STI-policy and economic trends_Köln_30092010

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STI-policy and economic trends: some critical

views

INNO-Grips workshop:

Innovation Policy in an Anti-Cyclical Conjuncture

30 September 2010, Institut der deutschen Wirtschaft Köln

Mika Nieminen

VTT Technical Research Centre of Finland



201/10/2010

Content

R&D investments as a starting point

What evidence do we have?

Why might we be sceptical?

But why might we be optimistic as well?



301/10/2010

R&D investments as a starting point

Roughly speaking in public STI policy there are two kinds of

instruments: a) insititutional-regulative instruments (who has the

right to act and in which way); b) money related instruments (how

much, to whom with what criteria?)

Of these the more effective policy instrument is money - especially

in the case of scarce resources and resource dependence

=>

How public STI investments affect economic performance & may

help to overcome economic downturns?



401/10/2010

What evidence do we have?

In general, both social and private rate of return to R&D investments havebeen measured in number of studies to be positive; social rate of returnsystematically higher than private

Some evidence that public R&D investments & subsidy increase firms¶

R&D investments & innovation activity => risk sharing with the help of public funding, tax reliefs increase R&D

leading possibly to wider positive effects via knowledge spill overs &strenghtened value chains (otherwise underinvestment situation from theperspective of social benefits)

Public R&D investments may decrease unemployment and help tomaintain critical knowledge infrastructure during economic down-turns

(especially in the case firms decrease R&D investments ± however, thisdoes not seem to be the case during the last downturns)

I.e. STI policy may to some extent help to shorten downturn or make iteasier to start a new upswing (with new products & markets)



501/10/2010


BUT: public intervention during economic downturn may turn out to be

artificial respiration => may maintain unhealthy economic structures &

activities (Big question: when public intervention is legitimate ± i.e. deals

with real market failure case?)

The real sources of downturns are beyond the reach of STI policy (e.g.

current downturn relates to financial markets)

STI policy is predominantly supply-side policy with only few possibilities to

affect demand-side (exceptions e.g. public procurement & regulation and

decisions beyond STI policy like energy solutions)

There is always a time-gap between the investment and the results =>

R&D investement-research-results/knowledge/publication/patent 2-6

years; R&D investment-prototype-product in the markets even15/20 years

=> increasing R&D investments during downturn produce results only after

years the downturn is over



601/10/2010


Most of the economic benefits of public R&D are indirect and take placeafter years (e.g..Salter & Martin 2001): Increasing the stock of usefulknowledge, training skilled graduates, creating new scientificinstrumentation and methodologies, forming networks and stimulatingsocial interaction, increasing the capacity for scientific and technologicalproblem solving, to a lesser extent creating new firms .

Usually STI policy very much leans on linear technology-push model of innovation, which is, however, currently understood restricted (and evenrare) innovation model: innovation is systemic, demand-driven andrequires collaboration and interaction of number of actors from providersto users as well as support from institutions

This complex and systemic nature of innovations makes directly effectivepolicy measures hard to design & difficult to implement

=> There are only few possibilities the current STI policies may help directlyto beat short term economic downturns!



701/10/2010

But why might we be optimistic as well?

STI policy helps to maintain and develop knowledge capacity andinfrastructure in a country

That is a prerequisite to transfer new knowledge to a country (absorptivecapacity), create its own industrial activity & develop innovations which, in

turn, may create possibilities for sustainable economic growth STI policy

Creates & maintains long-term capacities (human capital,general know-how, specialized knowledge)

Yields especially indirect effects in the system (e.g. education,networking)

Maintains necessary diversity of knowledge (various disciplinaryknowledges, new knowledge hybrids)

Creates niches & protects them for renewal (new technologies,social innovations)



801/10/2010

VTT creates business fromtechnology

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STI-policy and economic trends_Köln_30092010