Foreign direct investment (FDI) remains a key driver of innovation. In addition to creating jobs and injecting capital into the local economy, its positive impact on productivity gains — through supply chain linkages and technology transfers — remains desirable. However, despite its criticality in the wealth creation process, the many benefits that accrue for countries, regions, local communities and industry sectors from FDI are often not distributed evenly or equitably.
In addition to conventional commercial ramifications, it is important that tax breaks, subsidies and other FDI incentives align with a region’s broad-based inclusive economic development agenda — vis-à-vis reducing poverty and inequality, addressing the climate crisis, advancing gender equality and building resilience.
In addition to science, policy and industry, society has become critical in understanding the innovation system. Traditional discourses on the role of the civic sector in economic development have been largely locked within academic discussions — in the context of governance and socio-political dynamics.
However, to build a more inclusive economy and foster resilience through diversification, a multi-stakeholder governance model that brings together elected officials, policy-makers, investors, business leaders, community leaders, indigenous leaders, advocacy groups and development partners is critical. In many ways, civil society is an important vehicle in the development of the entrepreneurial ecosystem and the quadruple-helix model of innovation is an important paradigm in this context.
Based on a systematic review of the important role of civil society in the innovation debate — through the lens of the fourth-helix stakeholders in the FDI attraction value chain — this analysis advances the quadruple-helix approach as a vital tool for driving inclusive and sustainable growth. Prioritising the creation of high-paying jobs — and helping marginalised groups navigate a path to those jobs — through a community-based participatory approach is key.
The quadruple-helix model
Productivity growth lies at the heart of economic prosperity, and it remains a key source of growth and competitiveness. The literature on the beneficial impacts of innovation and FDI on economic prosperity through the productivity channel is unambiguous.
Before it became a popular framework for understanding innovation policies, professors Henry Etzkowitz and Loet Leydesdorff refined earlier concepts and developed the triple-helix model of university–industry–government interactions in the 1990s. At its core, the triple-helix paradigm explains how such a triadic relationship can foster entrepreneurship, innovation and economic growth in the knowledge-based economy.
Over time, given its higher explanatory power, Malin Lindberg — among others — advanced the quadruple-helix model as an alternative framework for explaining regional innovation. Simply put, the quadruple-helix paradigm rests on bringing together academia, industry, government and civil society to foster synergistic outcomes and strengthen regional innovation ecosystems. In essence, the fourth helix is the human-centered aspect of the innovation system, which encompasses things like democratic knowledge, values, media, culture, arts, artistic research, arts-based innovation and the cultural fabric of a community.
Given the critical role played by civil society institutions, in the context of promoting diverse societal interests by acting independent of the state and market, civic actors make a difference in their communities and contribute to economic prosperity and good governance. They fulfil these objectives by charting alternative policy pathways, serving as watchdogs of accountability and promoting transparency. George Ingram, senior fellow at the Center for Sustainable Development at the Brookings Institution, offers a compelling argument on the important role of civil society in the socioeconomic development of both developed and developing economies: “In a country blessed with peace and stability, civil society fills the space untouched by the government and the private sector. In a fragile and conflict-ridden country, it plays an even more important role of providing services normally the responsibility of the state and business and can lay the foundation for reconciliation.”
To be clear, leveraging FDI for economic development is rarely a linear process; the relationship between FDI and economic prosperity is a complex, non-linear one. The quadruple-helix proposition incorporates civil society as the fourth helix, based on the notion that because of their non-profit structure, civic actors can navigate the complexities associated with the commercial–political–scientific community. This is in addition to being able to step in when certain projects do not fit the traditional organisational logic of the university or government financiers.
The quest for inclusive growth
The notion of the entrepreneurial discovery process (EDP) provides a basis for regional innovation and economic competitiveness. It derives from the business theory and entrepreneurship literature, based on the proposition that to maintain their competitive edge, entrepreneurs must constantly evaluate market dynamics.
The significance of the quadruple-helix process lies in its ability to effectively incorporate demand-side perspectives based on feedback from consumers, citizens, organised labour and other advocacy groups — whose views are typically echoed by civil society organisations. As such, the fourth helix enhances the stakeholder engagement process by ensuring the voice of civil society is heard during the EDP. Clearly, this multi-stakeholder approach maximises the benefits of having a wider range of stakeholders at the decision-making table.
