OECD’s Innovation Strategy:Key Findings and Policy Messages

Overview

• Why an “Innovation Strategy”?

• What is OECD’s Innovation Strategy?

• What are some of the implications for countries?

2

Why an Innovation Strategy?

3

4

A Pre-crisis drop in productivity...

4

5

0

10

20

30

40

50

60

70

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Em

iss

ion

s (G

t C

O2)

WEO 2007 450 ppm case ETP2008 analysis

BLUE Map emissions 14 Gt

Baseline emissions 62 Gt

CCS industry and transformation (9%)

CCS power generation (10%)

Nuclear (6%)

Renewables (21%)

Power generation efficiencyand fuel switching (7%)

End use fuel switching (11%)

End use electricity efficiency (12%)

End use fuel efficiency (24%)

Source: International Energy Agency, Energy Technology Perspectives 2008: Scenarios and Strategies to 2050.

...combined with huge global challenges...

66

...and the lasting effects of the crisis.

Revised OECD projections: November 2008 vs. November 2009

11/2009

11/2008

7

What is OECD’s Innovation Strategy?

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A “horizontal" approachCutting across policy areas

Exploring innovation

from a wide range of policy perspectives

Development

Education & skills

Territorial developmentConsumer policy

Environment

Trade

Tax

Investment

Information and communications

Industry and entrepreneurship

Science and technology

Statistics

Public governance

Competition

9

A series of products• A short Ministerial paper setting out the challenges and

priorities for action on innovation, combined with a set of policy principles

• An analytical report, providing evidence on the main innovation drivers and processes and policy recommendations

• Measuring Innovation, presenting a set of policy-relevant indicators that will enable countries to position themselves on a range of policies and innovation outcomes, and proposing a forward looking measurement agenda

• In-depth thematic reports on key issues

• The beginnings of a policy handbook, that will enable countries to examine their own performance and system, and provide tools and examples to take action.

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What are some of the implications for countries?

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Finding 1:Innovation today involves the

interaction of a system

R&D is only one element

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1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Japan

China

OECD

EU27

%

United States

R&D is critical to innovation... Gross domestic expenditure on R&D, 1994-2008

As a percentage of GDP

Source: OECD (2009), Main Science and Technology Indicators 2009/2, December.

13

Direct and indirect government funding of business R&D and tax incentives for R&D, 2007As percentage of GDP

Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on NESTI 2009 R&D tax incentives questionnaire.

...and is the main focus of public support.

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But innovation is more than R&DNew-to-market product innovators, 2004-06

As a percentage of innovative firms by R&D status

Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on OECD, Innovation microdata project.

0

10

20

30

40

50

60

70

Au

stria

Cze

ch R

epub

lic

Ice

lan

d (2

002

-04

)

Luxe

mbo

urg

Irela

nd

Sw

eden

Ne

the

rlan

ds

Est

onia

Ch

ile

Ca

nad

a (2

002

-04

, m

anu

fact

urin

g)

No

rwa

y

Be

lgiu

m

Me

xico

(20

06-0

7)

De

nmar

k

Italy

Japa

n (1

999

-20

01)

So

uth

Afr

ica

(200

2-

04)

Sp

ain

Au

stra

lia (2

006

-07

)

Po

rtug

al

Un

ited

Kin

gdo

m

Ko

rea

(20

05-0

7,

man

ufa

ctu

ring

)

Innovative firms without R&D Innovative firms with in-house R&D%

15

Firms collaborate with each otherFirms with national/international collaboration on innovation, 2004-06

As a percentage of innovative firms

Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on OECD, Innovation microdata project.

0

10

20

30

40

50

60

Fin

lan

d

Ch

ile

Sw

ed

en

Cze

ch R

ep

ub

lic

Ne

the

rla

nd

s

Au

stri

a

So

uth

Afr

ica

(20

02

-0

4) B

elg

ium

No

rwa

y

Est

on

ia

De

nm

ark

Lu

xem

bo

urg

Ne

w Z

ea

lan

d (2

00

6-

07

)

Ice

lan

d (2

00

2-0

4)

Un

ited

Kin

gd

om

Ire

lan

d

Jap

an

(19

99

-20

01

)

Ca

na

da

(20

02

-04

, m

an

ufa

ctu

ring

)

Ch

ina

Au

stra

lia (2

00

6-0

7)

Ko

rea

(20

05

-07

, m

an

ufa

ctu

ring

)

Po

rtu

ga

l

Sp

ain

Ge

rma

ny

Italy

National collaboration only International collaboration%

Innovation is multidisciplinary…

Green Technology

Chemical Engineering Chemistry Material

Science Physics

Agricultural and Biological

Sciences

Immunologyand

Microbiology

Biochemistry, Genetics and

Molecular Biology

Energy

Earth and Planetary Sciences

Engineering

EnvironmentalScience

17.4%10.5%

4.9%

7.5%5.7%3.7%6.6%

4.8%

10.6%

9.5%14.2%

ScientificPapers

Patents

Patent-science link via citations

(100% = all citations)

Legend:

Scientific publications cited by “green” patents

Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on Scopus Custom Data, Elsevier; OECD, Patent Database; and EPO, Worldwide Patent Statistical Database.

1717

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…and the Internet has been a catalyst.

