Technology and Innovation

Several years ago an Indonesian girl named Widya posted a message on my blog. She asked where she could obtain the drug Sorafenib for her father, who was terminally ill with liver cancer. Her family had already spent a significant sum on her father’s healthcare and could not afford further treatment. I forwarded the message to a pharmaceutical executive in Jakarta, who responded that Sorafenib was available in Indonesia but a month’s dosage would cost around $4,500 (the average monthly salary in Jakarta is about $1,180). “I hope the patient has health insurance coverage, otherwise the family will have to pay out of pocket,” he said. Widya’s plight highlights one of the most important reasons to implement universal health coverage (UHC): to reduce out of pocket spending and ensure everyone access to quality healthcare without incurring crippling financial hardship. Drug expenditure typically places the largest burden on the people who can least afford healthcare. A considerable share—up to 68 percent—of out of pocket health costs in resource-limited countries is for medication. The rapid increase of the burden of non-communicable diseases (NCDs) has posed further challenges to accessing healthcare in in low- and middle-income countries, where the high price of promising anti-NCD medication can deter people from seeking care or impoverish families and health systems. Not surprisingly, the UHC target included in goal three of the UN Sustainable Development Goals (SDGs) emphasizes “access to safe, effective, quality, and affordable essential medicines and vaccines for all.” Inclusion of off-label drugs in the UHC benefit package, as shown in the use of bevacizumab in Thailand, serves as an example of how to offer high-cost NCD treatment in a safe and effective way. As a result of rapid population aging, thousands of elderly persons in Thailand suffer from age-related visual impairment, especially macular degeneration (AMD) and diabetic macular edema (DME). Absent timely and effective treatment, these eye diseases often result in blindness. Injection of ranibizumab (Lucentis)—an FDA-approved anti-vascular endothelial growth factor (anti-VEGF) manufactured by Genentech—has shown to stop, even reverse vision loss in most patients with AMD and DME. With a price tag of $1,733 per dose, however, Lucentis is hardly affordable to people with limited or no health insurance coverage. Since 2005, another drug manufactured by the same company, bevacizumab (Avastin) has been applied by eye doctors as a highly effective but far cheaper alternative to Lucentis. A study published in the British Journal of Ophthalmology in May 2007 found that while Lucentis is about fifty times more expensive than Avastin, the former needed to be two and a half times more effective to justify the additional cost. Unlike Lucentis, Avastin is FDA-approved only for treatment of colon and other cancers, but not for macular degeneration, which means that Avastin can only be prescribed as an off-label (“unlicensed”) treatment for AMD or DME. Off-label drug use potentially can improve affordable access to innovative medicines largely because of its flexibility. While a pharmaceutical company is prohibited from advertising a drug for any unapproved purposes, physicians are free to use it for any purposes that in their professional judgement are considered safe and effective. This practice can be adopted by almost any country in the world: in the United States, for example, off-label use of drugs is very common in cancer treatment. Older, generic medications (which tend to be less expensive) are most commonly prescribed for off-label use when they have found new uses not formally approved. They are cheaper also because the developer has not yet invested considerable resources seeking its official approval. In 2011, at the request of the subcommittee of the National List of Essential Medicines (NLEM), the Thai Ministry of Public Health’s Health Intervention and Technology Assessment Program (HITAP) conducted a systematic study of the clinical efficacy and effectiveness of both Avastin and Lucentis for the treatment of AMD and DME. The study found that the efficiency of Avastin was not significantly different from Lucentis, although the safety of Avastin for treating macular disease is inconclusive. Based on the study, the sub-committee negotiated with the pharmaceutical company, which offered to halve the price of Lucentis. Finding the reduced price would still not fundamentally solve the affordability problem, the sub-committee listed Avastin in the NLEM for AMD and DME, making Thailand the first country to officially endorse Avastin for macular treatment. Since November 2012, all Thai patients eligible for treatment of AMD and DME have been able to get Avastin nearly free. NLEM constitutes the minimum reimbursement list for all major health insurance schemes, including Civil Servant Medical Benefit Scheme, Social Security Scheme and Universal Coverage Scheme (UCS). Under UCS, which covers everyone regardless of socio-economic status and is used by three quarters of the country’s population, a patient pays only thirty baht ($0.8) to the hospital he or she was referred to receive eye injections of Avastin. For fear that the wide use of Avastin may negatively affect the marketing of Lucentis, the pharmaceutical company opposed the government’s endorsement of Avastin’s off-label use. In April 2012, Novartis (the other developer of Lucentis) actually challenged the use of Avastin as an alternative to the licensed Lucentis in England and Wales. This concern did not affect the use of Avastin for off-label treatment in Thailand because the original market for Lucentis was kept intact in that country: wealthy people still pay out of pocket for Lucentis and government employees are still able to receive Lucentis for free under the Civil Servant Medical Benefit Scheme. Those two customer segments have remained loyal to Lucentis due to the belief that it is safer and more effective than Avastin. Furthermore, in making the decision of including Avastin in the NLEM, the sub-committee engaged multiple stakeholders including ophthalmologists, academicians, Thai FDA and the pharmaceutical industry. According to Dr. Paisan Ruamviboonsuk, President of the Royal College of Ophthalmologists of Thailand, the government’s alliance with ophthalmologists increased its leverage vis-à-vis pharmaceutical firms in the off-label use of Avastin. The story of Avastin is dramatically different in China, where at least 10 percent of patients with eye diseases suffer from AMD. Until September 2010, Avastin had been used as an off-label treatment for AMD in more than thirty hospitals where more than one thousand patients had reportedly received the injections. But the hospitals could only use the drug “secretly” because no regulation exists on off-label drug use of medications. Until the end of the month, when Avastin was officially launched in mainland China, the drug had been considered legally “fake.”  Any drug not marketed via legal channels is categorically considered counterfeit by Chinese law. Unfortunately, right before the Chinese hospitals could use the drug legally, adverse reactions were reported among sixty-one patients receiving the injection of Avastin at the Shanghai No. 1 People’s Hospital. The local regulatory body rushed to announce that it was caused by a “fake” version of Avastin, even though it was very likely caused by contamination in repackaging of the drug. By punishing those who marketed and used the drug, the government sent a signal that off-label use of drugs in China was a crime. Unlike their Thai counterparts, the Chinese Medical Doctor Association, which represents two million medical practitioners nationwide, played no active part in the decision making process. As a result, few Chinese hospitals have continued the off-label use of the drug ever since, and a large number of the AMD patients have lost access to affordable and effective treatment. That said, off-label drug use is certainly not the only means to access high-cost drugs. Access can be increased significantly if off-label use is combined with multiple interventions implemented by different stakeholders, such as compulsory licensing, negotiating prices with pharmaceutical firms and engaging in pooled procurement, expanding patient assistance programs and voluntarily lowering drug price by pharmaceutical firms. No matter what measures are adopted, the decision-making should be an evidence-based process participated in by multiple stakeholders and supported by health technology assessment (HTA), which takes into account human rights, cost-effectiveness, safety, and intellectual property rights.

