Pilat eu spri new avenues innovation policy 9 june 2016

Innovation policy - new insights, new

questions, new directions

Dirk Pilat, Deputy DirectorDirectorate for Science, Technology and Innovationdirk.pilat@oecd.org

2016 EU-SPRI CONFERENCE

Exploring New Avenues for Innovation

and Research Policies

Lund, 9 June 2016

Outline

1. The challenges - why innovation matters today

2. New insights

3. New questions

4. New directions and some conclusions

1. THE CHALLENGE – WHY INNOVATION MATTERS

TODAY

THE WORLD IS FACING COMPLEX CHALLENGES –

SLOW PRODUCTIVITY GROWTH …

Productivity growth has declined since the 1990sAnnualised growth of labour productivity (output per hour worked)

Source: OECD estimations using OECD National Accounts database; OECD Productivity database; International Labour Organisation database.Statlink: http://dx.doi.org/10.1787/888933367500

… GROWING WITHIN-COUNTRY INEQUALITIES …

Disposable income inequality has increased since 1990Household disposable income, total population

Source: OECD estimations based on OECD (2015), In It Together: Why Less Inequality Benefits All; and OECD Income Distribution database. Data: http://dx.doi.org/10.1787/888933367530

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…, AS WELL AS CLIMATE CHANGE, ENERGY, WATER,

FOOD, AGEING AND OTHER GLOBAL CHALLENGES

Source: NASA

2. (SOME) NEW INSIGHTS

Business investment in fixed and knowledge-based capital

(as % of business sector gross value added, 2013)

Source: OECD calculations based on INTAN-Invest data, www.intan-invest.net and OECD, Structural Analysis

(STAN) Database, http://oe.cd/stan, June 2015. 8

1. Firms invest heavily in innovation …

Knowledge-based capital accounts for half of all

business investment

0

5

10

15

20

25

30

35

%

Non-residential GFCF including machinery and equipment KBC assets in National Accounts including software and R&D

Other KBC assets including organisational capital and training

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Pre-productionIntangible

Pre-productionTangible activities

Post-productionIntangible

R&D

Design

Logistics: purchase

Production

Logistics

Marketing

Services

Value chainactivities

Value added

Value Chain in the 1970s

Global Value Chain in the 2000s

The smiley curve

… as investments in innovation are often key to value creation in global value chains

2. We need to look beyond the average …e.g. productivity gap between firms at global frontier & others

The productivity gap between the globally most productive firms and other firms has widened

Note: “Frontier firms” is the average labour productivity (value added per worker) of the 100 or 5% globally most productive firms in each

two-digit industry. “Non-frontier firms” is the average of all firms, except the 5% globally most productive firms.

Source: OECD preliminary results based on Andrews, D., C. Criscuolo and P. Gal (2016), “Mind the Gap: Productivity Divergence

between the Global Frontier and Laggard Firms”, OECD Productivity Working Papers, forthcoming; Orbis database of Bureau van Dijk.

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… and not only at the size, but also at the

age of a firm …

Average over 18 countries, 2001-2011, in %

Source: Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm

…as the dynamics of young firms matter for

growth & innovation

Average size of start-ups and old firms, in persons employed, services sector

Source: Updated from Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm

0

10

20

30

40

50

60

70

80

Empl

oyee

s

Start-ups (0-2) Old (>10)

3. Design matters for innovation policy …

Direct funding of business R&D and R&D tax incentives,

as a percentage of GDP, 2013

Source:OECD, R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm and Main Science and Technology Indicators, June, 2015, www.oecd.org/sti/msti.htm

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5

% Direct government funding of BERD Indirect government support through R&D tax incentives Data on tax incentive support not available

NLD

NLD

NLD

NLD

ESP

ESP

FRA FRA

ITA ITAJPNNZL NZL NZL NZL

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

1 m

inu

s B

-ind

ex

Large/Profitable SME/Profitable Large/Loss-making SME/Loss-making

… and we need to take a more granular lookImplied generosity of R&D tax relief provisions – NLD vs OECD

Implied marginal tax subsidy rates on R&D expenditures, 2015B-Index country distribution, by firm size and profit scenario

Source: OECD, R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm, December 2015.Based on OECD STI Scoreboard 2015. StatLink: http://dx.doi.org/10.1787/888933274335

ITA, JPN, NZLITA, NZL

4. Digital technology is a game-changer for

innovation and has become ubiquitous…

0

50

100

150

200

250

300

350Millions

Smartphones Other mobile phones

Quarterly shipping trends of smartphones, 2010-13

Sources: NBC News, St Peter’s Square: http://instagram.com/p/W2FCksR9-e/ and OECD Broadband Portal, http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm

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… with data-driven innovation affecting all parts

of the economy

HealthPublic Admin. Retail

TransportationAgriculture

Science & EducationManufacturing

5. SKILLS ARE A MAJOR CHALLENGE FOR THE

DIGITAL …

Individuals who judge their computer skills to be sufficient if they were to apply for a

new job within a year, 2013 (as a percentage of all individuals)

0

10

20

30

40

50

60

70

80

90

%

All Individuals Individuals with high formal education Individuals with no or low formal education

Source: OECD Measuring the Digital Economy: A New Perspective, 2014, http://dx.doi.org/10.1787/888933148354.

… and innovation-intensive economy

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)

Source: OECD Survey of Adult Skills, October 2013, https://www.oecd.org/site/piaac/surveyofadultskills.htm .

