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Annual Research Money Conference
Ottawa, 31 March - 1 April 2015
Innovation Policy – New Insights, New
Directions
Dirk Pilat, Deputy Director
Directorate for Science, Technology and Innovation
[email protected]
Outline
1. Why care about innovation?
2. Investment in knowledge-based capital and the role of
KBC in global value chains
3. Specific innovation policies
4. Strengthening business dynamism
5. The importance of skills and talent
6. Benefiting from the digital economy
7. Some conclusions
1. Why care? Because innovation is one of the
main drivers of growth
Innovation key driver of
growth, through:
1.
Figure 1. Contributions to GDP growth
Total economy, annual percentage point contribution,
1995-2013
Technology embodied in
fixed capital, e.g. ICT
2. Investment in
knowledge-based capital
(next slide)
3. Productivity growth due
to innovation (MFP)
4. Creative destruction
Innovation’s role will have
to grow in future, e.g. due
to ageing.
Source: OECD Productivity Database, January 2015, and OECD
(2015a), OECD Compendium of Productivity Indicators, 2015.
2. With a growing share of business investment
involving knowledge-based capital …
Business investment in KBC and tangible assets in the United States
(% GDP, 1972-2011)
18%
Investment in KBC
Investment (% of adjusted GDP)
16%
14%
12%
10%
Investment in tangibles
8%
6%
4%
1972
1975
1978
Source: Corrado et al. (2012).
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
4
… which accounts for over half of all business
investment in several OECD countries …
Business investment in KBC and tangible assets
(as % of business sector value added, 2010)
Brand equity, firm-specific human capital, organisational capital
R&D and other intellectual property products
Software and databases
Non-residential physical assets
%
35
30
25
20
15
10
5
0
Source: OECD calculations based on INTAN-Invest, Eurostat and multiple national sources.
5
… and which is increasingly central to value
creation and product differentiation …
SPORT SHOES: 100 EURO (final retail price)
Source: Trudo Dejonghe (Lessius)
Source: IMD (2000) Innovation and Renovation: The Nespresso Story, IMD046,
03/2003. © Nespresso
A SUIT… MADE IN CHINA, SOLD IN UNITED STATES
Source: Fung Global Institute
© General Motors, Chevy Volt
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… including in the context of global value chains …
Canada participates less in global value chains than most other OECD countries, 2009
Backward participation
80%
70%
60%
50%
40%
30%
20%
10%
0%
Forward participation
14
20
7
Source: OECD-WTO, Trade in Value Added database,
… where services account for a growing share of
manufacturing exports …
Services value added in manufacturing exports, 2009
Source: OECD-WTO Trade in Value Added (TiVA) database.
8
… and Canada has some specific strengths
.. mostly through the supply of mining inputs to other exporters, and in relying on
imported intermediates in some manufacturing sectors
7%
6%
5%
4%
3%
2%
1%
0%
Backward participation
Forward participation
9
Source: OECD-WTO, Trade in Value Added database,
Policies insights related to investment in KBC
• Sound framework policies, e.g. competition, enabling
the shift to more knowledge-intensive activities.
• As knowledge grows in importance, so does IPR –
are our IPR systems still up to the task?
• Public investment to support private investment,
e.g. R&D, education and broadband networks.
3. The innovation policy mix matters …
Direct funding of business R&D and R&D tax incentives,
as a percentage of GDP, 2012
%
Indirect government support through tax incentives
Data on tax incentive support not available
Direct government funding of BERD
Indirect government support through tax incentives - 2006
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Source: OECD R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm
… as does investment in public research
Public R&D expenditure by type of research system
HERD and GOVERD, as a percentage of GDP, 2012, and total HERD and GOVERD in 2007
Higher education R&D (HERD)
Government intramural R&D (GOVERD)
Total HERD and GOVERD, 2007
1.2
%
1.0
0.8
0.6
0.4
0.2
0.0
Source: OECD Main Science and Technology Indicators Database, June 2014, www.oecd.org/sti/msti; Eurostat and
UNESCO Institute of Statistics, June 2014.