In The Hacked World Order, Adam Segal shows how governments use the web to wage war, spy on, coerce, and damage each other. While scholars, activists, and technologists initially heralded the Internet as a space outside of state control, governments have been quick to step into this new domain—both to control activity that happens within it and to adopt it as a new tool of state power.

Gabriel Walker is a research associate in Asia Studies at the Council on Foreign Relations. In the wake of the 2011 Fukushima nuclear disaster, Chairman of the World Association of Nuclear Operators Laurent Stricker suggested that “overconfidence” could undermine the safety of nuclear power plants. While the Chinese nuclear industry may not necessarily be overconfident, its ambition is undeniable: the country has brought nearly twenty reactors online in the past decade and has around two-hundred proposed or planned in an all-out push to reduce its dependence on fossil fuels. And after twenty-five years of developing nuclear power domestically, Chinese companies are now seeking to export their technology abroad. Whether they can do it safely and sensibly remains an open question. Compared to established nuclear players like France’s Areva, Russia’s Rosatom, and the United States’ Westinghouse (now owned by Toshiba), Chinese companies are relative newcomers to the international market and eager to compete. In 2015, Chinese state-owned enterprises (SOEs) signed important, multibillion-dollar nuclear deals for projects in the United Kingdom, Argentina, Pakistan, and Iran. At the end of last year, China’s two main nuclear industry SOEs formed the joint venture Hualong International to promote more effectively the Hualong One, a new Chinese-made “third-generation” reactor design, to international buyers as the industry’s “flagship brand.”  In early January 2016, an official from the China National Nuclear Corporation (CNNC), one of the two SOEs behind Hualong International, stated that the company was negotiating exports for the design with twenty countries. In the next five years Chinese companies could invest in or begin building twenty-one reactors overseas, including eight domestically designed models. Importantly, the total cost of the Hualong One is roughly two-thirds that of American, Japanese, or European models, suggesting that the joint venture is aiming to undercut competitors and attract new customers with a more affordable price tag. Although Hualong International is not the only company to market a brand-new third-generation reactor—Westinghouse signed a deal to build its first AP1000 model in China without having previously completed any—it is the first to do so without a significant global track record. Even Westinghouse, which has been building commercial reactors for nearly sixty years, has encountered multiple delays in its recent AP1000 projects. One Chinese nuclear-industry scholar suggested that Westinghouse “oversold the system” and “promised more than [it] could deliver.” A relatively inexperienced company like Hualong International may face similar, and possibly more significant, stumbling blocks when it operates on the global stage. There are a number of additional safety, security, and financial implications for China and other countries involved as well: First, although China has “shown unprecedented eagerness” to achieve the world’s best nuclear safety standards, both domestic and foreign experts have pointed out that China is still catching up on safety matters and should gain more operating experience before building more plants. Some point to last August’s explosion in Tianjin and a landslide of construction waste in Shenzhen as examples of China’s lack of safety culture. Furthermore, even if China’s domestic safety practices are well established, that may not translate to equal competence in foreign markets. One CNNC official also stated that the company’s primary focus is “to tap the demand in emerging countries,” which some worry lack the necessary transparency and regulatory oversight for operating safe nuclear plants. Many experts believe that countries with little or no past experience in nuclear power, including over forty-five actively considering embarking on nuclear programs, constitute the fastest-growing risk in the industry. The combination of implementing new technology in unproven markets may lead to unpredictable consequences. Second, the Chinese government has disregarded security concerns by providing Pakistan with civilian nuclear technology. Chinese companies have made successive agreements to build at least six reactors there since 2004, even though Pakistan is not a member of the Non-Proliferation Treaty (NPT). China announced its first two deals only after it joined the Nuclear Suppliers Group (NSG), which prohibits its members from exporting nuclear technology to Pakistan and other nonmembers of the NPT. Under controversial circumstances, it later agreed to more deals that directly conflicted with the NSG mandate. Even if Pakistan’s case is unique, and even if the Chinese reactors do help to ameliorate Pakistan’s dire energy crisis without major security consequences, China’s willingness to circumvent international regulations calls into question its commitment to secure nuclear operations in other places around the world. Third, the scope of Chinese nuclear ambitions could entangle both its companies and customers in floundering economic partnerships. The worldwide nuclear industry is rife with disappointing outcomes caused by intractable design and cost issues, and even improved third-generation plants have encountered a wide range of production impediments. Although Chinese companies have had considerable success building plants domestically, there have been continuing struggles with standardizing production that may make it difficult for them to build elsewhere. Adding the fact that Chinese companies are often willing to make risky investments in order to promote their international ventures—including selling the first Hualong One to Argentina, which does not have access to international credit markets because of bond defaults—could be a recipe for messy financial fallout many years down the line. On a scale as large as the one Chinese nuclear companies aspire to reach, initial infrastructure roadblocks or sour deals could stymie longer-term ambitions. Safe, reliable, and cheap nuclear technology has always been the holy grail of those hoping for a “nuclear renaissance.” Some believe one is already taking place within China. And Chinese companies are exceptionally eager to apply their domestic experience overseas, potentially bringing low-carbon electricity to untapped and needy international buyers. But with such complicated and frequently problematic technology, Chinese companies should wade carefully—not dive head-first—into the untested waters of building nuclear plants abroad.

