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SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 1 ”With hindsight” retrospective policy assessment Governor Erkki Liikanen ENCIP Business Meeting Seville,

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Presentation on theme: "SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 1 ”With hindsight” retrospective policy assessment Governor Erkki Liikanen ENCIP Business Meeting Seville,"— Presentation transcript:

1 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 1 ”With hindsight” retrospective policy assessment Governor Erkki Liikanen ENCIP Business Meeting Seville, 25 March, 2007

2 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 2 ICT-policy framework in Europe REGULATION (Telecoms package 2006) PROMOTION eEurope 2002 eEurope 2005 i2010 RESEARCH IST-programs

3 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 3 On the economic impact of the ICT and the use of ICT  When we started in autumn 1999, there was a little knowledge on the accelerated productivity growth in the US since 1995 and the declining development in Europe  The first research results were coming on the US development, but only later on Europe  The strong economic argument was not presented in Lisbon in March 2000; the declining productivity development was not mentioned in the conclusions  (China, India and the rest of the emerging economies were also missing)

4 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 4 Three channels through which ICT impacts on growth  1st channel: Effect of ICT investment which raises output and labour productivity  2nd channel: Rapid technological change in ICT producing industries leading to Total Factor Productivity (TFP) growth  3rd channel: TFP growth in industries that make intensive use of ICT: –In process of transition, structural changes can drive a lot of the TFP growth differential –For ICT adjustment costs related to intangibles investment –ICT-induced innovation may create real knowledge spillovers

5 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 5 Intangible capital that may affect ICT-TFP relationship  ICT is general purpose technology so that productivity effects come with time lag –Need to raise investments in human capital, education, training, knowledge, etc.) –Organizational innovations critical, in particular in services –ICT is an enabler, productivity benefits can be achieved only when complemented by changes organisation and investments in human capital

6 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 6 a) Physical Capital a1) ICT capital (IT hardware, communications equipment) a2) Other capital (plant, machinery, buildings) b) Human Capital b1) Formal Education b2) Company training c) Knowledge Capital c1) Research and Development c2) Patents c3) Licenses, brands, copyrights c3) Other technological innovations, not related to b1) to b3) [c4) Software]* c5) Mineral Exploration c6) Experience d) Process Capital d1) Engineering design d2) Organisation design d3) Construction and use of data bases d4) Remuneration of innovative ideas e) Customer Capital e1) Brands e2) Marketing of new products Firm Specific Resources (intangible capital) Factor Inputs (tangible capital)

7 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 7 The TFP residual is key to understand impact of innovation and intangibles on productivity Source: van Ark, Bart

8 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 8 Direct effect from higher ICT capital intensity accounts for part of U.S. productivity advantage over EU ICT investment effect ICT production effect Other TFP incl. ICT use effect Source: van Ark, Bart

9 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 9 Industry Decomposition Highlights Importance of Market Services Source: van Ark, Bart

10 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 10 Major market service industries account for US-EU growth differential Source: van Ark, Bart

11 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 11 ICT-policy framework in Europe REGULATION (Telecoms package 2006) PROMOTION eEurope 2002 eEurope 2005 i2010 RESEARCH IST-programs

12 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 12 Reform of telecoms regulation  Unbundling of the local loop, to promote cheaper and faster access to Internet; the last sector specific legal act  Telecom package, presented in 2000, was based on convergence; we were convinced that boundaries between telecommunications, IT and media sectors were blurred; so we had to apply technological neutrality on competition; more emphasis on competition policy principles instead of sector specific rules simplicifation; a reduction of legal acts from 20 to 6 flexibility; allow for adaptation for future market changes coherence; try to guarantee a coherent application in all member states

13 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 13 eEurope 2002 the Action Plan adopted in Feira June 2000  focus on internet penetration and connectivity; 18.3 % March 2000, 42.6 % November 2002  more competition to reduce prices; support for ULL and telecom package  Action Plan included 64 (!) targets in 11 action areas.  A huge benchmarking exercise in the early Lisbon spirit

