OECD Innovation Reviews: KOREA INTERIM RESULTS. Jean Guinet Head, Country Review Unit OECD Directorate for Science, Technology and Industry

Transcription

1 OECD Innovation Reviews: KOREA INTERIM RESULTS Jean Guinet Head, Country Review Unit OECD Directorate for Science, Technology and Industry

2 OUTLINE Context, nature and process of the Review The rise of an innovation-led growth model Implications for Korea -- some initial findings Build on achievements To accelerate eight interrelated transitions

3 CONTEXT AND NATURE OF THE REVIEW This Review has been undertaken as part of a new programme launched in 2005 under the aegis of the OECD Committee of Scientific and Technological Policy (CSTP). Other countries having requested a review include: Luxembourg, Switzerland, South Africa, New Zealand, Chile (already published) Norway, China (to be published in February) Mexico, Hungary, Turkey, Greece (under way) Japan, Russia and Brazil (to be started next year) It is an independent assessment. Its conclusions are therefore of the sole responsibility of OECD It focuses on the role of government in promoting innovation It builds on recent OECD work, especially on the links between innovation and economic performance, and on best practice policies to foster innovation The final report will formulate a set of policy recommendations but will not attempt detailed policy design

4 THE REVIEW PROCESS The preparation of the Review involved so far: Agreement on Terms of Reference Preparation of a Background Report by the Korean authorities Interviews with key stakeholders in Korea by the OECD team in October 2007 Preparation of an interim report by the OECD Secretariat Next steps will be: Preparation of a draft full report by the OECD Secretariat Consultations of Korean stakeholders on the draft report Presentation of the draft final report at the CSTP Meeting in Paris Publication of the final report by the OECD

5 THE RISE OF AN INNOVATION-LED GROWTH MODEL

6 Innovation capabilities condition more than ever long-term growth potential Contribution of Total Factor Productivity (TFP) to economic growth Developed countries Developing countries

7 Relationship between increases in business spending on R&D and Total Factor Productivity (TFP) growth 2.0 Greece 1.5 Change in average TFP growth ( to ) United Kingdom Germany Netherlands Australia New Zealand United States France Spain Canada Ireland Belgium Denmark Sweden Finland -1.5 Italy Japan Change in average BERD intensity (as a % of Value added in industry) ( to )

8 The correlation between innovation and economic performance seems even higher at the regional level In Europe, 40% of the variation in per capita regional income is explained by differences in innovation performance Regional Per Capita GDP Regional Innovation Index (RRSII)

9 Changing processes and drivers of innovation (1) Increasing scientific content of innovation Overlaping waves of science-based technologies (Electronics, new materials, biotechnology, nanotechnology, advanced analytical and measurement methods) ICTs enhance the role of codified knowledge (e.g. the rise of computer-aided design and computer-aided manufacture (CADCAM) has resulted in a move away from craft-based technology to technology based on more formal bodies of knowledge in many traditional engineering sectors Changing business R&D strategies: Open Innovation Model Focus on core business and short to medium term research agenda Individual products and processes incorporate an increasing range of technologies

10 Changing processes and drivers of innovation (2) The increasing importance of non technological innovation e.g. changes in organisations, in processes, in marketing, in design, etc. in particular in the services sector Services can be as innovative as manufacturing firms 60% 50% Innovative firms in Europe as % of all firms in an industry, % 30% 20% 10% 0% Wholesale and retail trade Transport, storage and communications Financial intermediation Business services Manufacturing

11 Innovation in manufacturing and services sectors In-house product innovators by sector (as a percentage of all firms), Manufacturing Services

12 Changing processes and drivers of innovation (3) Globalisation of innovation markets and inputs Internationalisation of business R&D in the OECD area, Billion USD billion USD % United States billion USD 14.3% Germany % 13.9% United Kingdom % 12.8% 2.2% 8.7% 5.8% 8.9% 5.2% 7.7% 4.9% 12.3% Japan France Canada Other OECD (1)