Here is a quick round-up of this week’s technology headlines and related stories you may have missed: 1. It’s confirmed! There was a cyberattack on Ukraine’s power grid. Security researchers have confirmed that a Ukrainian power utility was the victim of a cyberattack, though they noted that the malware’s payload may not have directly caused the power outage--the attacker probably interacted directly with the utility’s network to cause it. In a blog post, the SANS industrial control systems team noted that the malware, reportedly part of the BlackEnergy malware family that targets power systems, infiltrated the power utility’s network, blinded employees to the fact the network was infected, and flooded the utility’s phone system to prevent people from reporting a power outage. No word yet on who is behind the attack, but Ukraine has pointed the finger at Russia and some security researchers have argued that it’s the work of a group called the Sandworm team, which allegedly has ties to the Russian government. Security researchers have been warning about the cyber threat to utilities for more than a decade, and have most recently pointed out cyber vulnerabilities in nuclear facilities. Looks like we have proof attacks against the grid can actually materialize. 2. Is Twitter responsible for the death of a U.S. contractor in Jordan? Twitter is being sued for providing a platform on which the Islamic State is able to organize, raise funds, and recruit members. The suit, brought by the widow of Lloyd “Carl” Fields, Jr., a private contractor killed by a terrorist in Jordan last year, claims that “Twitter has knowingly permitted the terrorist group ISIS to use its social network as a tool for spreading extremist propaganda,” and this lack of diligence enabled the Islamic State to carry out that attack in which Fields was killed. Over at Lawfare, Benjamin Wittes has something of an “I told you so” post on the case, pointing to an argument he made last year about the potential for civil cases against tech companies providing end-to-end encryption. Wittes argues the case will be decided on whether Twitter has been diligent in taking down terrorist content and whether that content can be said to have caused Fields’ death. The attacker in that incident was not affiliated with the Islamic State and does not appear to have ever used Twitter (although he did communicate his intent to go on “a journey … [to] paradise or hell” to friends over WhatsApp). Meanwhile, Ars Technica comes to a different conclusion than Wittes, arguing that Twitter, as a provider of an “interactive computer service,” is not liable for terrorist communications under the Communications Decency Act. 3. New Safe Harbor agreement expected in February. The latest word on Safe Harbor is that a new agreement won’t be out until next month, rather than by the end of this month, as negotiators initially suggested. The U.S. Department of Commerce presented their proposals for Safe Harbor 2.0 to the EU negotiators this week, who said they hoped to come to a consensus with the U.S. side by February 2. EU data regulators have said that any new agreement would have to include a process by which EU citizens could have judicial redress in the United States if their privacy was violated. 4. Happy birthday Wikipedia!

Penny Sparrow, age sixty-nine, a white real estate agent in Durban and a member of the opposition Democratic Alliance (DA), in a Facebook post characterized black beach goers over New Year’s as “monkeys." (For many years, young black South Africans living inland have gathered on Durban’s beaches to celebrate New Year’s.) At about the same time, a bank economist tweeted about “majority (black) entitlement” as a barrier to economic growth. Others, evidently also white, on-line have expressed admiration for certain apartheid and pre-apartheid era political figures, including P.W. Botha and Cecil Rhodes. Black social media response has been fierce, including calls to take action “against all white people to end racism.” These racist comments have been condemned by the political parties and the Congress of South African Trade Unions. DA party leader Mmusi Maimane has expelled Sparrow and reaffirmed that there is no place for racism in South Africa. His rhetoric was strong: “As a human being, and the leader of the Democratic Alliance, I’m angry. Recently you called me a monkey. In your argument you said that there were some blacks you could tolerate, but those at the beach that day who littered, were monkeys. This angers me.” The Human Rights Commission says that it will investigate all complaints about racism from whatever source. The episode brings home to many South Africans that racism remains entrenched. Azad Essa, in a thoughtful post on The Daily Vox (Johannesburg) refers to “a toxic mix of race and class that pervades the way South Africa is structured.” He goes on to say, “The message of post-1990 South Africa is loud and clear... It’s okay to be racist but only in private. It’s okay to be condescending, so long as it’s subtle. It’s okay to be patronizing so long as you provide employment.” Social media provides a forum whereby outrageous statements are widely publicized and amplified. So, too, may be the similarly outrageous response to them. That is a challenge to the management of South Africa’s complex brew of race and class and the enduring poverty of too many South Africans who are black. This episode may also have a political context. The DA, long associated with whites, has been seeking black electoral support. It hopes to capture Gauteng province (Johannesburg) in elections later this year. However, its chances of success are nil if it is identified with white racism. Polling data has indicated that a significant number of young blacks believe that the DA’s “secret agenda” is restoration of apartheid. This, of course, is spurious, but the comments of Sparrow and other whites feed it. In his response to Sparrow, Maimane also said: “Our project, in case you thought otherwise, is to build a non-racial organization. A party for all South Africans. Our party is to create a movement of people from different races who are committed to Nelson Mandela’s dream, and are bound by the values of freedom, fairness, and opportunity.”