0

5

10

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20

25

30

35

40

45

Level 3

Level 2

6. Systems thinking is key: e.g. misalignment

between climate objectives and other policies …

ECONOMIC

TRADE

COMPETITIONFISCAL

INNOVATION

SOCIAL

INVESTMENT

CLIMATE

Source: OECD (2015), Aligning Policies for a Low-Carbon Economy, http://www.oecd.org/env/aligning-policies-for-a-low-carbon-economy-9789264233294-en.htm

… where the incentives for investment and

innovation still favour fossil fuels

Sources: OECD (2013), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels; IEA (2013), World Energy Outlook; IEA (2013), Tracking Clean Energy Progress Report; OECD (2013), Effective Carbon Prices.

3. NEW AND OUTSTANDING QUESTIONS

1. Responding to the digitalisation of

economy and society …

… and the future of jobs and skills …

Source: OECD calculations based on PIAAC and Arntz, Gregory and Zierahn (2016), see:

https://www.oecd.org/employment/Automation-and-independent-work-in-a-digital-economy-2016.pdf

0

5

10

15

20

25

30

35

40

45

50

Significant change in tasks Automatable

Percentage of workers in jobs at high and medium risk of

automation

… linked to shifts in the nature of work

Source: Levy and Murnane, 2013

Index of Changing Work Tasks in the U.S. Economy

2. Reconciling productivity, innovation and

inclusive growth …

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Household disposable income, total populationProductivity gap between the globally

most productive firms and other firms

Source: OECD (2016), OECD Economic Outlook – June 2016, http://www.oecd.org/eco/outlook/economicoutlook.htm .

… and making use of the new opportunities

offered by digital technologyPercentage of households with Internet access by

country in 2008 and 2015

Source: Eurostat, Community Survey on ICT usage in households and by individuals, February 2016.

Possible benefits:

Access to networks

Access to free or low cost information

Emergence of Internet-based services (incl. education and health)

Benefits from the sharing economy

New opportunities for micro-entrepreneurs

3. Concentration and dynamics: R&D and IP

rights are highly concentrated …

0

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30

40

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80

90

100

0 250 500 750 1 000 1 250 1 500 1 750 2 000

%

R&D ranking of companies

R&D expenditures Patents Trademarks

Source: OECD Science, Technology and Industry Scoreboard 2015 based on OECD, STI Micro-data Lab:

Intellectual Property Database, June 2015. http://dx.doi.org/10.1787/888933273408.

R&D expenditures and the IP bundle of the top R&D companies, 2012

Cumulative percentage shares within the top 2000 R&D companies

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… and start-up rates have been falling in

many OECD countries

Source: OECD DynEmp v.2 database (see www.oecd.org/sti/dynemp.htm ).

Data for some countries are still preliminary.

R&D budgets 2008-2015, G7 and Korea, Index 2008 = 100

Source: OECD, Main Science and Technology Indicators Database, www.oecd.org/sti/msti.htm, January 2016.

4. The role of the state in the supply- …

Innovation activity as part of a public procurement contract by type of requirementAs a percentage of firms with public procurement contracts

Source: OECD analysis, based on final CIS2012 results. Note: Some firms may be required for some contract and not for others. http://www.oecd.org/science/inno/procurement-for-innovation.htm

… and the demand-side of innovation

4. NEW DIRECTIONS AND SOME CONCLUSIONS

New directions (1)

1. Measurement, learning and experimentation

– 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: http://www.innovation-policy.org.uk/compendium/ )

– Experimentation: Learn more about policies by greater use of experimental policies and RCTs (e.g. NESTA’s IGL: http://www.nesta.org.uk/project/innovation-growth-lab-igl ) and greater use of design thinking in policy formulation

– Measurement: A familiar challenge, but new opportunities to measure key aspects of innovation (OECD: Blue Sky Forum of 19-21 September - oe.cd/blue-sky )

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Confidential business data in participating

countries

Non-confidentialharmonized

output

For example: new microBeRD project on public

support for R&D, based on microdata

Statistical coderun on microdataat local premises

R&D microdata+ Corporate tax data+ R&D grant/loan data+ Business register data+ Patent data+ Innovation data

• Innovation in Firms (CIS data)

• DynEmp• MultiProd

Inspired by previous OECD work...

New directions (2)

2. More systemic approaches:

– Broadening and strengthening the role of innovation, which is central to achieving many important public policy goals

– Connecting more to other research and policy areas, e.g. economic policy, entrepreneurship, digital economy, health, energy, public sector innovation –innovation in analysis and policy often occurs at the intersection of disciplines …

– Reconciling policy objectives, e.g. innovation, productivity, sustainability and inclusive growth, and developing new analysis and policy experiments

– Engaging with a broader range of actors and stakeholders, to increase ownership and enable learning, which also requires new platforms and sharing of practices, e.g.: www.innovationpolicyplatform.org

– A greater focus on implementation, institutional factors, governance and the political economy of reform

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SOME RECENT WORK

oe.cd/innovation www.oe.cd/sti-scoreboard

Website: oe.cd/blue-sky

Information: OECD.BlueSky3@oecd.org

Registration is now open

THANK YOU

Follow us on Twitter: @OECDinnovation

Website: www.oecd.org/sti

Innovation Policy Platform:www.innovationpolicyplatform.org

Newsletter: www.oecd.org/sti/news.htm

Contact: dirk.pilat@oecd.org