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Innovation Trends
and Policies
John Dryden
Deputy Director for Science, Technology and Industry,
OECD
Istanbul Chamber of Industry – 6th Industry Congress,
Istanbul, 26 – 27 Nov. 2007
1
Outline
• Trends affecting innovation
• Policies to strengthen innovation
• OECD Innovation Strategy
– The OECD Review of Innovation Policy in Turkey
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TRENDS AFFECTING
INNOVATION


Globalisation
Advances in generic technologies,
notably ICTs
3
Globalisation is advancing rapidly…
International trade and financial links have deepened
Imports of goods and services, in % of world GDP
Cross-border lending and investment, in % of world GDP
30
28
16
At market exchange
rates
14
At market exchange
rates
12
26
10
24
8
22
6
99
2000
01
02
03
04
05
06
99
The importance of non-OECD economies has grown
46
01
02
03
04
05
The global expansion is continuing
% growth in real GDP1
Non-OECD share in % of world GDP
47
2000
12
At purchasing power
parity
China
10
India
45
8
Russia
44
6
43
Brazil
4
42
41
2
40
0
99
2000
01
02
03
04
05
06
OECD
99
2000
01
02
03
04
05
06
Source : OECD.
4
… and Turkey is one of the active participants
(Exports plus imports of goods and services as a ratio of GDP, %)
5
Source, Presentation by Rauf Gönenç, OECD Economics Department, Country Desk for Turkey, September 2007
The current phase of globalisation is
characterised by several new trends:
• The spread of global value chains: production is
increasingly fragmented across countries leading to more
specialisation, even in traditional industries .
• Intra-firm trade by multinational enterprises accounts for a
large part of global trade flows.
• Trade in services is growing rapidly, enabled by
information and communications technologies.
• The integration of large emerging economies, notably
China and India, also in more innovative areas of
economic activity.
6
Non-OECD countries are also of growing importance for
global science and innovation
R&D expenditure in 2005
(circles reflect size of
spending in billion USD
PPP)
•
•
China, already
among the largest
investors in R&D
globally, targets an
R&D intensity of
2.5% by 2020.
In 2005, non-OECD
countries accounted
for over 21% of
global R&D, up from
17% four years
earlier.
Researchers per 1 000 employment
12
Japan
10
324
8
Russian Federation
EU27
17
6
231
R&D expenditures
in billions of current PPP
4
Turkey
2
4
South Africa
China
4
115
14
Brazil
India
0
0
Source: OECD, Science, Technology
and Industry Scoreboard 2007
131
United States
GERD as % of GDP
24
1
2
3
4
7
Why the growing interest in innovation in this global
economy?