This post is co-written by Ben Armstrong and Varun Sivaram. Ben is a Ph.D. Candidate at MIT focused on Political Economy and a researcher at the MIT Governance Lab. In Part 1 of this series, we posed a puzzle: why has Denmark had more success at clean tech innovation than its neighbor, Sweden? Neither demand-pull conditions, which provide a sales environment that invites innovation, nor technology-push factors, which directly support technology research, development, and demonstration, appears to favor Denmark over Sweden. Both countries have similar environmental policies and environmentally conscious populaces, and Sweden has actually been more successful than Denmark in inducing other forms of innovation, especially in information and communications technology (ICT). But Denmark leads by a substantial margin in patents for climate change mitigation and the commercialization of eco-friendly technology. What explains Denmark’s outperformance in cleantech? As the nations of the world convened in Paris last week to conclude an accord on climate change, cleantech innovation emerged as a priority. Bill Gates and 27 other billionaire investors pledged to ramp up cleantech funding for emerging technologies, and 20 countries including the United States, India, and China signed on to the “Mission Innovation” pledge to double their funding for cleantech research. As many begin chasing after capital, it becomes even more paramount for countries to figure out how to provide the best environment for a cleantech sector to thrive. Denmark’s manufacturing revival led its success in cleantech We argue that Denmark’s cleantech development has been led by legacy manufacturing companies that were founded decades before “cleantech” was even discussed. These corporate actors, who pivoted toward cleantech during a period of economic crisis, are the missing puzzle piece; when paired with government demand-pull and (more importantly) technology-push policies, they transformed into globally competitive cleantech firms. And this phenomenon could recur elsewhere—legacy manufacturing regions in the U.S. Rust Belt could become cleantech hubs. The lesson is that cleantech hubs require far different ingredients than those required to develop a software-led innovation economy. Denmark’s manufacturing firms began by producing more traditional technology for energy, construction, and home appliances. But when the Danish economy struggled with high unemployment and the energy crisis of the 1970s, these companies began investing in new products that promoted alternative energy sources and increased energy efficiency. The emergence of the Danish cleantech economy was the product of repurposing from large, old companies that needed to innovate to stay relevant. These companies drew on existing manufacturing infrastructure and worker retraining programs (now part of the government’s “Flexicurity” program) to upgrade their businesses. Five companies listed among Denmark’s top cleantech innovators follow this pattern. Novozymes began in the 1920s as a biotechnology company focused on detergents, but early investments in clean energy research in the 1980s helped one branch of the business transition to focus on producing biofuels. Grundfos began its business in the early 20th century producing electric pumps for water wells. It transitioned in the 1980s to conduct research on sensors for improving pump efficiency and solar technology that would power its pumps. Rockwool started in the early 20th century as a company manufacturing tiles and digging for coal. Wool was a minor part of the business that grew until the oil crisis in the 1970s when Rockwool expanded its insulation business to reduce heating costs. Today it provides stone wool products for insulation that improve energy efficiency. Danfoss began building small valves to control heating and cooling systems in the 1930s. Over time, they re-invested in creating electrical control technologies that help improve the efficiency of power systems. Danfoss provides a particularly clear case of repurposing. While the rest of the economy was experiencing crisis during the 1970s, Danfoss expanded its operations to factories that had been vacated by textile companies and a bankrupt telephone manufacturer. In one case, they retrained the workers previously employed in textiles and began expanding the production of coils, relays, and frequency converters to improve energy efficiency. Vestas is the leading provider of wind turbines in Denmark and has become a global leader in wind power. It was founded by blacksmiths in the early 20th century, then transitioned to produce household appliances in the 1940s, agricultural equipment in the 1950s, and was most successful with the production of hydraulic cranes in the 1960s. It was only when the hydraulic crane business took off that Vestas began investing in wind technology in the late 1970s. During its initial roll-out of wind technology, one of the turbines broke and the company almost went bankrupt due to uncertain quality control. Vestas later recovered by bringing the end-to-end production of the wind power system in-house. Today it exports much of its wind technology to establish on-shore and off-shore wind farms around the world. The same cleantech innovation probably did not happen in Sweden because large Swedish businesses did not experience the same pressure; unemployment stayed low through the 1970s, and Sweden’s energy giant Vatenfall made an early investment in nuclear energy in the 1960s that locked Swedish power generators into a particular energy path. When Sweden faced its crisis in the early 1990s, it implemented a sweeping transition into services that gave birth to its more recent success in ICT. It makes sense, then, that manufacturing in Copenhagen is nearly twice as large as a portion of the economy as it is in Stockholm. Advanced manufacturing is four times as prevalent in Copenhagen (again as a proportion of overall employment). Denmark has outperformed Sweden in Cleantech by repurposing legacy manufacturing. Sweden’s large diversified firms include Electrolux, which produces home appliances like Vestas did, but continued along the same product trajectory for decades without changing course to focus on cleantech. Atlas Copco is a large Swedish producer of power tools that continued to upgrade and produce the same types of products over the course of the 20th Century. Sweden’s largest energy providers include Vattenfall, mentioned above as an early investor in nuclear, which has since diversified into wind and solar—as well as E. On Sverige, which is a subsidiary of the German energy conglomerate E. On. Although there are numerous startups in Sweden investing in improving its renewable energy portfolio and upgrading existing clean technologies, none of them has had the impact that any one of these large Swedish producers might have had if they diversified and invested in clean technology innovation. Your turn: Most readers support a demand-pull solution to the puzzle In the previous post, we invited reader comments, and below we’ll feature some of your explanations for Denmark’s comparative success. In contrast to our manufacturing revival theory, several readers described a more straightforward demand-pull story to explain Denmark’s comparative success over Sweden in cleantech and in wind energy in particular. David B. Benson notes that the wind from the Atlantic Ocean not only keeps Denmark warm but also “goes a long way towards explaining the Danish interest in wind derived power.” Similarly, Anonymous argues that Denmark is “windier than Sweden, which is more protected [from ocean winds].” And since “Denmark is right next to massive energy user Germany, which…if happy to buy the power from Denmark,” wind power in Denmark can serve both domestic and foreign markets. Ola proposes that higher electricity prices in Denmark compared with Sweden made renewable energy more competitive in