13 Emerging economies: An historical perspective A return to a dynamic equilibrium which had been broken by the two industrial revolutions? The current episode of globalisation is larger than previous ones

14 Mexico Morocco Norway Poland Romania Chinese Taipei Belgium Italy Malaysia Korea Thailand Australia Brazil Czech republic Ireland Israel Singapore Canada Netherlands France Germany Japan United Kingdom Russian Federation Over the last 5 years the share of companies from emerging countries in total market capitalisation of the top-500 largest listed firms has more than tripled (from 5 to 17 %) % Some emerging countries are among the most attractive foreign R&D locations (UNCTAD survey of MNEs) OECD country non-oecd economy China United States India

15 China: a new R&D and innovation power? For the moment it remains specialised in low-tech Contributions of industries to trade balance as % of manufacturing trade by technological intensity, 2005

16 China is now the leading exporter of ICT products but high tech imports are growing as fast as exports and high-tech exports are increasingly from foreign-owned firms which have a lower R&D intensity than domestic firms

17 But the Chinese innovation system is growing and maturing fast The relative size and recent pace of development of the Chinese innovation system

18 IMPLICATIONS FOR KOREA

19 Building on achievements to complete catching-up

20 Historically, Korean economic growth can be attributed above all to the exploitation of capital and increasingly educated labour However, the contribution of TFP has tended to grow over time, reflecting the accumulation of a productive R&D stock Sustained high growth will depend more and more on innovation as the growth of inputs of labour and capital are expected to decelerate over the medium term Contribution of R&D stock to economic growth in Korea

21 In other words, the composition of investment will have to continue to shift towards intangible assets, as in countries with higher levels of income Estimates for the United States show that intangible investment (software, R&D, training and organisational factors) is now larger than investment in machinery, equipment and buildings Intangibles are often not included in firm (& national) accounts. Estimates for the UK confirm the US estimates

22 Korea is making steady progress in transitioning to a more knowledge-intensive developmental trajectory, partly reflecting rapid endogenous learning in the business sector, but also due to successful government support policies Development of capabilities in the economy, notably in the export-oriented ICT industries, has allowed an increasing number of firms to reach the technological frontier A high and growing rate of investment in R&D has translated into increased world market shares in high-tech industries, a rapid accumulation of patents and, more generally of intellectual capital, including in new areas

23 Share of countries in triadic patent families (2005) Average annual growth rate, Triadic patent families per million population, 2005 United States Japan Germany Korea France United Kingdom China Finland Chinese Taipei India Scientific production

24 Despite such progress and the fact that Korean firms are now world leaders in some high-tech areas, overall Korea s technological capabilities remain distinctively below those of Japan and other most developed countries % The import content of Korean exports is the highest among the leading industrial countries (three times that of Japanese exports) Korea Finland Sweden Germany France United Kingdom China United States Japan Sweden 5.5 Korea exhibits a large technology trade deficit United Kingdom United States Japan Finland Germany France Korea %

25 To further catch-up in terms of technological capacities vis-à-vis the most advanced countries while coping with growing competition from emerging countries, notably China, Korea needs to improve the adaptative efficiency of its innovation system (NIS) Such NIS adaptative efficiency is determined in particular by: The framework conditions for innovation (not yet analysed at this stage) Competition which strengthens the incentives of firms to innovate Openness: A low level of restrictions on foreign direct investment and openness to foreign talent improves cross-border knowledge transfers Stable macroeconomic conditions and low real interest rates help to encourage the growth of innovation activity. The availability of internal and external finance : Improved corporate profitability and higher stock market capitalisation both have a positive effect on innovation expenditures. Intellectual property rights provide important incentives to innovate Good conditions for new innovative firms and entrepreneurship are important as these help bring new ideas to the market. Specific S&T and Innovation Policies