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Policy Message 1: Policies need to be upgraded to reflect

that innovation is a system

Strong innovation performance relies on a well-functioning system:

• Involving both “push” (supply R&D and HRST) and “pull” (demand) factors (markets, consumers; standards;

public procurement);

• Linking the elements of the system (labour mobility; University / Industry; diffusion; MNE & SME).

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Policy Message 1 bis: Governments should foster platforms

and markets that strengthen the system

• ICT as a platform that lowers the barriers to innovation, network formation and collaboration (Broadband);

• Provide access to public data (e.g. Maps, weather, publicly funded research data);

• Develop markets and networks for knowledge that can service many actors (e.g. market for patent licenses).

Finding 2: The mix of actors is changing

• Need to broaden our perspective from:– Multinational enterprises;– Public research organisations & universities; – The G7.

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21

33.5 13.5 4.5 4.2 3.0 2.8 1.6 1.6 0.9 0.7 0.7 0.4 0.3

0

5

10

15

20

25

Un

ited

Sta

tes

Ge

rma

ny

Fra

nce

Ne

the

rla

nd

s

Un

ited

Kin

gd

om

Sw

ed

en

Fin

lan

d

Italy

De

nm

ark

Be

lgiu

m

Au

stri

a

Sp

ain

No

rwa

y

%Share of patents filed by firms under 5 years old

Share of countries in PCT filed by firms (%)

Patenting activity of young ( <5 years) firms, 2005-07PCT patent filings by young firms as a percentage of filings by firms in each country

Note : Data refers to patent applications filed under the Patent Co-operation Treaty (PCT) with a priority in 2005-07. Patent counts are based on the country of residence of the applicants. The share of young firms is derived from the set of patent applicants successfully matched with business register data.

New firms are very important to innovation...

Source: OECD based on OECD, HAN Database, October 2009 and ORBIS© Database, Bureau Van Dijk Electronic Publishing.

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...and job creation.

0

20

40

60

80

100

120

140

160

Share of Employment Share of Net Growth

Perc

en

t

Contribution of business start-ups to overall employment and the net employment growth (US, 1992-2005)

Source: “Who Creates Jobs? Small vs. Large vs. Young” (Haltiwanger, Jarmin and Miranda, February 2010).

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Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on Scopus Custom Data, Elsevier, December 2009.

Scientific collaboration with BRIC countries, 1998 and 2008As a percentage of total international co-authored articles

North America Europe Far East & Oceania (excluding China)

China0

3

6

9

12

15

18

1998 2008%

And new players are emerging, spreading innovative capabilities...

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Patents per million inhabitants, Europe, average 2005-07

...but innovation is not “flat.”

Source: OECD (2010), Measuring Innovation: A New Perspective, OECD, Paris based on OECD REGPAT Database and OECD, Regional Database.

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Policy Message 2: Develop a Strategy for Innovation

• A “horizontal” approach:– Leadership & long-term vision;– Co-ordination via the budget;– Seek coherence: young ≠ small;– Division of labour with regions: build on indigenous

strengths; seek a critical mass.

• Evaluate & monitor through improved measures (measurement agenda);

• Strengthen multilateral co-operation of STI.

Finding 3: Innovation is already a fundamental economic investment...

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Investment in fixed and intangible assets as a share of GDP, 2006

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.

0

5

10

15

20

25

30

Slo

vak

Re

pu

blic

Italy

Cze

ch R

ep

ub

lic

Jap

an

(20

05

)

Au

stra

lia

Sp

ain

Ca

na

da

(20

05

)

Po

rtu

ga

l (2

00

5)

Au

stri

a

Sw

ed

en

Fra

nce

De

nm

ark

Ge

rma

ny

Fin

lan

d

Un

ited

Sta

tes

Un

ited

Kin

gd

om

% Machinery and equipment Software and databases

R&D and other intellectual property products Brand equity, firm specific human capital, organisational capital

intangibles

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...and a driver of growth.Innovation accounts for a large share of labour productivity growth

Percentage contributions, 1995-2006, in %

0

1

2

3

4

5

6

7

% Contribution from intangible capital Contribution from tangible capital Labour productivity growth

Source: OECD, based on research papers, 2009.

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21st Century Innovation: the iPod

Distribution of the value added

• 299 US$– 75$ profit to US (Apple)– 73$ wholesale/retail US

(Apple)

The Apple iPod = 299$ of Chinese exports to US

http://blogs.computerworld.com/node/5724

• iTunes Music Store (2003)– 70% digital market share– Big 5 recording companies

– 75$ to Japan (Toshiba)– 60$ 400 parts from Asia– 15$ 16 parts from the US– 2$ assembly by China

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Policy Message 3:Innovation: “Now more than ever”

• “Stay the course”: continue to support long-term investments in innovation (basic R&D);– Not an “on / off” incremental investment, but accumulative– Cutting spending could limit growth and the ability to address

global challenges

• Not all policies require large public investment– Reform and streamline existing policies; remove barriers; – Use demand-side measures (procurement, standards);– Inject innovation into the public sector (e-Gov).

• Better understand the broader role of innovation and its impact on economic growth

Conclusion or “What are some of the take-aways?”

• Innovation – Now more than ever.

• Innovation is broader than R&D – it is a system. Policies for innovation, not a narrow set of innovation policies;

• 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) Challenge some priors (small vs. young; drivers of growth) Set out an important measurement agenda.

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