Denmark. Geoff Dabelko suggests that Denmark’s choice to forego domestic nuclear power freed up resources for “state subsidies for renewable energy internally.” Echoing this policy argument, Fionn Rogan contends that favorable public opinion in Denmark has supported aggressive domestic procurement of clean energy technologies “so that the wind turbine that’s invented and developed in Denmark gets bought in Denmark too. At least initially, until there’s enough of an export market to take it to the next growth stage.” Indeed, Denmark is a leader in wind energy, and on some days the 4.8 GW of installed wind capacity in Denmark account for over 100 percent of Danish electricity consumption (the surplus is exported to neighbors). But the domestic market for wind turbines does not neatly explain the rise of Denmark’s globally competitive wind industry—not even initially. In particular, the ascent of Danish wind turbine manufacturer Vestas, which has the largest share of the global wind market, depended on its international expansion much more than its domestic sales. Vestas’ first major order came from California in 1985, when its transition to producing wind turbines rather than agricultural machinery was incipient. By the early 1990s, through exports, joint ventures, acquisitions, and subsidiaries around the world, Vestas was selling turbines to the United States, the United Kingdom, Germany, Spain, Australia, New Zealand, and—yes—to Sweden. Although the Danish government did support the deployment of wind at home—from 1981 to 2000, Denmark installed 1.4 GW of wind thanks largely to domestic mandates—the domestic market always accounted for a minority of Vestas’ sales (for reference, Vestas sold around 1.3 GW in 2000 alone, a third of the global market). And domestic policy support was far from unwavering in creating demand for wind turbines. The steady progress that Denmark made in sustaining a growing domestic market from 1981 to 2000 was abruptly undone by the incoming Conservative Party government, which slashed support from 2001 to 2007. Nevertheless, companies like Vestas continued to expand internationally, despite waning support at home; this suggests that its ability to capitalize on favorable policy toward wind abroad, in much bigger markets than Denmark (like the United States, Spain, and Germany), drove its success. Our favorite reader comment: Cleantech ≠ software The only technology-push explanation came from Graham Pugh (which is fitting since he was formerly a director at the Department of Energy, which implements technology-push policy in the United States). Graham “would posit that a combination of support for hardware startups from universities like DTU [Danish Technological University] and perhaps incubators has made the difference.” Moreover, he argues, “I think hardware IS different and requires different strategies [from supporting software].” We agree with this view, and we concede that in addition to our manufacturing revival theory, targeted government support for hardware-specific innovation in Denmark could help explain why Denmark has succeeded in cleantech. Importantly, we do not contend that Denmark is more innovative than Sweden. After all, Sweden benefitted from the success of high-growth software companies like Ericsson and Spotify and successful global producers like IKEA. Rather, both Denmark and Sweden boast innovative economies, but Graham pushes us to disaggregate what we mean by innovation—success in cleantech looks very different from success in other sectors. And the surprising conclusion from the Danish example is that the intuitive demand-pull and technology-push levers that policymakers have to support the cleantech sector may not suffice to make it globally competitive. Danish environmental regulations, labor market reforms that improved job retraining, and early-stage research support for hardware innovation helped to varying degrees. But the crucial factor that differentiates Denmark from neighboring Sweden is that Danish business captured an opportunity during crisis to reorient their business to focus on an emerging industry. And it paid off. So, who’s next?  

Ashlyn Anderson, Rachel Brown, Sungtae “Jacky” Park, Ariella Rotenberg, Ayumi Teraoka, and Gabriel Walker look at the top stories in Asia this week. 1. India’s embrace of coal complicates ambitious renewable energy targets. India brings a unique position to the climate negotiations underway in Paris as a huge developing country with grand economic plans that is also disproportionately facing the consequences of climate change. India has led the charge for “climate justice” in which the responsibility falls on the industrialized countries for their greenhouse gas contributions; Indian Prime Minister Narendra Modi’s 2015 National Action Plan on Climate Change still adheres to the principle of equity, but it also recognizes the threat of climate change to its citizens and economy and the need to “enhance the ecological sustainability of India’s development path.” At the Paris conference this week, India made it clear that coal would be a necessary component of its energy strategy in order to reach its development targets, but it also pledged to generate 40 percent of its electricity from non-fossil fuel sources, mostly solar, by 2030. On the whole, India pledged to reduce its energy intensity by 30–35 percent by 2030 from 2005 levels. India also called for international support to drive down the price of renewable energy so coal is no longer the cheapest and most readily available option. To that end, French President François Hollande and Prime Minister Modi launched the International Solar Alliance for the development and affordability of clean solar energy. Modi, who has made addressing climate change a priority, hopes to reach one hundred gigawatts of solar power by 2022. Although India is on a path to become a top greenhouse gas emitter, its per capita emissions are still only a small fraction of those of the United States. 2. South Korea bans massive planned rally. The South Korean police announced on Thursday the decision to prohibit a planned rally in Seoul this weekend that seems to be organized by the groups that engaged in violent protests last month. On November 14, more than 60,000 demonstrators engaged in protests against the government’s decision to adopt state-sponsored history textbooks for secondary students and to reform the labor market. Some protestors, including Han Sang-gyun, the president of the Korean Confederation of Trade Unions, turned to violence using metal pipes and hardened bamboo sticks, which caused the police to fire water cannons. As a result, fifty-one people were arrested and questioned on various charges including illegal protest, assaulting police officers, and destroying public equipment. In addition to banning the protest, another controversy is whether the South Korean government would ban protestors from hiding their faces. President Park Geun-hye reportedly criticized those who covered their faces during protests, which is the style of extremists of the Islamic State, stating that “we should ban demonstrators from wearing masks in the future.” The potential prohibition on the use of face masks during a protest, however, goes against the 2008 Constitutional Court’s decision that it is unconstitutional to do so. 3. IMF includes RMB in SDR basket. In a “milestone decision” announced on Monday, the Executive Board of the International Monetary Fund (IMF) voted to include the Chinese renminbi (RMB) in its basket of Special Drawing Right (SDR) currencies. The decision was based on two criteria—that China’s exports played a central role in the global economy, and that the RMB be “freely usable”—that China met within the last five years. Since the RMB was not included during the last round of voting in 2009, the verdict signals China’s rising economic importance and is a major victory for the country’s economic reformers. Although the new SDR basket distribution will not come into effect until October 1, 2016, some say that the distinction means that the RMB will face “immediate tests” and could depreciate significantly over the next year, challenging Chinese leaders to stick to market reforms. Others have pointed out that the largely political decision will actually boost the dollar and may actually discourage the rise of the RMB on the world stage. 