26 Sources of knowledge and innovation Technical Organisational Institutional Research in science and technology expands the stock of formal, codified knowledge Knowledge evolves more broadly through structured collaboration, networking, spill-overs and diffusion Technological adoption and workplace learning depend on human capital and organisational effectiveness Organisational knowledge is generally tacit is a major factor in productivity Institutions are integral to the structure and governance of national innovation systems that link knowledge and wealth creation processes Generation and systematic application of knowledge within and across sectors Cluster policies Policies to support investment in science and R&D NTBFs financing Policies to enhance innovation competencies of firms SME networks Policies to strengthen linkages within innovation systems Public-Private Partnerships

27 These policies must accelerate eight interrelated strategic transitions Application-oriented research More fundamental research High specialisation Diversification Weakly-linked NIS Wired-up NIS Fragmented innovation policy Well coordinated innovation policy Skills for catching-up Skills for creativity & leadership Concentration in Seoul Stronger RIS Large manufacturing firms focus Greater focus on SMEs & services Closed NIS Internationalisation

28 Application-oriented research More fundamental research 1 Significant progress has been made in this direction The share of basic research has rapidly increased in the Korean business sector Year Basic Research Applied Research Experimental Development This has been facilitated by government efforts to: Sustain total public investment in R&D Increase the share of government investment in basic research (incl. the creation of the MoST Basic Research and Infrastructure Bureaus) Foster research capabilities in universities Country GBAORD Korea 9.6 Sweden 6.2 United States 5.8 OECD ( ) 4.3 United Kingdom ( ) 4.1 Finland 3.3 Japan 2.7 France ( ) 2.4 New Zealand ( ) 2.2 EU27 ( ) 1.8 Germany 0.6 GBAORD: Government Budget Appropriations for R&D

29 Application-oriented research More fundamental research 2 Remaining challenges include: Overcome lock-in in government institutions and programmes (especially within MoCIE and MIC) which have been for a long time mission-oriented with heavy emphasis on applied research and experimental development More ambitious research requires suitable infrastructures which are still lacking to some extent in part of the public research system, especially universities A Korean paradox : despite their strong orientation toward applied research public research organisations are relatively weak in terms of knowledge diffusion to the private sector A time dimension: social benefits on investment in fundamental research take time to materialise

30 High specialisation Diversification 1 Current successes of the Korean industry result from past waves of diversification, especially within the Chaebols themselves However the current dominance of the ICT sector in R&D/innovation activities might fail to provide a broad enough base for the wealth creation that is needed to complete catching-up, while being vulnerable to Chinese competition The government seems well aware of such dangers and has taken good initiatives to promote of broader spectrum of future growth engines, for example by increasing markedly funding of nanotechnology and biotechnology USD millions 15.3 Korea Canada (1) 12.4 Spain (2004) 1.6 United Kingdom (2) Public biotechnology R&D as a percentage of total public R&D New Zealand (2004) Denmark (2002) 6.7 Finland 6.0 Norway 1.3 Sweden (3) Iceland

31 High specialisation Diversification 2 Remaining policy challenges include: In R&D support policy, some misalignment between policy priority (diversification) and policy implementation (continued increase of public spending on ICT R&D) A more fundamental and long lasting effort is needed to diversify the underlying knowledge capabilities and assets (non ICTrelated ones are underdeveloped by international standards) Country Distribution of scientific articles by field (2003) Life sciences Physical sciences Engineering, technology and mathematics Social and behavioural sciences Finland Sweden US UK EU OECD Germany Japan France Korea

32 Weakly-linked NIS Wired-up NIS 1 Korea s NIS longstanding features include: An exceptionally high share of the business sector R&D funding and performance A very weak role of universities in public research, as compared to Government Research Institutes (GRIs) A relatively low level of interaction between public research and the business sector, as well as between universities and GRIs Over recent years the government has promoted some significant changes in the public actors relative role, notably: Research expenditures in universities have increased much faster that research budgets of GRIs R&D by sector of performance (as a percentage of the national total) 2005 or latest available year Business enterprises Government Korea Japan Sweden Finland (2006) United States (2006) Germany China Russian Federation OECD EU27 France Higher education Private non-profit United Kingdom