Innovation is part of the response to globalisation:
– countries move up the value chain, increase productivity growth
and become more competitive;
– Innovation can help address global challenges in the environmental
(climate change, energy security) health (diseases, aging society,
water) and development (poverty reduction, income disparity)
domains.
The global economy also offers new opportunities for faster innovation:
– New technologies (information technology, the Internet) enable
more rapid innovation, notably in services.
– Globalisation broadens access to markets and enables greater
efficiencies and specialisation.
– More resources can be devoted globally to research and
innovation.
8
Innovation plays an important role in
economic growth …
Welfare
Economic growth
Employment growth
Productivity growth
Innovation
Technological innovation
(often linked to R&D and
scientific discovery)
Human
capital
Investment in
Capital
Non-technological
innovation (changes
in processes,
organisations, etc.)
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Investment in innovation is rising in several OECD
countries
(R&D expenditure as % of GDP)
%
1995
2005
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Source: OECD, Science, Technology and Industry Outlook 2006.
10
Government budgets for R&D have grown
substantially in some countries:
(Growth in government budgets for R&D, 2000-2006,
current prices, in %)
120
100
80
60
40
20
Ire
la
n
S d
pa
in
K
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U Sw ea
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S
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he ce
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G nd
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m
an
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Ita
P ly
ol
an
d
0
Source: OECD, Main Science and Technology Indicators, 2006-II, December 2006.
11
11
But raising R&D intensity primarily involves
increasing business R&D:
(R&D expenditure as % of GDP, 2005)
Business R&D
Other R&D (1)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
i
5
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Ru
Note: (1) Other R&D includes government, abroad and other sources.
Source: OECD, Main Science and Technology Indicators, 2006-II, December 2006.
12
12
Innovation is more than R&D: Investment in
many intangibles is rising
•
•
•
In the U.S., intangible
investment now exceeds
tangible investment
(machinery and equipment
and buildings) as % of output.
Investment in intangibles
includes investment in
software, R&D and factors
such as training and firm
organisation.
These intangibles
(investments in knowledge)
play a growing role in growth
performance.
Source: Corrado, Hulten and Sichel (2007).
13
•
•
•
Outcomes still differ substantially …
Relative prominence of cited scientific literature,
2003 (1)
…
Scientific research from some
countries is more frequently
cited than that from others.
Countries with large efforts in
scientific research are also
more frequently cited.
This may also reflect greater
quality of the research, as
well as greater linkages to
research in other countries
(1) “Relative prominence” is the ratio
of a country’s share of S&T literature
cited by the rest of the world to its
share of S&E articles (NSF).
Switzerland
United States
Netherlands
Denmark
United Kingdom
Sweden
Canada
Finland
Germany
Belgium
Austria
Ireland
France
Israel
EU15
Norway
Australia
Italy
Hong Kong, China
New Zealand
Spain
Japan
Portugal
Singapore
Hungary
Chile
Greece
Korea
Thailand
Czech Republic
Argentina
Slovenia
South Africa
Chinese Taipei
Mexico
Poland
Brazil
Slovak Republic
Bulgaria
China
India
Turkey
0.0
0.2
Source: OECD, Science, Technology and Industry Scoreboard 2007.
0.4
0.6
0.8
1.0
1.2
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… also in terms of patenting:
(Key international patents (triadic patents) per billion
dollar of GDP, 2005)
1995
5
4
3
2
1
0
Note: (1) Triadic patents refer to patents applied for at JPO, USPTO and JPO.
Source: OECD, Compendium of Patent Statistics 2007, www.oecd.org/sti/ipr-statistics
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Countries with strong innovation performance share
common characteristics
• Strong fundamentals, including well-functioning labour and
product markets
• Strong investment in knowledge (education, ICT and R&D) –
which also strengthens the absorptive capacity of economies
• Success in turning new technology, notably ICT, into
• Stronger productivity growth and process innovation, e.g. in
the services sector.
• A high share of business in financing R&D
• A diversified base of innovators (large and small firms)
• Solid regional pillars of national development
• Networking among innovators, notably strong linkages
between science and industry
• Openness to foreign sources of knowledge
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POLICIES TO STRENGTHEN INNOVATION



Many OECD countries have had difficulties in strengthening innovation :
– The EU’s Lisbon agenda has made slow progress.
– Many OECD countries have had weak productivity growth in recent
years, despite new opportunities.
Why?
– Business, not government, is the main innovator.
– Innovation depends on many factors: business-friendly
environment, strong education and science system, good links
between science and business, etc.
– Co-ordinating policies across policy domains is difficult.
– Improving innovation often requires a long-term policy commitment
– Stronger innovation may imply winners and losers: insufficiently
innovative firms may disappear and there may be job losses.
Sharing experiences and good policy practices can help.
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Good framework conditions are key
 OECD analysis emphasises :
– Strong competition, especially in the services sector
– Openness: A low level of restrictions on FDI; openness to
foreign talent
– Stable macroeconomic conditions and low real interest rates
– The availability of internal and external finance: Improved
corporate profitability and higher stock market capitalisation
– Intellectual property rights, which provide the incentive to
innovate
 Much reform has been undertaken, but poor framework
conditions (e.g. lack of competition and lack of openness) still
remain a constraint on innovation in many OECD countries.
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Policies towards Public Research are changing
 Strong innovation requires a strong and efficient knowledge
base (e.g. in universities and public research institutions).
 Public R&D expenditure in several OECD countries has risen.
 Reform of public research institutions is underway:
• Fewer, larger universities (e.g. Denmark)
• Greater university autonomy (Japan) and performance targets
• Improved performance in public research institutions (Spain)
 Growing focus on excellence and relevance:
• Ensure best research is funded – focus on excellence
• Growing emphasis on competitive funding
• Growing focus on evaluation of programmes and policies; new quality
assessment frameworks in several OECD countries (e.g. Australia,
Austria, Norway)
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Science-industry links can be further improved:
Firms collaborating in innovation with higher education
institutions, by size, 2002-04
SMEs
Large firms
%
60
50
40
30
20
10
Source: OECD, Science, Technology and Industry Scoreboard 2007.
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Finland
Sweden
Belgium
Austria
Denmark
Norway
Netherlands
Luxembourg
Germany
CZE
Ireland
Korea
Portugal
France
Hungary
Iceland
SLOV
Italy
Spain
Japan
Poland
UK
Canada (3)
NZL
Greece
Australia
0
Policies to foster business innovation

Governments support business innovation through several
channels, including tax relief and direct support (e.g. grants).