4. Japan-Russia islands dispute drags on. On December 1, Agence France-Presse reported that Russia has begun the construction of two modern military facilities on Iturup and Kunashir, two of the four disputed islands controlled by Moscow, known as the Northern Territories in Japan and Southern Kuril Islands in Russia. Over the last few years, Moscow has been making increasingly stronger claims to the islands. In November 2010, then Russian President Dmitry Medvedev became the first Russian or Soviet leader to visit the islands, angering the Japanese. He visited the islands again as prime minister in July 2012 and in August of this year. At the same time, Japan, particularly under its current prime minister, Shinzo Abe, has become increasingly willing to resolve the Northern Territories/Southern Kuril Islands dispute and to sign a peace treaty with Russia. The two sides, however, are unlikely to resolve the dispute anytime soon. Since the 1950s, Russia has shown inclinations toward claiming only two of the disputed islands (with the smaller Shikotan and Habomai going to Tokyo), but Japan is insistent on the return of all four. The crisis in Ukraine adds additional complications with regard to Abe’s outreach to Moscow because of Japan’s close alliance with the United States. 5. North Korea unsuccessfully tests ballistic missile. On Saturday, North Korea conducted a rare test of a submarine-launched ballistic missile. The test was conducted off the port city of Wonsan where the missile was launched allegedly from a submarine. According to South Korean intelligence sources, Kim Jong-un was likely present for the failed launch. Strategists in the United States believe this test, in addition to one in May, are part of North Korea’s work to develop a secure deterrent. This latest launch was made around 2:30 p.m. local time; the debris in the water indicated its failure to launch properly. Both the launch in May as well as last week’s are in violation of United Nations sanctions. Bonus: Indonesia runs on WhatsApp. Indonesia’s trade minister, Thomas Lembong, recently announced at a Tech in Asia conference that “I run my ministry on WhatsApp.” The messaging platform is very popular in Indonesia and in 2014 was the third most downloaded messaging app in the nation with approximately 52 percent of mobile internet users on it. Lembong is not the only government official reliant on WhatsApp. In August, Indonesia’s Coordinating Economic Minister Sofyan Djalil said he would encourage all ministries within his jurisdiction to establish WhatsApp groups to facilitate faster communication and reduce the need for in-person meetings. Members of the private sector also depend on WhatsApp for business, and one start-up founder told the Financial Times, “my primary mode of running the company is through WhatsApp.” Particularly valued by users are the fact that the app is accessible when on free Wi-Fi networks and the end-to-end encryption of messages. The latter service, however, has recently raised some concerns among terrorism experts in Indonesia as the app is used as a means of recruitment and communication by many Indonesians who have joined ISIS in Syria. In some instances, Indonesian ISIS members and jailed extremists have even used WhatsApp to conduct marriages.  

Note: Asia Unbound is reposting this blog today, as it was supposed to be published this week, not last week when this piece was first published. Jill Kosch O’Donnell is an independent researcher and writer. The global climate talks underway in Paris this week, aimed at achieving a successor treaty to the Kyoto Protocol, represent a milestone in an evolving approach to these annual UN-led negotiations. Formerly focused on haggling over developed country targets for emissions reductions, they now emphasize action by all countries, which were supposed to submit national climate change plans ahead of time, known as “intended nationally determined contributions” (INDCs). This new modus operandi presents an opening for Korea to assert itself as a middle power, drawing on its dual identity as a developing country and an OECD member. But it will not be through the country’s INDC. Korea’s INDC, which aims to cut emissions 37 percent below business-as-usual levels by 2030, has garnered criticism. Climate Action Tracker, a consortium of four research organizations analyzing all countries’ INDCs, called it “inadequate.” The INDC does not detail how Korea will reach this target. It also seems to tamp down expectations about how much Korea can really do, citing the county’s heavily industrial economy, major industries that are already energy efficient, and lower public acceptance of nuclear power post-Fukushima as limits on the country’s mitigation potential. Leading by example on domestic mitigation will be hard. So what else can Korea do? Korea’s approach to climate change falls under a broader set of policies known as “green growth,” which considers economic growth and environmental protection as compatible and seeks new drivers of economic growth through investments in clean energy. Current dynamics have created some demand for proof that green growth actually works because developing countries are now expected to rein in emissions, but they do not want to sacrifice economic growth in the process. They are also demanding help from developed countries in financing their efforts. This is where Korea has the opportunity to lead, in at least three ways: Rally for contributions to the Green Climate Fund. Korea is home to the new Green Climate Fund, a UN body based in Songdo. It is meant to be the primary vehicle for channeling the $100 billion per year that developed countries agreed to mobilize for climate change mitigation and adaptation projects in developing countries. GCF had raised $10.2 billion in pledges by the end of 2014; no more have been announced since then. Amid stalled-out pledges, Korea could be rallying for more financial support of the fund at a time when climate finance is the major sticking point between developed and developing countries in climate negotiations. Promote the Global Green Growth Institute (GGGI). Former President Lee Myung-bak created the GGGI to determine whether green growth actually works. The GGGI, though now an international organization and no longer wholly “Korean,” is a powerful expression of Korea’s middle power identity: it is working on the ground in developing countries on green growth plans tailored to their circumstances. It also emphasizes economic growth as a first principle. Korea should continue to promote its homegrown organization and support the institute’s expansion efforts. Lead the debate. Korea’s successful track record as a convener on green growth and status as host of the GCF and GGGI present opportunities to lead the debate over green growth and climate finance—neither of which have settled definitions. Korea can make a sustained effort to build up Songdo as a center for knowledge development on the challenges related to the GCF’s mission, and green growth writ large, by attracting green financial and policy-oriented organizations. Green growth, with its focus on sustainability, poverty reduction, and economic growth, encompasses far more than climate change. The good news for Korea is that some of the most important opportunities to lead are still there, and will continue to be long after the diplomats leave Paris. For more on South Korea and green growth, please see Jill Kosch O’Donnell’s chapter in Middle-Power Korea: Contributions to the Global Agenda.

