Innovation is not a policy but a system

Mehran Gul’s The New Geography of Innovation makes a compelling and timely argument: innovation is no longer the monopoly of Silicon Valley. It is spreading—across China, Korea, Sweden, Switzerland and beyond—into diverse institutional settings that are producing globally competitive firms.

But the real value of the book lies not in mapping where innovation is happening. It lies in explaining why it happens—and, by implication, why it does not.

Gul’s central insight is deceptively simple. Innovation is not about ideas, nor about R&D budgets, incubators, or policy slogans. It is about ecosystems—dense, interactive systems where talent, capital, firms, and institutions continuously engage, collide, and recycle. In these environments, organizations are not isolated silos. They are autonomous but deeply connected, constantly learning from and building on each other. Indeed complexity analysis supports Gul’s thesis (see my book Looking Back: how Pakistan became an Asian Tiger (2017)).

What distinguishes successful innovation systems is not the presence of individual components but the quality of interaction between them.

In Silicon Valley, engineers become founders, founders become investors, and capital circulates rapidly through networks of trust and experimentation. In China, the state, firms, and capital markets align around execution and scale. In Europe, efforts are underway to break academic silos and build commercialization pipelines that connect science to enterprise. Even small countries succeed because their institutions generate trust, predictability, and long-term coordination.

Across all these cases, the pattern is clear: innovation emerges where systems allow ideas to become firms—and firms to scale.

This has profound implications for innovation policy.

If Gul is right, then innovation policy is not about funding startups or creating incubators. These may be useful at the margins, but they are not decisive. Real innovation policy is indistinguishable from economic governance itself. It is about building markets where competition drives firm creation, ensuring that capital flows to productive uses, creating cities that enable interaction and density, establishing legal systems that allow risk-taking, and fostering talent systems that reward merit and mobility.

In short, innovation is not something governments can produce directly. It is something that emerges when the system is right.

This is where Pakistan’s problem becomes stark.

We have approached innovation as a scheme, not a system outcome. We have built programmes, funds, and incubators, often donor-driven and bureaucratically managed, but we have not built the underlying conditions that allow firms to emerge. Our universities, research institutes, and agencies operate as isolated silos, competing for funding rather than collaborating for discovery. There is little peer engagement, little debate, and almost no sense of a shared intellectual or entrepreneurial community.

In fact, the system appears designed to prevent the very interactions that innovation requires.

At its core, Pakistan still operates through a colonial administrative state—one that prioritizes control over enablement, regulation over facilitation, and extraction over growth. The bureaucracy was never meant to build markets; it was meant to manage territory. That logic persists. Firms navigate permissions rather than competition. Land is controlled rather than developed. Economic activity is monitored rather than enabled.

This produces what I have elsewhere described as sludge—a dense accumulation of frictions that make experimentation costly and success uncertain. Contracts take years to enforce. Regulations are opaque and discretionary. Processes are slow and often arbitrary. Innovation requires speed, iteration, and the freedom to fail. Pakistan offers delay, uncertainty, and punishment. Under such conditions, ideas do not become firms, and firms do not scale.

Layered on top of this is a deeper, more insidious constraint: an aversion to merit.

Innovation ecosystems depend on the rapid deployment and continuous circulation of talent. Pakistan, however, organizes itself around hierarchy and compliance. Merit is often performative—demonstrated in interviews designed to place favorites rather than in peer-reviewed achievement or open competition. Research communities are weak. Debate is limited. The same individuals circulate across institutions, often disconnected from global frontiers.

At the same time, we exhibit a peculiar form of age discrimination. Individuals are pushed out at arbitrary retirement ages, often at the peak of their intellectual capacity, with little scope for emeritus roles or continued contribution. There is no continuity of research, no accumulation of knowledge across generations. We neither trust the young nor retain the experienced.

Compare this with the ecosystems Gul describes, where talent flows dynamically, where expertise is accumulated and redeployed, and where both youth and experience are valued and collaborate to produce innovation.

Gul reinforces what I have been saying for decades that business, economic growth and innovation all happen in cities. Every innovation cluster in the world is urban. Cities provide density, interaction, and the serendipitous encounters that drive new ideas. But Pakistan’s cities are not allowed to function as economic platforms. Land is locked in litigation or allocated as perks. Downtowns are hollowed out. Public spaces—libraries, community centers, forums for interaction—are scarce or controlled. Density exists, but largely in informal, unproductive forms. The result is a paradox: people are present, but interaction is missing.

Capital presents a similar contradiction. Pakistan is not short of savings, but capital is misallocated. Real estate dominates investment. Financial markets are constrained by regulation and taxation that discourage risk. Venture capital remains shallow. Commodity and business markets are underdeveloped, often protected or distorted. Success frequently depends on informality or ‘connections’ rather than innovation.

Capital in Pakistan is seeking corners to hide from poor quality policies. Risk taking is not rewarded but taxed excessively. Investment and capital accumulation is often taxed twice or at extremely high rates and loss deductions are compilated and business failures are not clearly protected by bankruptcy laws.

Given this reality, the current policy response—more incubators, more funding, more “innovation initiatives”—is bound to fail. One cannot insert innovation into a system that suppresses interaction, discourages merit, constrains capital, and disables cities. These efforts will generate activity, but not outcomes.

Gul’s analysis, though global in scope, reinforces a conclusion I have argued through the Framework for Economic Growth (FEG): growth—and innovation—come from markets, cities, and institutions, not from sectoral interventions. Similarly, the logic of RAPID reform—reducing regulatory burdens, aligning incentives, promoting competition, improving governance, and developing cities—maps closely onto the conditions Gul identifies in successful ecosystems.

My own work on urban wealth and city balance sheets further underscores this point. Cities must be treated as economic assets, with land unlocked and managed professionally, if they are to become platforms for innovation.

The lesson, then, is clear. Pakistan does not need an innovation policy in the conventional sense. It needs to build a system in which innovation can emerge. That means dismantling sludge, reforming the colonial bureaucracy, restoring merit, enabling cities, and mobilizing capital to market competition innovation ad risk taking away for bureaucratic permissions and subsidies.

Copyright Business Recorder, 2026