CRC Association Conference Brisbane, 17 19 May 2011 Productivity and Growth: The Role and Features of an Effective Innovation Policy Jonathan Coppel Economic Counsellor to OECD Secretary General 1
Outline 1. What is innovation 2. Why innovation matters 3. Why policies for innovation need to adapt 4. Key policy messages from the OECD Innovation Strategy 5. Conclusions and further work
Defining innovation Defining innovation Innovation is the implementation of a new or significantly improved product, process, new marketing method, or a new organisational method in business practices, workplace organisation or external relations. Source: OECD (2005), Oslo Manual, Paris, 3 rd Edition.
Innovation matters because it is already a major economic investment Investment in fixed and intangible assets as a share of GDP, 2006 % Machinery and equipment R&D and other intellectual property products Software and databases Brand equity, firm specific human capital, organisational capital Why innovation matters 30 25 20 15 10 5 0 Slovak Republic Italy Czech Republic Japan (2005) Australia Spain Canada (2005) Portugal (2005) Austria Sweden France Denmark Germany Finland United States United Kingdom Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on COINVEST [www.coinvest.org.uk], national estimates by researchers, EU KLEMS database and OECD, Annual National Accounts Database.
14 12 10 8 6 4 2 0 with increasing importance... Investment in intangible assets as a percentage of GDP Source: COINVEST [www.coinvest.org.uk] and research papers, 2009. 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 % Australia Canada France Germany Italy Japan United Kingdom United States Why innovation matters
is a driver of productivity growth... Contributions to labour productivity growth, 1995 2006, in % % Labour quality Physical capital deepening Multifactor productivity Intangible capital deepening 7 Why innovation matters 6 5 4 3 2 1 0-1 -2 Source: Data on intangible investment are based on COINVEST [www.coinvest.org.uk] and research papers, 2009.
and is a source of job creation Contribution of business start-ups to overall employment and the net employment growth (US, 1992-2005) Why innovation matters Source: Who Creates Jobs? Small vs. Large vs. Young (Haltiwanger, Jarmin and Miranda, February 2010).
Innovation can also help address global social challenges neglected by markets 8 8 8
Australia compares well in terms of GDP per capita levels and growth rates Average growth rate 1999-2009, per cent 10 China Weighted OECD average Why innovation matters 8 6 4 2 0 India Russia Estonia Slovak Republic Indonesia Poland Korea Czech Republic Greece Chile Hungary Slovenia United Kingdom South Africa Turkey Sweden Iceland Ireland Brazil Norway³ Israel Finland Austria Weighted OECD average Spain EU Australia New Zealand Netherlands Mexico Belgium United States Japan Germany Portugal Switzerland France Denmark Italy Canada Luxembourg² 0 5 10 15 20 25 30 35 40 45 50 Level, thousands of US dollars in 1999, per cent Source: OECD (2010), National Accounts Database and OECD (2010), OECD Economic Outlook No. 88: Statistics and Projections Database.
Australia s GDP per capita gap has closed, but productivity has been lagging Why innovation matters Per cent 15 10 5 0-5 -10-15 -20 Gap to the upper half of OECD countries GDP per capita GDP per hour worked 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Source: OECD.
as Australia s MFP growth has declined Why innovation matters Average annual trend growth rates, per cent 1999-2004 2004-2009 GDP per capita 2.1 1.7 Labour utilisation 0.4 0.5 of which: Employment rate 0.8 0.6 Average hours -0.3-0.1 Labour productivity 1.7 1.2 of which: Capital intensity 0.9 1.4 Multifactor productivity 0.8-0.2 Source: OECD.
Productivity is the source of Australia s income differences, 2009 Percentage gap with respect to the upper half of OECD countries in terms of GDP per capita Percentage gap for labour resource utilisation Percentage gap for labour productivity Why innovation matters Source: OECD (2010), National Accounts Database; OECD (2010), OECD Economic Outlook No. 88: Statistics and Projections Database and OECD (2010), OECD Employment Outlook: Moving beyond the Jobs Crisis.
Policies need to reflect innovation today Changing nature of innovation The what, how and where of innovation has changed
Innovation today is more than R&D New-to-market product innovators, 2004-06 As a percentage of innovative firms by R&D status % 70 Innovative firms without R&D Innovative firms with in-house R&D 60 50 40 30 20 10 0 Austria Czech Republic Iceland (2002-04) Luxembourg Ireland Sweden Netherlands Estonia Chile Canada (2002-04, manufacturing) Norway Belgium Mexico (2006-07) Denmark Italy Japan (1999-2001) South Africa (2002-04) Spain Australia (2006-07) Portugal United Kingdom Korea (2005-07, manufacturing) Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on OECD, Innovation microdata project. Changing nature of innovation
...it includes design, marketing, training and data... Source: IMD (2000) Innovation and Rennovation: The Nespresso Story, IMD046, 03/2003
60 50 40 30 20 10 0 How innovation is conducted has become more collaborative and open between firms Companies collaborating on innovation, as a percentage of all firms, 2004-2006 National collaboration only International collaboration Changing nature of innovation Finland Chile Sweden Czech Republic Netherlands Austria South Africa (2002-04) Belgium Norway Estonia Denmark Luxembourg New Zealand (2006-07) Iceland (2002-04) United Kingdom Ireland Japan (1999-2001) Canada (2002-04, manufacturing) China Australia (2006-07) Korea (2005-07, manufacturing) Portugal Spain Germany Italy %
There is more international collaboration among scientists Changing nature of innovation Trends in co-authorship in scientific publications
and innovation is more multidisciplinary Scientific publications cited by green patents Chemical Engineering Chemistry Material Science Physics Legend: 9.5% 14.2% 17.4% 10.5% Patents Engineering 10.6% Green Technology 4.9% Energy Patent science link via citations (100% = all citations) 4.8% 6.6% 3.7% 5.7% 7.5% Scientific Papers Immunology and Microbiology Biochemistry, Genetics and Molecular Biology Agricultural and Biological Sciences Earth and Planetary Sciences Environmental Science Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris.