This post is co-written by Ben Armstrong and Varun Sivaram. Ben is a Ph.D. Candidate at MIT focused on Political Economy and a researcher at the MIT Governance Lab. A global race is underway to dominate the clean technology (“cleantech”) sector. As international efforts to curb climate change intensify (the Paris climate talks kick off next week), demand for cleantech products that generate energy from renewable sources and reduce emissions will grow.  Countries that invent and scale such products will reap the economic benefits. For those seeking to understand why some countries are successful at building thriving cleantech sectors and others less so, a pair of Scandinavian neighbors—nearly twins in many economic and political respects—present a puzzle worth pondering. Denmark and Sweden can both boast of low poverty rates, low inequality, and high environmental standards. But one striking difference between them is that Denmark’s cleantech sector has been considerably more successful than Sweden’s. Denmark is not only home to a cluster of leading cleantech businesses (e.g. Novozymes, Rockwool, and Grundfos), but its cleantech sales amount to nearly three percent of Danish GDP—more than any other country in the world. Similar institutions, regulations, and social policies in Sweden have yielded far less impressive results in supporting an innovative cleantech sector. Although Sweden is a global leader in information and communications technology (ICT), it lags neighboring Denmark in cleantech. Sweden’s cleantech sales amount to less than one percent of its GDP; and its climate change patents are less than two-thirds that of Denmark despite Sweden’s larger population and overall patent portfolio. As relative leaders in the green economy, Denmark ranks 1st and Sweden 22nd. Why has Denmark had more success at clean tech innovation than its neighbor? The relevance of this puzzle is not limited to two small frigid countries. Rather, it might help explain what can differentiate some regions from their neighbors as both pursue a similar economic development strategy.  That Sweden boasts an innovative ICT ecosystem but lags in cleantech development suggests that the two sectors require different strategies. These two Scandinavian countries shed light on a challenge for all advanced economies: how to implement responsible social policies that reduce carbon emissions and provide for the poor while also innovating to expand the economy. Both Sweden and Denmark have high tax rates that support successful social policies and still leave room for innovative industries. It’s the Danish example in particular that demonstrates how social challenges like climate change can offer great opportunities for new and expanding economic activity. The goal here is to explain what factors were central to Denmark’s success. The academic literature tends to divide into two camps the factors that drive innovation: demand-pull factors, or favorable market conditions that “pull” innovation, and technology-push factors, or support for the research, development, and demonstration of innovative technologies. Although scholars sometimes disagree about the relative weight of each category of factor, the conventional wisdom is that each category of factor is necessary to induce innovation. So a logical way to explore why Denmark is outperforming Sweden in clean technology is to examine the difference between their respective demand-pull and technology-push factors. Do Demand-Pull Factors Explain the Difference in Cleantech Innovation? Environmental regulation is an example of a demand-pull factor that could encourage innovation in cleantech. The prediction is that bold environmental regulation might force a region to adapt to new constraints. New technologies will be required to retrofit buildings and adjust to new power sources (e.g. wind turbines, insulation material). Another important factor might be consumer preferences. Although some European governments might make emissions pledges without popular support, local consumers need to be on board before those pledges can be implemented (or for those leaders to stay in power). One piece that might divide cleantech innovators from laggards is the opinion of the mass public on the importance of fighting climate change. However, a comparison of Denmark and Sweden reveals little difference in these demand-pull factors. Their capital cities, Copenhagen and Stockholm, boast nearly identical environmental goals and trajectories. Both aspire to be emissions free in the coming decades and consistently rank as two of the most environmentally friendly cities on the planet. When asked to name the most serious problems facing the world, 73 percent of Danes and 81 percent of Swedes listed climate change. When asked whether fighting climate change and improving energy efficiency can improve the economy, 95 percent of Danes and 86 percent of Swedes said yes. Both countries have set similar emissions reduction targets and in aggregate their economies emit comparable levels of greenhouse gases (in fact, Sweden’s power sector is even cleaner than Denmark’s). Although more Swedes report relying on green forms of transportation like bikes and trains (61 percent) than Danes (46 percent), more Danes (57 percent) report purchasing energy efficient appliances than Swedes (33 percent). Overall, the two regions seem to have mirroring actions and attitudes toward climate change, yet one has been more active in commercial cleantech innovation than the other. There are good explanations for why demand-pull factors may not suffice to induce innovation or to explain the difference between Denmark and Sweden. A region does not necessarily need to develop and implement the new technologies on its own. After all, it might be less expensive to import technologies produced elsewhere, particularly for a small country like Denmark with a shrinking manufacturing sector. Thus, environmental regulation might lead a region down two paths. The more convenient path in the short-term is to import cleantech products already available in the market. The more challenging long-term plan is to develop and produce the technologies domestically with intensive investment of R&D and manufacturing resources. If the development succeeds, these products initially developed for the domestic market can scale as exports to other regions adopting parallel environmental plans. Similarly, a public preference to combat climate change does not necessarily require that the fight against climate change be waged with local technologies alone. The public might want to take on climate change, but be indifferent to how the battle unfolds. These two factors suggest that environmental regulation and supportive consumers can provide a captive demand for technology, but that demand does not guarantee cleantech innovation. It just might make it more likely. What About Technology-Push Factors? Doubtful that demand-pull factors are the reason for Denmark’s cleantech success, we turn now to technology-push factors. Rather than examine whether the local market is primed to accept cleantech products, we might instead investigate public and private support for innovation. A measure of direct support for innovation is the total level of research and development (R&D) spending. Unfortunately for this analysis, Sweden actually beats out Denmark in terms of R&D spending as a percentage of GDP. And although private investment in early-stage businesses as a proportion of GDP is mostly equal in Sweden (2.5 percent) and Denmark (two percent), overall venture capital spending has been higher in Sweden (5.4 percent) than in Denmark (3.2 percent). Sweden has nearly double the number of high-technology patents than Denmark. Stockholm is also widely considered an innovation hub for the software industry in Europe. It could be that Denmark’s economic environment is generally better for innovation than Sweden’s. After all, the Danish government implemented labor market reform in the mid-1990s to combat high unemployment. While Sweden reduced public spending and changed some of its unemployment practices, Denmark overhauled its labor regulations to increase the flexibility of firms to hire and fire workers. It has also reduced the social security contributions that firms locating in Denmark must make; today it claims that locating in Copenhagen costs 20 percent less than locating in Stockholm. These reforms, the Danes might argue, make Denmark a more compelling environment for businesses to commercialize new innovations. The cleantech boom in Denmark, according to this theory, would represent only one area among many where the Danes are out-innovating the Swedes. But this is not the case. In terms of knowledge-intensive employment and overall corporate tax rates, Sweden and Denmark are largely equal. If the increased flexibility of the Danish labor market has indeed been an important factor, there needs to be a reason that it is influencing the cleantech sector far more than other sectors where Denmark has not been as competitive. You might think that Denmark could have deregulated specifically in the cleantech sector in ways that Sweden did not. However, the EU’s measures of energy deregulation shows that both Sweden and Denmark deregulated their energy industries at the same time and to nearly the same degree in the mid-1990s. So far traditional explanations for innovation—demand-pull and technology-push factors— have led only to dead ends. Environmental and economic regulations, public opinion, access to finance, and other government intervention cannot explain Denmark’s comparative lead over Sweden in clean technology over the last several decades. Continued in Part 2: “The Importance of Denmark’s Manufacturing Revival”   UPDATE 12/15/2015: We’ve now posted our theory and the best reader comments in Part 2 here. We have also updated Figures 1-3 to reflect newer and more relevant data sources. ORIGINAL POST: We invite readers to propose explanations for why Denmark has outperformed Sweden in cleantech innovation. Next week, we will share a follow-up post explaining our theory. Please use the comment box below to submit yours, and we will feature our readers’ thoughts in Part 2!

