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1 Innovation Trends and Policies John Dryden Deputy Director for Science, Technology and Industry, OECD Istanbul Chamber of Industry – 6th Industry Congress,

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Presentation on theme: "1 Innovation Trends and Policies John Dryden Deputy Director for Science, Technology and Industry, OECD Istanbul Chamber of Industry – 6th Industry Congress,"— Presentation transcript:

1 1 Innovation Trends and Policies John Dryden Deputy Director for Science, Technology and Industry, OECD Istanbul Chamber of Industry – 6th Industry Congress, Istanbul, 26 – 27 Nov. 2007

2 2 Outline Trends affecting innovation Policies to strengthen innovation OECD Innovation Strategy –The OECD Review of Innovation Policy in Turkey

3 3 TRENDS AFFECTING INNOVATION  Globalisation  Advances in generic technologies, notably ICTs

4 4 Globalisation is advancing rapidly…

5 5 … and Turkey is one of the active participants ( Exports plus imports of goods and services as a ratio of GDP, %) Source, Presentation by Rauf Gönenç, OECD Economics Department, Country Desk for Turkey, September 2007

6 6 The current phase of globalisation is characterised by several new trends: The spread of global value chains: production is increasingly fragmented across countries leading to more specialisation, even in traditional industries. Intra-firm trade by multinational enterprises accounts for a large part of global trade flows. Trade in services is growing rapidly, enabled by information and communications technologies. The integration of large emerging economies, notably China and India, also in more innovative areas of economic activity.

7 7 Non-OECD countries are also of growing importance for global science and innovation R&D expenditure in 2005 (circles reflect size of spending in billion USD PPP) China, already among the largest investors in R&D globally, targets an R&D intensity of 2.5% by 2020. In 2005, non-OECD countries accounted for over 21% of global R&D, up from 17% four years earlier. Source: OECD, Science, Technology and Industry Scoreboard 2007

8 8 Why the growing interest in innovation in this global economy?  Innovation is part of the response to globalisation: – countries move up the value chain, increase productivity growth and become more competitive; – Innovation can help address global challenges in the environmental (climate change, energy security) health (diseases, aging society, water) and development (poverty reduction, income disparity) domains.  The global economy also offers new opportunities for faster innovation: – New technologies (information technology, the Internet) enable more rapid innovation, notably in services. – Globalisation broadens access to markets and enables greater efficiencies and specialisation. – More resources can be devoted globally to research and innovation.

9 9 Innovation plays an important role in economic growth … Welfare Economic growth Productivity growth Employment growth Innovation Human capital Investment in Capital Technological innovation (often linked to R&D and scientific discovery) Non-technological innovation (changes in processes, organisations, etc.)

10 10 Investment in innovation is rising in several OECD countries (R&D expenditure as % of GDP) Source: OECD, Science, Technology and Industry Outlook 2006.

11 11 Government budgets for R&D have grown substantially in some countries: (Growth in government budgets for R&D, 2000-2006, current prices, in %) Source: OECD, Main Science and Technology Indicators, 2006-II, December 2006.

12 12 But raising R&D intensity primarily involves increasing business R&D: (R&D expenditure as % of GDP, 2005) Note: (1) Other R&D includes government, abroad and other sources. Source: OECD, Main Science and Technology Indicators, 2006-II, December 2006.

13 13 Innovation is more than R&D: Investment in many intangibles is rising In the U.S., intangible investment now exceeds tangible investment (machinery and equipment and buildings) as % of output. Investment in intangibles includes investment in software, R&D and factors such as training and firm organisation. These intangibles (investments in knowledge) play a growing role in growth performance. Source: Corrado, Hulten and Sichel (2007).

14 14 Outcomes still differ substantially … Relative prominence of cited scientific literature, 2003 (1) … Source: OECD, Science, Technology and Industry Scoreboard 2007. Scientific research from some countries is more frequently cited than that from others. Countries with large efforts in scientific research are also more frequently cited. This may also reflect greater quality of the research, as well as greater linkages to research in other countries (1) “Relative prominence” is the ratio of a country’s share of S&T literature cited by the rest of the world to its share of S&E articles (NSF).

15 15 … also in terms of patenting: (Key international patents (triadic patents) per billion dollar of GDP, 2005) Note: (1) Triadic patents refer to patents applied for at JPO, USPTO and JPO. Source: OECD, Compendium of Patent Statistics 2007,

16 16 Countries with strong innovation performance share common characteristics Strong fundamentals, including well-functioning labour and product markets Strong investment in knowledge (education, ICT and R&D) – which also strengthens the absorptive capacity of economies Success in turning new technology, notably ICT, into Stronger productivity growth and process innovation, e.g. in the services sector. A high share of business in financing R&D A diversified base of innovators (large and small firms) Solid regional pillars of national development Networking among innovators, notably strong linkages between science and industry Openness to foreign sources of knowledge

17 17  Many OECD countries have had difficulties in strengthening innovation : – The EU’s Lisbon agenda has made slow progress. – Many OECD countries have had weak productivity growth in recent years, despite new opportunities.  Why? – Business, not government, is the main innovator. – Innovation depends on many factors: business-friendly environment, strong education and science system, good links between science and business, etc. – Co-ordinating policies across policy domains is difficult. – Improving innovation often requires a long-term policy commitment – Stronger innovation may imply winners and losers: insufficiently innovative firms may disappear and there may be job losses.  Sharing experiences and good policy practices can help. POLICIES TO STRENGTHEN INNOVATION

18 18 Good framework conditions are key  OECD analysis emphasises : –Strong competition, especially in the services sector –Openness: A low level of restrictions on FDI; openness to foreign talent –Stable macroeconomic conditions and low real interest rates –The availability of internal and external finance: Improved corporate profitability and higher stock market capitalisation –Intellectual property rights, which provide the incentive to innovate  Much reform has been undertaken, but poor framework conditions (e.g. lack of competition and lack of openness) still remain a constraint on innovation in many OECD countries.

