feasible ideas are not profitable. Each technological revolution changes what’s profitable and acceptable but all of these shape each other over time.

Technological revolutions

The world has experienced five different technological revolutions every 40–60 years that led to the massive replacement of one set of technologies with another: industrial; steam & railways; steel, electricity & heavy engineering; oil, automobiles & mass production; and information and telecommunications. These revolutions shake up the current order and establish a new one through the same cycles:

• installation — creative destruction and displacement of old skill sets/regions/industries, as they are unrestrained by regulations;
• crash — bringing about unemployment and inequality; and
• deployment — harmonious growth in the golden age, where regulations and institutions have solved the problems causing inequality.

The crash(es) always happens because the new order doesn’t have the proper regulations and institutions to be economically & socially sustainable. Institutions don’t change when they need to because they’re on different rhythms to technological change. As a result, it is only after the bubble pops and new regulatory and institutional changes have taken effect (e.g. financial or education reform) that everyone can prosper.

There are shorter investment cycles for technological systems that last 3–12 years. Innovation isn’t clustered but spread out across these cycles — beginning slow until it begins to pick up momentum, attracting private capital and then leading to more innovation. At first a few competing innovations battle it out, until a foundational innovation or way of doing things takes root so that compatible follow-on-innovation can build on it upstream and downstream. This early stage of innovation is an important time for government investment because private capital sees investments to be too risky. It also allows the Government to provide evolutionary direction by funding technological advances that support a given trajectory and social goals. At the end of these cycles, all of the most revolutionary innovations are almost exhausted, the market becomes saturated, returns decrease, and idle capital begins to move onto the next big thing.

Radical changes usually come from outside of the current system because incumbents want to ride out the current one as long as they can. This can blind them to big changes and lead to their creative destruction.

Monetary and fiscal policy

Neoclassicists prefer monetary policy over fiscal policy since it’s instant, while fiscal policy has long time lags. The IMF underestimated the multiplier effects of fiscal policy following the 2008 financial crisis, and called for austerity, decreased spending, and increased taxes to decrease deficits. However, deficit spending is important to get out of a hole.

Credit guidance by central banks could be used to encourage investors to fund certain sectors — where x% of bank lending can go to mortgages and another x% must go to productive things. Strategic quantitative easing could have the central banks buying bonds in banks with the right lending goals — e.g. a clean economy. Counter to this idea, some worry that this behaviour could impact the independence of central banks.

Markets

The market was a utopia as a model for behaviour, but is now an ideology. Markets and states are social constructions that reflect unique political and cultural ideals. How goods are traded, not just what is traded, creates legitimacy (e.g. cadavers). Market prices do not equal value because market price represents willingness and ability to pay. Ques have been used to promote equality — as they represent willingness and ability to wait — but have been distorted by people paying line fillers.