Do the Right Things Right: It's About the Basics Not Innovation

Not exactly the most exhilarating stuff but taking care of the basics will drive growth, and reduce poverty, across the developing world.

For eight years Marcus Lemonis was the star of the reality TV show The Profit. Lemonis, a successful Miami-based entrepreneur would find teetering small businesses in the American heartland and invest his money and expertise to turn them around. The show had its moments, but the most striking thing was the uniformity of the first few steps on the turnaround plan. Get your accounts in order. Get a handle on inventory management. Know which products or services make you money and which ones don’t. These pearls of wisdom were applied to businesses as diverse as used car selling, restaurants, and fashion labels. 

All well and good but not exactly the usual fodder of the GPI. Except that Mr Lemonis’s tour through the light industrial byways of North America illustrate a key point: if you want to get some economic growth going, start with the basics. Lemonis never recommended “you guys need to come up with a new innovative product” or “all of this is fine, and I see potential but what is new and innovative about this particular cookie company?” In fact, he invested in several borderline identical companies. Yet calls for ‘innovation’ as an almost panacea for firm level economic growth are everywhere. 

People in low- and middle-income countries (LMICs) need jobs. Across the African continent 10 million people join the labour force each year yet African economies only create 3 million formal jobs. Young and booming populations, small government budgets for social protection, and an increasingly unpredictable climate all mean that creating a productive non-farm industrial sector that can absorb the remaining 7 million is the only path to broad-based sustainable economic growth. Should governments and donors focus on innovation and hope to achieve the much sought after leapfrogging or should they look to the ugly stepsister of economic growth; slow, steady, cumulative gains to marginal improvements? 

The Case Against Innovation 

It can be hard to argue against innovation. Idea generation is at the heart of the Solow Growth Model. The word is shoehorned into every start-up’s pitch deck and multinational’s IPO prospectus. Countries from Australia to Zimbabwe speak of the need for innovation to drive their economies forward. It is a word is used to mean so many things in so many contexts that it can be meaningless. Like ‘sustainable’ or ‘strategic’, innovation is often an invocation as much as a concept. Business types like to claim everything is innovation. Tweaking a business model to fit a new context. Using a small modicum of technology in a supply chain. Defined widely enough any old run of the mill improvement is an innovation. Improvements are the goal, but the problem is the flashy type of ‘innovation’ that gets pulses racing in Silicon Valley. The one that gets investors writing hype and hope inflated cheques. That’s the one which is the chimera for LMICs. 

Across sub-Saharan Africa (SSA), the vast majority of firms are nowhere near the technological frontier. African agriculture needs widespread adoption of the 120-year-old technology of the tractor before it can reap the benefits of AI assisted precision planting. 

Furthermore, the last several years have seen a phenomenal amount of ‘innovation’ in economy-boosting technologies; solar power’s precipitous price decline, StarLink internet, mRNA vaccines, and of course the recent boom in AI capabilities. Yet The World Bank projects that over the 2015-2025 period Africa economies on a per capita basis will have contracted at an annual average of 0.1%. Somewhere the innovation to economic growth link is breaking down. 

And even if innovation did start to lead to much more growth, as Economists Daron Acemoglu and Simon Johnson illustrate in their new book, there is nothing automatic about the returns to innovation being widely shared. The benefits often disproportionally accrue with specific groups, such as highly skilled workers and professionals. SSA is only just edged out of top spot (by the Middle East and North Africa) as the most unequal region in the world. Given the concentrated nature of the economies and with so few people employed by globally competitive firms, the returns to innovation across Africa are unlikely to lead to mass poverty reduction over the short and medium term. 

Bring it Back to Bread-and-Butter Basics 

If there are sufficient ideas around but these aren’t being implemented what can policymakers do? The first step is identifying the problem. As Dani Rodrik writes “any government or donor growth strategy worth its name must enhance the productivity of the existing workforce, not the workforce that might emerge in the future.” Next the cult of innovation must be dropped by international donors. Firms in sub-Saharan Africa are underproductive not because they lack ideas. They lack access to finance (12% of the global workforce is in SSA but SSA owns only 2% of the global capital stock), score poorly on quality of management surveys, and face basic barriers to growth unseen in wealthy countries, such as intermittent power supply and sparse road networks. These issues and others have known solutions if the resources were put towards them. 

For the firms not pushing up against the technological frontier, not everything needs to be about innovation and moving fast to break things. There is a lot of low hanging fruit in terms of helping firms grow and create jobs by following the lead of our Mr Lemonis. It’s less about self-driving cars or building a tech-enabled platform. It’s much more about doing the right things right. Not exactly the stuff of an inspirational TED talk, but inventory management might just be an underappreciated element of lifting millions out of poverty. Storekeepers of the world unite, your time in the sun approaches.