Where innovation occurs has Changing nature of innovation Russian Federation Korea Poland Russian Federation. Japan Korea China Japan China Poland India India Sweden Sweden changed Netherlands Germ any Belgium Netherlands Germany Belgium United States United States France France Switzerland Switzerland Brazil Italy Italy United Kingdom United Kingdom Brazil Spain Spain Canada Australia Canada Australia Scientific publications and co-authored articles 1998 2008
In summary, innovation today is Changing nature of innovation More than science and technology also design, business models, organisational changes More than high tech manufacturing also in services More than firms and research institutions also nongovernmental organisations, the public sector, users and consumers Involves people throughout the economy Involves supply (e.g. R&D, IPR, Skills) and demand (e.g. Right prices, standards) factors. This implies that a broad approach is needed joining up a range of policies
Key dimensions of the OECD Innovation Strategy Empowering people to innovate Unleashing innovation in firms Policy messages Improving the governance of policies for innovation OECD Innovation Strategy Investing in innovation and reaping its returns
Guiding principles: what an innovation strategy Policy messages Should not be An ill-defined silver bullet for solving all problems, or a simple catchword in rhetorical politics The cover for beggar thy neighbour, outdated industrial policies, inspired by technonationalism An indiscriminate rush towards any form of novelty A free lunch (free riding on world knowledge) A nano-bio-ict High tech myopia Should be A mobilising vision and the ambition to achieve it through the effective coordination of many policies An effort to consolidate existing or build new comparative advantages in an open environment An effort to channel creativity towards socially useful purposes An investment strategy, by both the public and private sector An inclusive approach, promoting value-creating change throughout the economy and society
Empowering people to innovate Policy messages Innovation is driven by scientists and engineers, but also depends on people in many other roles: Entrepreneurs, key to idea generation and commercialisation Workers, key to workplace innovation Users and consumers, influencing the direction of innovation Global talent spreading hands on knowledge Implies: Universities and research centres are nodes in the innovation system A broad and inclusive agenda for education and training A well functioning labour market that enables mobility and organisational change. Policies that empower and enable consumers to engage
Unleashing innovation in firms Policy messages Firms and an encouraging business environment are the key drivers of innovation: Encouraging entrepreneurship in new and existing firms Supportive framework conditions (tax climate, competitive markets, openness to trade and investment, stable macroeconomic policy, supportive regulation) Strong private funding for innovation well functioning financial markets, including for risk capital, well designed government support to address gaps (e.g. Risk sharing for yound firms, seed capital) Markets that encourage and diffuse innovation this may require government action, e.g. tax policy, regulatory reform, innovative public procurement
Investing in innovation and reaping its returns Policy messages Innovation requires public and private investment in knowledge creation and diffusion: Excellent and effective public research A modern and reliable knowledge infrastructure, including policies to foster ICT and other general purpose technologies Well functioning knowledge networks and markets that help generate knowledge and IP and generate value from it Strategies to foster innovation in the public sector
Improving the governance of policies for innovation Policy messages Need for strong political leadership and long term strategic vision. Need for measurement and evaluation frameworks to support policy. Evidence based policy making, helps set priorities. Foster S&T awareness and dialogue among stakeholders in the innovation system.
Taxonomy of innovation systems Policy messages Source: Innovation and growth, OECD, 2010
Indicators of innovation performance Australia Average HRST occupations as % of total employment GERD as % of GDP BERD as % of GDP Policy messages Science & Engineering degrees as % of all new degrees Researchers per thousand total employment % of GERD financed by abroad Patents with foreign co inventors % of firms collaborating (as % of all firms) Venture capital as % GDP Triadic patents per million population Scientific articles per million population % of firms with new to market product innovations (as % of all firms) % of firms undertaking non technological innovation (as % of all firms) 28
Conclusions Conclusions Innovation a driver of productivity and growth that is increasing in importance. Innovation is broader than R&D it is a system. Policies for innovation, not a narrow set of innovation policies; Government plays three fundamental roles in establishing a conducive climate for innovation: Developing basic capabilities (skills, research); framework conditions and correcting market failures (IPR, R&D support). Innovation policy is more than budget allocations; Better measures to reflect the central role of Innovation to the economy. new data that confirm some of our intuition (collaboration), and Role of intangible assets.
Further OECD work on innovation 1. Working with countries to support policy development in the national context, e.g. through OECD Country Reviews Conclusions 2. Improving the measurement of innovation 3. Focusing on specific questions, e.g. role of intangible assets, of inputs into the innovation system 4. Developing more specific guidance spreading best practices through a policy handbook.
For more information www.oecd.org/innovation/strategy Thank you Jonathan.Coppel@oecd.org