Rachel Brown is a research associate in Asia Studies at the Council on Foreign Relations. Amid the flurry of press coverage surrounding President Xi Jinping’s visit to the United States in September, his gift of a dawn redwood tree to be planted on the campus of the Global Innovation Exchange (GIX) program in Seattle received little attention. However, the GIX program, a collaboration between China’s prestigious Tsinghua University and the University of Washington, reflects a next step in China’s soft power strategy. Presenting a model for higher education has characterized global powers from nineteenth century Germany to the present day United States, and China now seems to be making a bid to promote its own educational model abroad. While over the past two decades, American and other foreign universities have flocked to establish campuses and centers in China, GIX will be the first outpost of a Chinese university in the United States. The GIX campus itself is still being built and designed, but when it opens in the fall of 2017, the school will host the second year of a dual degree program offering a master’s degree in technology innovation to approximately thirty students. There are plans to offer other programs and by 2025 to enroll 3,000 students. The initial program will cover the legal, technological, and entrepreneurial aspects of “Internet-connected devices,” playing to both Tsinghua’s strengths in business and computer science as well as the campus’ location in Seattle. Courses will be taught in English by faculty from both universities and the two universities will play equal roles in curriculum design, university administration, and admissions. GIX will be funded by a forty million dollar contribution from Microsoft as well as contributions from both Chinese and American companies. While GIX stands out as the first instance of a Chinese university establishing a physical presence in the United States, it fits into a pattern of recent initiatives to expand China’s global educational footprint. China’s domestic higher education system has been growing rapidly in both quantity and quality, and thus it is perhaps natural that the growth would continue into foreign markets. Affiliates of other Chinese universities have already been established in other nations including a campus of Soochow University in Laos, a branch of Xiamen University under construction in Malaysia, and a joint lab sponsored by Zhejiang University and Imperial College London in London. Chinese higher education has also internationalized in other ways. Central to the educational dimension of Chinese soft power have been Confucius Institutes, government-sponsored centers that promote Chinese language and culture abroad. Already, more than 480 Confucius Institutes operate in over 120 nations. Chinese universities also currently offer over one hundred online courses. Tsinghua University alone provides more than twenty online courses on the edX platform for massive open online courses. These classes include “China’s Perspective on Climate Change” and “Introduction to Mao Zedong Thought,” which has approximately 3,100 viewers. Courses such as these contribute both to the spread of Chinese views on certain topics and to raising the profile of Chinese institutions. But initial efforts to spread aspects of the Chinese education system globally have met resistance. Certain Confucius Institutes have triggered controversies surrounding academic freedom. Several universities in Canada and the United States, including the University of Chicago, decided not to renew Confucius Institutes at their schools, and the American Association of University Professors has argued for the closure of all American Confucius Institutes citing opaque contracts that lead universities to compromise their integrity. Not all of the online courses have been popular either, as some American students likened Tsinghua’s edX class on Mao Zedong Thought to propaganda. Similar controversies could also arise at GIX. While the leader of the project on the Chinese side, Zhang Tao, argues that one of the advantages of the collaboration is that Americans who hope to sell tech products in Asia will be exposed to Chinese preferences and business practices through courses with Chinese students and faculty, the program’s emphasis on technology also raises potential concerns. Particularly troubling are issues surrounding Internet censorship and intellectual property protection where practices in the two countries diverge sharply. Nevertheless, given the Chinese government’s commitment to expanding soft power through education, collaborations between Chinese and American universities on this side of the Pacific seem poised to spread.

This is a guest post by Allen Grane, research associate for the Council on Foreign Relations Africa Studies program. The government of Kenya is tapping the country’s digital finance prowess to raise critical infrastructure funds. The National Treasury has teamed up with a local mobile money pioneer, Safaricom, to launch the so-called M-Akiba bond. It is the first government security carried exclusively on mobile phones. M-Akiba is a national economic solution that has the potential of filling-in for foreign investment. This is especially important in light of Standard & Poor’s recent lowering of Kenya’s credit rating outlook to negative due to depreciation of the Kenyan Shilling and a growing budget deficit. M-Akiba, like M-Pesa, which was developed in response to Kenya’s retail banking shortcomings, is another African tech-based solution to a regional finance challenge. This initiative is also significant in the aftermath of J.P. Morgan’s recent dropping of Nigeria from its local-currency emerging market bond index. That move could signal a waning of international interest in African bond markets, which have become more important to African government infrastructure financing over the last several years. Despite the continent’s rapid economic growth in the past decade, investors may be worried by the recent fall in commodity prices and China’s cooling economy, both of which are having secondary effects in Africa. In the midst of this potential downturn, African countries must find new ways to create investment. Kenya is seeking to do that with the M-Akiba bond, an original way to raise capital through its citizens while leveraging East Africa’s large, and ever-growing, mobile markets. Mobile platforms such as M-Pesa have been extremely successful in Kenya, where 75 percent of its citizens own cell phones and 60 percent of its population transact payments via M-Pesa. The Kenyan government argues that M-Akiba will not only help them tap into local investors for government bonds, but that it will allow more Kenyans to build personal savings (Akiba is the Swahili word for savings). M-Akiba lowers many of the hurdles to citizen investors purchasing government bonds. They no longer have to go through a financial intermediary (just their mobile phones) and the 3,000 Shillings ($29) entry price makes M-Akiba bonds more accessible than typical government bonds, priced at 50,000 Shillings (approximately $475). Similar to M-Pesa, which has become a leading example for digital payments providers around the world, the M-Akiba concept could become a model for developing economy government finance.