1 Jonathan Haskel Best practice event on 'Innovation and Economic Growth' © Imperial College Business School

2 Innovation and growth Economists’ view The proximate sources of growth: more labour quality Skills, experience (about 7% of growth, ) tangible capital Plant and machinery, vehicles, buildings (23%) knowledge/ideas/intangible capital Investment by firms in software, R&D, design, branding, training, organisational capital (30%) Spillovers of knowledge from other firms, universities, immigration, abroad (40%)

3 What happens to investment in recessions? Big fall in tangible: less fall of intangible But intangible depreciates much faster, so effective stock falls

4 Policy Support for innovation is support for Investment Openness (e.g. immigration, information, trade) Experimentation

Source: COINVEST 5 Intangible investment and strictness of employ’t legislation

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US, Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. R&D as a share of governmetn budget is from Eurostat. 6

7 Policy Policy mistakes after recessions in the 70s and 80s well- documented in the unemployment literature rise in employment taxes trying to pick winners subsidies stopping market sorting (protecting the job instead of the worker) reduced support for public research Will those mistakes be avoided? Reflects mix of economic and political pressures especially spreading benefits of growth to all Good news: science budget Some headlines to look out for: bank regulation and cost of capital immigration and limitations on scientists and students employment regulation