These policies are changing across OECD countries:
– Increasing reliance on R&D tax credits, less direct support in
a number of countries
– Some streamlining – support programmes often too complex
for firms
– More competitive-based funding
– Supporting networks and clusters, instead of individual firms

R&D tax credits are being reformed (e.g. in Belgium, Spain,
Netherlands)

Overall: “smarter ways” to support business innovation.
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Developing coherent policies for innovation
 Coordinating strategies towards research and innovation
remains a challenge for many OECD governments
 A long-term perspective on innovation enhances trust.
 Better co-ordination mechanisms can improve policy
coherence:
• Growing inter-ministerial co-operation, sometimes co-ordinated by the
prime minister (e.g. in Finland)
• Growing involvement of stakeholders (scientific institutions, business,
the public) in S&T policy debate, e.g. through foresight programmes.
• Growing importance of regional governments and actors in innovation
policies (e.g. Spain and Belgium).
 In sum, despite major policy efforts to improve innovation
capabilities, OECD countries still have a long way to go.
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New dimensions of innovation policies

The scope of policies to foster innovation is broadening:

Demand for innovation: what is the market for innovative
products and services? - in Europe, the 2006 Aho report
on “Creating an Innovative Europe” focused on this issue.

Non-technological innovation – e.g. changes in
organisation, in processes, in marketing, in design, etc. –
recognised of growing importance, in particular in the
services sector.

The globalisation of innovation – how can national policies
be adapted to the changing global landscape for
innovation?

Innovation for global challenges and not only economic
growth, “global public goods” – eco-innovation, health
innovation, etc.
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The view of innovation is moving away from a
linear model…
Discovery
Development
Delivery
Diffusion
…
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…towards a continuous innovation paradigm
Match innovation and
market needs
Research
Policy
and
Behaviour
Policy
Environment
Energy
Health
Etc
IDENTIFICATION of
NEED
Networks
collaborations
DIFFUSION
DISCOVERY
DELIVERY
DEVELOPMENT
COMMERCIALISATION
Market
Demand
Tools
Flexibility
Connectivity
&
Interoperability
Industry
Policy
Structure
Practice
Enabling environment?
Regulatory/
Legislative
Policy
Incentives?
Decisions
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TOWARD AN OECD INNOVATION STRATEGY…
 The OECD Ministerial Council of May 2007 mandated an
OECD Innovation Strategy:
•
•
•
Provide new facts and evidence depicting innovation performance in
OECD countries, based on statistical, empirical and thematic
analysis.
Provide explanations for the differences in innovation performance
across OECD countries.
Provide comprehensive and forward-looking policies to strengthen
innovation, involving good policy practices and recommendations.
This will also seek to address the new dimensions of innovation.
 It will provide governments with a stronger evidence basis and
good practices to reform and strengthen innovation policies.
 Country-specific recommendations (including through
voluntary reviews.
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…to build on OECD’s existing role




develop statistics and indicators to compare science and innovation
performance.
analyse innovation policies and determinants of performance:
 to improve the understanding of factors and policies driving
performance
 to identify good policy practices
foster international co-operation in science and innovation, e.g. through the
OECD Global Science Forum
provide country-specific policy analysis and recommendations
 Country reviews of innovation policy have been finalised for
Switzerland, Luxembourg, New Zealand, South Africa, Chile and China;
are underway for Norway, Korea, Turkey, Mexico, Greece and Hungary;
and are under discussion with Brazil, Germany, Japan and Russia.
 The OECD Economic Surveys have also covered innovation for several
OECD countries.
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The Review of Turkey’s Innovation Policy




Agreement of principle reached with the Government
Review commissioned by TÜBITAK, other agencies to
be involved, including the Ministry of Industry and Trade,
in particular on SME and enterprise issues
Terms of Reference agreed; Final Report in mid- 2008
Goals of the Review:
– To provide an independent and comparative
assessment of the strengths and weakness of
Turkey’s innovation system
– Formulating concrete recommendations for reform
– Highlight the successful practices and outcomes that
already exist in Turkey
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Focus of the Review








How well is the innovation system related to past and
present growth?
Does the policy mix match evolving policy priorities?
Are existing instruments for promoting business R&D
effective? What else may be needed?
Focus on SMEs
Are PROs managed in a way to promote excellence ?
How effective are industry-science relationships; what
role do clusters play?
How well are Turkish innovators positioned to benefit
from global innovation and research networks, including
the EU FPs?
What is needed to match the supply and demand for
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Human Resources in S&T?
[email protected]
www.oecd.org/sti
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