Policy issues: Balance and design
• Focus on achieving high social returns and building on
international good practice
• Improve the design of R&D tax incentives, to ensure they
provide value for money:
– Some policies, e.g. R&D tax credits, can slow down reallocation and productivity
growth in a country if they favour incumbents relative to startups (design is key)
– R&D tax incentives might be primarily subsiding incremental innovations amongst
incumbents, as opposed to new to the market innovations associated with young
entrepreneurial firms
• Balance indirect support for business R&D with well-designed
direct support, e.g. UK example of Catapult Centres
• Still need for long-term and stable investment in public
research – risk of too much focus on the short term.
Some general lessons on government
support
•
Remove barriers to innovation before providing
support (i.e. “don’t push on a string”)
•
Clarity in objective(s) – such that success and failure can
be assessed in an non-discretionary manner
•
Keep the outsiders and the unborn in mind – i.e.
resist political economy pressures from insiders
•
Evaluate (preferably ex ante and ex post) – and
incorporate evaluation in policy cycle
•
Ensure public bears risk which is “proportionate”
(enough to matter, not too much to lead to moral hazard)
•
•
Plan for exit – and make plan known
Incentives/subsidies: Should be provided only to “new”
activities
4. Business dynamism matters - young
firms create new opportunities …
Contributions of young firms to employment, job creation and job destruction, 2001-2011
Source: Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm
15
… and not SMEs in general
Average over 18 countries, 2001-2011, in %
Source: Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm
16
But growth of firms is a challenge in many OECD
countries …
Average size of start-ups and old firms, in persons employed, services sector
Source: Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm
.. as the share of start-ups is declining in
most countries
Share of start-ups among all firms
Note: As a percent of all firms in the total private business sector. Startups are firms aged from
0 to 2. Data for Japan refers to establishment in the manufacturing sector.
Source: Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm
How can policy strengthen business dynamism?
• Enable experimentation and firm growth: Reduce barriers to
entry (e.g. red tape), growth (e.g. size-specific regulations), and
exit/failure of firms (e.g. penalising bankruptcy legislation, overly
strict employment protection legislation).
• Level the playing field for innovative firms: Some policies
favour incumbents and MNEs (e.g. R&D tax credits).
• Strengthen the innovation system for innovative firms, e.g.
through enhanced access to (risk) capital, network development,
mentoring of entrepreneurs, skills development, etc.
• Reduce trade barriers, so firms can scale more easily across
borders.
• Celebrate entrepreneurship.
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5. Skills are a major challenge for innovation
Less than 40% of adults have the skills to succeed in a technology-rich
environment
(Percentage of 16-65 year-olds scoring at proficiency levels 2 and 3)
45
40
Level 3
35
Level 2
30
25
20
15
10
5
0
Source: OECD Survey of Adult Skills, October 2013.
6. The digital economy still has much
potential for the future …
Diffusion of selected ICT tools and activities, 2013
(as percentage of enterprises with 10 or more employees)
Highest
Lowest
1st and 3rd quartiles
Average
CAN
%
100
80
60
40
20
0
Broadband
Website
E-purchases Social network
ERP
Supply chain
mngt. (ADE)
E-sales
RFID
Source: OECD (2014), Measuring the Digital Economy: A New Perspective, http://dx.doi.org/10.1787/888933148510
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Conclusion
1. Policies for innovation, not just innovation policies:
Innovation relies on a wide range of policies – don’t focus only on
the ones specific to innovation.
2. Key areas of action include:
– Improving our frameworks for investment in knowledge-based capital
– Public investment in the basics – research, education, broadband networks
– Effective innovation policies, modelled on good practice
– Enabling business dynamism and creative destruction
– A strong focus on skills for the future
– Seizing the benefits of the digital economy
3. And: Focus on governance, evaluation and
implementation.
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Thank you
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