Beyond the neoliberal-statist divide on the drivers of innovation: A political settlements reading of Kenya's M-Pesa success story. (January 2020)

• Record Type: Journal Article
• Authors: Tyce, Matthew
• Is Part Of: World development. Volume 125(2020)
• Publication Date: 2020-01
• Subjects: Political settlement -- Innovation -- Mobile money -- M-Pesa -- Africa -- Kenya; Economic history -- 1990- -- Periodicals; Economic assistance -- Developing countries -- Periodicals; 330.9
• DOI: 10.1016/j.worlddev.2019.104621
• Languages: English
• ISSNs: 0305-750X

Abstract

Highlights: Literature on innovation is polarised between competing analytical paradigms. Neither the neoliberal nor the strong state paradigms can explain M-Pesa's development. Kenya's M-Pesa success story is better explained using a political settlements approach. Research should move beyond formal institutions to underlying relations of power. Abstract: While there is now broad consensus that innovation is a key driver of productivity growth, debates about the state's role in promoting innovation remain polarised between two competing analytical and ideological paradigms. The first is neoliberalism, which confines the state to correcting market failures, ensuring competition and supporting the innovative force of the private-sector. Drawing on the developmental state phenomenon, the second calls for a strong and visionary state to drive innovation by targeting industries for investment and protecting firms until they are ready to face competition. The literature broadly falls within these camps, identifying innovation as a market- or state-driven process. This paper challenges both, arguing that there are multiple pathways to innovation, many of which represent a messier middle ground. The case of Kenya, which has become a hotbed for mobile money innovation since launching its pioneering M-Pesa service in 2007, is used to make this argument. Neoliberal and statist accounts fail to explain this story, which needs to be framed in relation to underlying power relations that span this divide. The M-Pesa success has played out within a highly-particularistic and patronage-based political context, whereby the interests of key groups within Kenya's political settlement have crystallised to shield M-Pesa's parent company Safaricom, whose ownership structure and strategic partnerships draw in elites from across the political spectrum, from competition. This has afforded Safaricom space to innovate with M-Pesa, engendering a form of 'developmental patrimonialism' within which it has become a vehicle for rents to be centralised and deployed within strategic industries according to a long-term vision, with profits parcelled back to elites through generous dividend pay-outs. Concluding, the paper calls for more nuanced political economy understandings of the drivers of innovation, and mobile money adoption in particular.