19 19 Policies towards Public Research are changing  Strong innovation requires a strong and efficient knowledge base (e.g. in universities and public research institutions).  Public R&D expenditure in several OECD countries has risen.  Reform of public research institutions is underway: Fewer, larger universities (e.g. Denmark) Greater university autonomy (Japan) and performance targets Improved performance in public research institutions (Spain)  Growing focus on excellence and relevance: Ensure best research is funded – focus on excellence Growing emphasis on competitive funding Growing focus on evaluation of programmes and policies; new quality assessment frameworks in several OECD countries (e.g. Australia, Austria, Norway)

20 20 Science-industry links can be further improved: Firms collaborating in innovation with higher education institutions, by size, 2002-04 Source: OECD, Science, Technology and Industry Scoreboard 2007.

21 21 Policies to foster business innovation  Governments support business innovation through several channels, including tax relief and direct support (e.g. grants).  These policies are changing across OECD countries: – Increasing reliance on R&D tax credits, less direct support in a number of countries – Some streamlining – support programmes often too complex for firms – More competitive-based funding – Supporting networks and clusters, instead of individual firms  R&D tax credits are being reformed (e.g. in Belgium, Spain, Netherlands)  Overall: “smarter ways” to support business innovation.

22 22 Policy is shifting from direct funding of business R&D… Source: OECD, Science, Technology and Industry Scoreboard 2007.

23 23 …to R&D tax relief : (Rate of tax subsidies for $1 of R&D, 2007) Source: OECD, Science, Technology and Industry Scoreboard 2007.

24 24 Developing coherent policies for innovation  Coordinating strategies towards research and innovation remains a challenge for many OECD governments  A long-term perspective on innovation enhances trust.  Better co-ordination mechanisms can improve policy coherence: Growing inter-ministerial co-operation, sometimes co-ordinated by the prime minister (e.g. in Finland) Growing involvement of stakeholders (scientific institutions, business, the public) in S&T policy debate, e.g. through foresight programmes. Growing importance of regional governments and actors in innovation policies (e.g. Spain and Belgium).  In sum, despite major policy efforts to improve innovation capabilities, OECD countries still have a long way to go.

25 25 New dimensions of innovation policies  The scope of policies to foster innovation is broadening:  Demand for innovation: what is the market for innovative products and services? - in Europe, the 2006 Aho report on “Creating an Innovative Europe” focused on this issue.  Non-technological innovation – e.g. changes in organisation, in processes, in marketing, in design, etc. – recognised of growing importance, in particular in the services sector.  The globalisation of innovation – how can national policies be adapted to the changing global landscape for innovation?  Innovation for global challenges and not only economic growth, “global public goods” – eco-innovation, health innovation, etc.

26 26 The view of innovation is moving away from a linear model… Discovery DevelopmentDelivery … Diffusion

27 27 Connectivity & Interoperability DEVELOPMENT IDENTIFICATION of NEED DIFFUSION DELIVERY Research Policy and Behaviour Networks collaborations DISCOVERY Industry Policy Structure Practice Policy Environment Energy Health Etc Market Demand Tools Flexibility Regulatory/ Legislative Policy Incentives? Decisions Match innovation and market needs Enabling environment? COMMERCIALISATION …towards a continuous innovation paradigm

28 28 TOWARD AN OECD INNOVATION STRATEGY…  The OECD Ministerial Council of May 2007 mandated an OECD Innovation Strategy: Provide new facts and evidence depicting innovation performance in OECD countries, based on statistical, empirical and thematic analysis. Provide explanations for the differences in innovation performance across OECD countries. Provide comprehensive and forward-looking policies to strengthen innovation, involving good policy practices and recommendations. This will also seek to address the new dimensions of innovation.  It will provide governments with a stronger evidence basis and good practices to reform and strengthen innovation policies.  Country-specific recommendations (including through voluntary reviews.

29 29 …to build on OECD’s existing role  develop statistics and indicators to compare science and innovation performance.  analyse innovation policies and determinants of performance:  to improve the understanding of factors and policies driving performance  to identify good policy practices  foster international co-operation in science and innovation, e.g. through the OECD Global Science Forum  provide country-specific policy analysis and recommendations  Country reviews of innovation policy have been finalised for Switzerland, Luxembourg, New Zealand, South Africa, Chile and China; are underway for Norway, Korea, Turkey, Mexico, Greece and Hungary; and are under discussion with Brazil, Germany, Japan and Russia.  The OECD Economic Surveys have also covered innovation for several OECD countries.

30 30 The Review of Turkey’s Innovation Policy Agreement of principle reached with the Government Review commissioned by TÜBITAK, other agencies to be involved, including the Ministry of Industry and Trade, in particular on SME and enterprise issues Terms of Reference agreed; Final Report in mid- 2008 Goals of the Review: –To provide an independent and comparative assessment of the strengths and weakness of Turkey’s innovation system –Formulating concrete recommendations for reform –Highlight the successful practices and outcomes that already exist in Turkey

31 31 Focus of the Review How well is the innovation system related to past and present growth? Does the policy mix match evolving policy priorities? Are existing instruments for promoting business R&D effective? What else may be needed? Focus on SMEs Are PROs managed in a way to promote excellence ? How effective are industry-science relationships; what role do clusters play? How well are Turkish innovators positioned to benefit from global innovation and research networks, including the EU FPs? What is needed to match the supply and demand for Human Resources in S&T?

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