Unlike traditional, top-down policy interventions driven by centralised decision-making, the EDP prioritises “investment based on an inclusive and evidence-based process driven by stakeholders’ engagement and attention to market dynamics”. By implication, this bottom-up, place-based approach relies on the quadruple-helix model in identifying and exploring emerging trends and opportunities for regional competitiveness.
Professor David P. Baron argues that in their foreign market entry decisions, firms prioritise not only market considerations, but also political factors. Their thesis rests on the premise that in the internationalisation efforts of firms, the varying public policy and institutional settings in which non-market strategies are executed have implications for performance. In a way, this supports the notion that policy and programmatic efforts targeted at attracting FDI may not yield optimal results if the non-market nuances in the governance–FDI nexus are not properly framed. After all, FDI is nothing but a vehicle for multinational firms — and these firms are always keen on minimising political, financial and reputational risks.
Contemporary economic development implications
The discussion above merits further analysis. The ‘OLI’ theory posits that FDI location decisions are driven by three key factors: ownership advantage (O; e.g. superior technology), locational advantage (L; e.g. talent and skills) and the internalisation imperative (I; e.g. internalising operations as against outsourcing and licensing foreign firms). However, in practice, corporate site selection relies on rigorous analytical, qualitative and iterative analysis to decipher hidden costs, benefits and other allied trade-offs.
In contemporary economic development policy and practice, the fallout of Amazon’s year-long process of establishing a second headquarters (HQ2) offers a glimpse of how socio-political and economic factors impact economic development programming — and the implications for public scrutiny vis-à-vis civil society. The Amazon HQ2 process offers a classic example of the important role of civil society in the FDI attraction and corporate site-selection process. This is because after satisfying the dictates of the stakeholder criteria matrix, community- and neighbourhood-specific nuances are key determinants of the long-term success — or failure — of investment decisions.
Commenting on the 26 publicly released bids, from the total submitted by 238 US cities, Nathan Jensen, a professor in the department of government at the University of Texas at Austin, espouses the need for broader community involvement in regional economic development. “For critics of the HQ2 process, or economic development practices in general, these bids offer clear evidence that businesses dominate the “growth machine” in cities, with little role for the rest of civil society,” he wrote in 2019.
The outcome of the Amazon HQ2 bid also underscores the increasingly influential role of new technologies and social media in civic engagement around urban innovation ecosystems. Specifically, a consultation process that does not maximise community-level participation can lead to mistrust — the antithesis of an inclusive and broad-based economic development agenda.
To the extent that most FDI and site-selection decisions impact on the host local communities, the quadruple-helix model is an important framework that can help map critical elements of an inclusive investment agenda that maximises existing opportunities across and within sectors — while proactively addressing potential problems at later stages in the value chain.
Lessons for policy and practice
This analysis echoes mainstream sentiment that the winner-take-all dynamic in which markets disproportionately reward capital at the detriment of labour is one of the classic unintended consequences of the innovation economy. This has an important implication for both policy and practice: economic development programming must balance both economic growth and social welfare ramifications. This is not always an easy task; it lies at the heart of economic development policy innovation.
An inclusive model of economic development is based on shared prosperity, and one key ingredient is ensuring underserved communities reap the benefits that accrue from inward FDI. This is important for maximising the overall benefits to the host community — particularly in underrepresented groups such as women, low-income earners, young people and indigenous peoples.
The efficiency and distributional implications of innovation policies underscore the inadequacy of the triple-helix model or the so-called public–private collaborations. Essentially, a high-performing government is one that fulfils its social contract by tackling today’s challenges head-on in an efficient, innovative and responsive manner. Stakeholders in the fourth helix are critical, and have become part of the recipe for success in the new economy.
In the context of ensuring new projects boost opportunities for social and economic mobility for low-income and marginalised communities, access to high-income employment often requires upskilling and reskilling. This underscores the need for workforce development programs and strategic investments in education and training pathways to level the playing field and remove existing barriers to upward mobility.
Fred Olayele is an economist and public policy expert, with research interests and practice areas covering trade policy, innovation, FDI, urban policy, political economy and inclusive development. www.fredolayele.com
This article first appeared in the June/July 2022 edition of fDi Intelligence. Read the online edition of the magazine here.