33 Weakly-linked NIS Wired-up NIS 2 Remaining policy challenges include: The role of GRIs is not as clear-cut as it once was as industry has developed its own R&D capabilities Some aspects of current GRIs steering mechanisms (Project Based System) do not help them to shift toward more fundamental research Further reinforcement of university research may require a better mix of funding mechanisms, e.g. more individual research grants Universities lack often capabilities to manage their IP and commercialise their research results The lack of capabilities in universities and the lack of clarity in the role of GRIs frustrate the otherwise commendable efforts by the Government to encourage greater cooperation between the various research performers

34 Fragmented Innovation Policy Well coordinated Innovation Policy 1 Implementing an integrated innovation policy requires concerted efforts at many levels in many different organisations with varied more specific tasks and culture. Most OECD countries are currently trying to improve their governance arrangements, but none has found a magic formula which would work for ever, everywhere Good governance arrangements shall include two critical components: A coordination mechanism to secure high level political commitment, ensure top-level priority setting, and monitor and assess results against national goals A sound division of labour between ministries/agencies in charge of policy formulation and implementation in specific areas Korea has taken the issue of policy coordination seriously for already quite a long time and has in recent years introduced bold reforms

35 Fragmented Innovation Policy Well coordinated Innovation Policy 2 Public governance of the innovation system as an institutionalised learning process

36 Fragmented Innovation Policy Well coordinated Innovation Policy 3 Korea is to be commended for implementing one of the most sophisticated STI governance system within the OECD area The last phase of policy learning has brought out significant benefits, for example it has: Reduced programme duplications, created greater synergies across the policy system and thus increased the efficiency of R&D spending, by providing a common forum for agenda setting, prioritisation and implementation Allowed science, technology and innovation to speak with a single, powerful voice, contributing to secure sustained public investment in these areas Mobilised a large pool of expertise for a more informed overview and credible allocation of resources that could be achieved by MPB alone. Accelerated the accumulation of strategic intelligence necessary for the systemic coordination of innovation policy

37 Fragmented Innovation Policy Well coordinated Innovation Policy 4 Nevertheless a number of unresolved issues remain, for example: The silo effect, whereby individual ministries may pursue their own goals at the expense of collective ones, has not been ruled out completely Civil carrier structures and other obstacles to labour mobility make problematic proper staffing of any intra-governmental coordinating body that would lie outside the main ministries The existence of R&D budget ceilings for individual ministries set by MPB, as opposed to a ceiling to the overall national R&D budget, limit the effective scope of any coordinating mechanism These issues will have to be tackled by the new government. In addition, any shake-up of the current institutional arrangements would need to be carefully considered, acknowledging the achievements of the past and understanding those good principles that should be carried forward to any new set-up. When considering mergers of ministries, lessons of international experience regarding the danger of dilution of S&T-related priorities should not be neglected

38 Skills for catching-up Skills for creativity and leadership 1 Throughout Korea s modern economic history, adequate supply and mobilisation of qualified labour, including HRST, have been the foundation to industrial and S&T policy Korea has recorded recently a comparatively high growth rates in HRST occupations ( ) Science Engineering Share of S&E degrees in 1998 n.a Percentage of S&E degrees awarded to women China Korea Sweden Germany Finland France United Kingdom Japan OECD United States % % Germany United Kingdom Finland United States France Sweden Korea Korea continues to produce one of the highest numbers of science and engineering graduates as a proportion of the total (data for 2004) Total employment Women HRST occupa

39 Skills for catching-up Skills for creativity and leadership 2 Korea s total spending on education is the highest in the OECD area but: There is widespread public discontent regarding the education system. Not only are current conditions a draining burden on household expenditures but the focus on the university entrance exam also tends to encourage homogeneity through rote learning rather than preparing students for a world in which creativity to develop new ideas is essential Other issues include: Korean firms complain that curricula are outdated and in need of renewal, despite the improvement brought about by the creation in 1999 of the Accreditation Board of Engineering Education of Korea (ABEEK) The relative lack of HRST mobility between universities, GRIs and industry, hampers knowledge diffusion around the innovation system Funding expenditures seem to be misaligned with the distribution of researchers (especially those holding doctorates), to the detriment of universities

