Innovation and industrial dynamics some challenges and new directions

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1 2017 CONCORDI CONFERENCE Seville, September 2017 Innovation and industrial dynamics some challenges and new directions Dirk Pilat, Deputy Director Directorate for Science, Technology and Innovation

2 Outline 1. Some challenges for innovation and industrial dynamics 2. New directions? 3. World Corporate R&D Investors - A New Report

3 1. SOME CHALLENGES FOR INNOVATION AND INDUSTRIAL DYNAMICS

4 A wide-ranging digital transformation of economies and societies is under way Digital and other new production technologies have become pervasive Automation is becoming widely deployed Artificial Intelligence emerges as a new technological paradigm

5 1. But despite the technological revolution, productivity growth has slowed, Labour productivity growth since 1995 GDP per hour worked, total economy, percentage change at annual rate Source: OECD, Productivity Statistics (database), April 2017.

6 which has ignited a spirited debate T-Pessimists: T-Optimists: Gordon Brynjolfsson Cowen McAfee Thiel Mokyr Jovanovic

7 There are many possible explanations for the slowdown 1. Technological factors transition costs of Adoption and diffusion of GPT (Griliches, 1957; David, 1991; Jovanovic and Rousseau, 2005) 2. A return to normal effect after nearly a decade of exceptional IT-fueled gains (Fernald, 2014) 3. Transitional productivity growth dynamics due to rising resource misallocation (Gopinath et al., 2015): 4. Cyclical factors e.g. demand conditions and monetary policy (Anzoategui,et al., 2016) 5. Measurement (Byrne, et al., 2016)? ( or not)

8 Our work points to a rising productivity gap between global frontier firms & laggards Average of labour productivity across each 2-digit sector (log, 2001=0) Frontier Frontier Non-frontier Non-frontier Source: Andrews, D. C. Criscuolo and P. Gal (2016), The Global Productivity Slowdown, Technology Divergence and Public Policy: a Firm Level Perspective, OECD Productivity Papers.

9 In some sectors, the productivity divergence is even more marked The divergence in multi-factor productivity growth ICT services Non-ICT services Frontier firms Top 2% Top 10% Frontier firms Top 2% Laggards Laggards Top 10% Note: Excluding the financial sector Source: Andrews, D., Criscuolo C., and Gal P. N., The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy, OECD Productivity Working Papers, , OECD Publishing, Paris.

10 Our work shows that the slowdown in aggregate productivity growth masks an increasing divergence between GF and laggard firms: Structural trends in the global economy may have unleashed winner takes all dynamics and made adoption more difficult. Thus, MFP divergence was partly inevitable but policy may not have adapted sufficiently to these structural trends What other factors may matter? Decline in market contestability Role of digitalisation and network economies Role of complementary factors (e.g. managerial quality, skills) Intellectual property (patent) regimes? Outstanding issues

11 2. Despite the new opportunities, we find a decline in business dynamism entry rate (pos. emp.) churning rate excess job reall. rate Source: OECD DynEmp v.2 database. 11

12 with start-up rates falling in many OECD countries Source: OECD DynEmp v.2 database (see ). Data for some countries are still preliminary.

13 Decline in growth of labour force and ageing (Karahan, et al., 2016) Concentration effects and winner-take-all/most dynamics (especially in some sectors) Automation Globalisation (Decker, et al., 2016) young firms may be able to grow in other countries plus impact of growing import penetration Sensitivity to credit constraints, housing market dynamics (David and Haltiwanger, 2014) Increases in the costs of job search. Many factors may influence the decline in business dynamism Thus far: mainly US literature, even though phenomenon is a much broader one.

14 3. The possible negative impacts of technology on Jobs are also widely discussed Percentage of workers in jobs at high and medium risk of automation Significant change in tasks Automatable Source: OECD calculations based on PIAAC and Arntz, Gregory and Zierahn (2016), see:

15 although history suggests new jobs will emerge too, complementary to digital technologies Source: Wall Street Journal, Workers, fear not the Apocalypse, 5 September

16 Skills are a key concern, however, too few have the skills for a technology-rich environment Percentage of year-olds having sufficient proficiency levels (levels 2 and 3) Level 3 Level 2 Source: OECD Survey of Adult Skills, October 2013; Skills Matter Further Results from the Survey of Adult Skills, 2017,