14 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 14 A new Action Plan, eEurope 2005 Seville European Coucil June 2002  We had in 2002 more research and analysis on the impact of the ICT and the use of ICT on productivity; (Jorgensen, van Ark etc.)  Focus on the demand side areas, where public sector has the leading role and where digitalisation can increase productivity due to data sharing  Demanding applications require high speed access and at the same time high security  A conclusion from the earlier plan; if you want to make a difference by an action on the European level, you must concentrate

15 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 15 eEurope2005; by 2005, Europe should have:  modern online public services –e-government –e-learning services –e-health services  a dynamic e-business environment and, as an enabler for these  widespread availability of broadband access at competitive prices  a secure information infrastructure

16 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 16 Take-off of broadband Number of broadband lines in percentage of population Belgium6,710,114,017,420,7 Denmark7,410,415,622,029,6 Germany3,24,86,710,215,3 Estonia7,611,116,6 Ireland0,00,21,74,48,8 Greece0,0 0,20,82,7 Spain2,04,36,710,013,2 France1,24,08,213,918,0 Italy1,02,86,19,513,1 Luxembourg0,02,35,711,717,4 Netherlands6,39,814,722,429,0 Austria4,76,68,711,615,8 Portugal1,53,66,410,112.9 Finland3,06,611,018,724,9 Sweden4,68,612,117,122,9 United Kingdom1,63,77,413,519,2 United States Japan

17 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 17 How to measure success in public services?  to measure productivity in public services is a continous challenge; but however difficult; we must advance  when there is not pressure from the markets; the role of management even more important  changes in organisation and processes cannot be led by IT-departments, if there is not commitment from the top, the bureaucracy fights back and prevents a change  the exchange of best practices useful, when also political leaders participate in the process

18 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 18 IST-programs  IST program in 6th Framework program had the biggest resources;  The relations of the ”lead” research DG and DG Information Society often tense;  The technology platforms were the major new inititives;  Integration of technology and content still slow;  IST program has the greatest significance when it creates platforms for European-wide participations from research, industry and other stakeholders  ”without a risk there is no innovation”

19 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 19 Parameter estimates for quadratic trend and R&D intensities by countries Source: Pyyhtiä, Ilmo

20 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 20 R&D expenditure, total business enterprise,% of GDP

21 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 21 R&D expenditure, total business enterprise, % of GDP

22 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 22 Technical progress Source: Pyyhtiä, Ilmo

23 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 23 Technical progress Source: Pyyhtiä, Ilmo

24 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 24 Improve Operational Efficiency by Bringing Firms Closer to Local Best Practice ACTIONS TO IMPROVE BEST PRACTICES Remove local restrictions in labor and product markets Invest in hard infrastructure (transport, etc.) Invest in education (in particular primary & secondary education for low skilled) Programs for small enterprise to raise employment and productivity jointly Raise productivity of supply of government services Source: van Ark, Bart

25 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 25 Move out Technology Frontier by Becoming Part of International Best Practices ACTIONS TO PROMOTE INNOVATIONS Higher education and scientific research (R&D) Attract foreign physical and human capital A larger market for goods and services Venture capital facilities ICT infrastructure Government as partner or client in innovation projects Source: van Ark, Bart

26 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 26 Successes? Failures?  the telecom package was a modern, leading-edge solution; convergence and technological neutrality forward-looking choices  eEurope 2002; too fragmented to make a difference  eEurope 2005; more focussed, mobilised political and business leaders; made a difference at least in broadband  IST programs; technology platforms can become an effective tool; the program still too fragmented;  A weakness; the commission was to slow to make a strong economic case from the productivity angle

27 SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND 27 i2010  a positive continuation to eEurope2002 and eEurope2005 action plans  a qualitative step, when it merges the fragmented efforts in digital content field in an integrated framework  a major challenge: maintain the attention of the European Council  the digital Europe is vital for the inclusion and quality of life, but also for the productivity growth in an aging Europe


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