40 Concentration in Seoul Stronger RIS 1 Concentration of S&T resources in Seoul (and public resources in Daeduk) has been taken for granted during Korea s rapid industrialisation process but has been increasingly questioned in the last decade The government s overall goal has been to increase the share of public R&D budget in the provincial cities (from around 27% of the total in 2003 to 40% by 2007) Region Trends of government R&D expenditure by major regions Seoul and vicinity Taejon Other regions A mix of policy measures has been enacted by MoST, MoCIE and MoE to support / build regional innovation systems so that they could spend efficiently this additional funding

41 Concentration in Seoul Stronger RIS 2 Many of the current policy and programme initiatives are relatively new, their effectiveness remains therefore difficult to evaluate. However, some problems are already apparent: There seems to be an overall weakness in coordination between the different innovation support programmes. They are administered by different agencies and at different levels leading not only to some overlap, but also to gaps in support More fundamentally, one may argue that the artificial allocation of R&D resources by government an allocation that gives precedence to a balanced growth agenda over considerations of R&D competency may in fact weaken national R&D capability, especially when mobility of HRST is insufficient However, taking into account the lead time of related infrastructural investment, the long term benefits of decentralisation should not be underestimated (e.g. accounting for the cost of congestion in Seoul and the time needed for the gradual transformation of Daedok from a Science city to an Innopolis )

42 Large manufacturing firms focus Greater focus on SMEs and services 1 Much of the Korean technology trade deficit is because indigenous SMEs have not been as successful as their Japanese and Taiwanese counterparts in supplying large Korean companies with high-tech components The profitability of SMEs is relatively poor. But the number of small innovative firms have increased steeply in recent years, partly s a result of a very active government support policy, including through venture capital schemes Productivity in services is much lower than the OECD average, partly due to lack of competition Knowledge-intensive business services (KIBS) are comparatively underdeveloped in Korea, representing only 1.8% of industrial sales in 2002

43 Large manufacturing firms focus Greater focus on SMEs and services 2 The government should maintain its priority for the promotion of R&D in SMEs and New Technology Based Firms But it should also reinforce the coordination between these policies and those aimed at building innovation (including non technological innovation) competencies of a larger number of SMEs More attention should be given to innovation in the services sector, which now accounts for close to 50% of GDP. Promising services include the cultural industries, business services and social services, which have a great deal of potential as society ages % Korea Share of services in business R&D (2004) Germany Japan (2003) France (2003) Sweden (2003) Finland EU (2003) United Kingdom OECD (2003) United States (2003) 1995

44 Closed NIS Internationalisation 1 Weak and unbalanced internationalisation is the Achilles heel of the Korean innovation system % 50 Korean firms had set up around 60 overseas R&D centres by Three Korean global corporations have been particularly prominent in setting up overseas R&D centres from the mid-1990s onwards. However domestic ownership of inventions made abroad remains low (in common with Japan). Less surprising given the relatively low levels of FDI in Korea, foreign ownership of domestic inventions is also low, suggesting a degree of innovation insularity relative to the OECD average % Japan Japan Korea Korea Domestic inventions made abroad ( ) EU25 Germany Chinese Taipei OECD United States United Kingdom France China Foreign ownership of domestic inventions ( ) Finland EU25 United States Germany OECD Chinese Taipei France United Kingdom China Singapore Singapore

45 Closed NIS Internationalisation 2 The government has taken a myriad of initiatives, some of which may lack critical mass, to foster all international inward and outward linkages. The results have not been impressive so far The government should assess systematically all existing measures, regarding in particular their impact on: The attractiveness of Korea for high qualified foreign researchers The flows of knowledge from the research diaspora The entrepreneurship by returnees Postgraduate plans of Korean doctorate recipients In US universities SE (N= 7,171) Plan to return to Korea Plan to remain in U.S. Plan to move to another country

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