17 How will this evolve and what additional policy action will be needed? Image Source:

18 2. SOME NEW DIRECTIONS

19 Some new directions Much scope for more learning, experimentation and better measurement: Learning and Evaluation: Much scope to learn more about innovation and what works in innovation, e.g. by better use of micro data and other new sources of data (e.g. Manchester/NESTA compendium: ) Experimentation: Learn more about policies by greater use of experimental policies and RCTs (e.g. NESTA s IGL: ) as well as greater use of design thinking in policy formulation Data and measurement: A familiar challenge, but also new opportunities to measure key aspects of innovation (recent OECD conference: Blue Sky Forum of September oe.cd/blue-sky ) And: scope for greater interdisciplinarity and stronger connections to other areas of research. 19

20 For example: new microberd project on public support for R&D, based on microdata Confidential business data in participating countries Statistical code run on microdata at local premises Nonconfidential harmonized output R&D microdata + Corporate tax data + R&D grant/loan data + Business register data + Patent data + Innovation data Inspired by previous OECD work... Innovation in Firms (CIS data) DynEmp MultiProd

21 3. WORLD CORPORATE R&D INVESTORS A NEW REPORT

22 JRC and the OECD Our second joint report 22

23 Top corporate R&D performers, by industry, 2012 and 2014 R&D expenditures by industry EUR millions Difference of 5% or more 140, , ,000 82% overlap between 2012 and 2014 sample 80,000 60,000 40,000 20,000 0 Source: JRC-OECD World Corporate R&D Investors: Industrial Property Strategies in the Digital Economy (2017)

24 Innovation input and outputs are highly concentrated % 100 R&D expenditures Patents Designs Trademarks In 2014, the top 10% of corporate R&D investors (i.e. the top 200 companies) accounted for about: 70% of R&D expenditure 60% of patents 53% of designs 38% of trademarks R&D ranking of companies Source: OECD Science, Technology and Industry Scoreboard, 2017 (forthcoming) based on: IPTS-OECD, COR&DIP database v.1., 2017.

25 The top R&D investors rely on bundles of IP Share of IP bundle in total IP portfolio of world top R&D investors Patents Trademarks Designs % % 4 3 Not an ICT sector story only. Corporations rely on the full IP bundle, in all industries Source: JRC-OECD World Corporate R&D Investors: Industrial Property Strategies in the Digital Economy (2017)

26 Source: JRC-OECD World Corporate R&D Investors: Industrial Property Strategies in the Digital Economy (2017). Map source: ARCTIQUE - All rights reserved Headquarters of the world s top R&D investors, 2014 (1) Headquarters location & share of ICT companies about 15% in China & Chinese Taipei About 60% headquartered in the US, Japan, Germany & the UK

27 Source: JRC-OECD World Corporate R&D Investors: Industrial Property Strategies in the Digital Economy (2017). Map source: ARCTIQUE - All rights reserved Headquarters of the world s top R&D investors, 2014 (2) Headquarters location & share of ICT companies

28 Source: JRC-OECD World Corporate R&D Investors: Industrial Property Strategies in the Digital Economy (2017). Map source: ARCTIQUE - All rights reserved Subsidiaries of world top R&D investors, 2014 Location of subsidiaries & share of subsidiaries in the ICT sector 21% of the 600,000 controlled subsidiaries operate in ICT industries > 63% of ICT subsidiaries are located in 5 economies: US, UK, Japan, Germany & China

29 Top R&D investors lead in the development of digital technologies and designs, ICT-related IP rights owned by the world top R&D investors, Top R&D performers Others Patents Designs Trademarks 2014 top R&D corporate investors owned: 75% of ICT-related patents 60% of ICT-related designs 12% of ICT-related trademarks Source: JRC-OECD World Corporate R&D Investors: Industrial Property Strategies in the Digital Economy (2017)

30 with ICT trademarks playing a role in several industries Share of ICT trademarks in companies' portfolio EUIPO JPO USPTO by Sky plc % by ebay inc. by General Electric by Philips by Adidas 40 by Novartis AG by Google Inc by Orange Source: JRC-OECD World Corporate R&D Investors: Industrial Property Strategies in the Digital Economy (2017)

31 THANK YOU ENJOY THE CONFERENCE Contact: Follow us on Report on R&D performers: and (includes data) Innovation Policy Platform: Newsletter: