Transcript Reinhilde Veugelers

Advancing Knowledge and the
Knowledge Economy
Washington DC, January 2005
Assessing innovation capacity:
fitting strategy, indicators and policy
to the right framework
Prof. Dr. Reinhilde Veugelers
Economic Advisor EC-DGEcFin,
Katholieke Universiteit Leuven & CEPR
1
Assessing Innovative
Capacity
DG ECFIN
Overview of the presentation
1.
Diagnosing the problem: relative productivity
performance and innovative capacity
2.
Policy Reaction:
policy approach
3.
Implementing the Lisbon strategy:
and indicators
4.
Evaluating the Lisbon strategy as a systemic
approach
the need for a systemic
targets
2
DG ECFIN
The break in Hourly Labour
Productivity Trend
EU-15 vs US (=100)
120
Labour Productivity
per Hour
110
100
90
GDP per Capita
Hours Worked
80
70
60
50
1965
1970
1975
1980
1985
1990
1995
2000
2005*
Source: EU Commission, AMECO database
3
Diagnosing the problem:
relative productivity performance
and innovative capacity
DG ECFIN
To what extent is the EU’s relatively poor
performance linked with its difficulty in reorientating its economy towards the
newer, higher productivity, growth sectors
such as ICT ?
– What is the contribution of ICT towards explaining
the productivity trends, both as a high-tech, highproductivity-growth sector and in its role as a
General Purpose Technology increasing the
productivity growth in other sectors?
– What is the specific role to be played by the
production and absorption of new technologies in
general?
4
DG ECFIN
Contribution of ICT producing
Manufacturing and ICT using Services:
specialization - productivity differentials
Value Added Share
Hourly Labour
Productivity
(Average % Change)
1991-1995
1996-2000
1991-1995
1996-2000
Contribution to Total
Change in Hourly Labour
Productivity
1991-1995
1996-2000
1(a) ICT-Producing Manufacturing Industries
EU
(9.6)
(17.1)
0.02
0.01
(0.2)
(0.2)
US
(16.4)
(26.0)
0.03
0.03
(0.4)
(0.7)
2(b) Intensive ICT-Using Service Industries
EU
(1.8)
(2.1)
0.20
0.21
(0.4)
(0.4)
US
(1.6)
(5.3)
0.23
0.25
(0.4)
(1.3)
Source : GGDC and ECFIN calculations
5
Conclusions on
the contribution of ICT to explaining
the US-EU productivity growth gap
ICT
production :
– US more specialized in IT producing sectors
– US has better productivity performance in IT producing sectors
(related to differences in innovation capacity)
ICT diffusion:
– No difference in specialisation in intensive IT using sectors
– But difference in productivity performance in IT using sectors
EU lagging behind (but catching up) in IT-capital deepening investments
 EU lower IT induced TFP growth (related to differences in innovation
capacity)

6
DG ECFIN
Comparison of EU-US difference in R&D
spending and Productivity Growth (US=1)
EU-US Gap in
R&D Spending
EU-US Gap in
Specializsation
19911995
19962000
EU-US Gap in
Productivity
Growth Rates
19911995
19961999
19911995
19962000
Total High
Technology
Manufacturing
0.85
0.81
0.825
0.826
0.48
0.41
(ICT)
0.59
0.49
0.45
0.42
0.23
0.27
(Non-ICT)
1.02
1.05
0.98
1.01
1.15
2.81
Source : ECFIN, Annual Review 2004
7
Linking R&D intensity and
Productivity Growth

DG ECFIN
US lead and intra-EU divergence bt member
states in productivity growth can be related to
– Better growth performance in R&D sectors
– Larger weight of R&D intensive sectors
– Higher R&D intensity in most sectors
US and “better EU-Members“ growth is more linked to R&D
than the average EU member
8
DG ECFIN
What explains cross country differences in
R&D and its efficiency?
National Innovation Capacity: ability of a
country to produce and commercialize a flow of
innovative technology over the long term
– What determines the flow of new ideas in an
economy: availability of researchers, stock of knowledge
– Will firms respond to technological opportunities and
innovate ? supply and demand forces in country-specific
industrial clusters
– National Innovation Systems: Institutions and policy
environment linking actors
9
DG ECFIN
EU seems to display a poor performance
in its knowledge creation, but particularly
in its knowledge diffusion, capacity

Beyond stimulating R&D investments

Improving Technology Transfer/Diffusion ( Eg ISL
mechanisms, absorptive capacity of users, investment in
complementary assets)


Networking Among Actors on a Global Scale:
research, firms, finance, policy makers,…
Framework conditions, especially
– clear IPR regimes and standards;
– flexibility in product markets (easy of entry), labour
markets (labour mobility),venture capital markets
This requires a Systemic Policy Approach
10
The Lisbon strategy
DG ECFIN
Too make the European Union into the most
competitive and dynamic knowledge-based
economy in the world capable of sustainable
economic growth with more and better jobs and
greater social cohesion by 2010.
By implementing a comprehensive strategy of
structural reform




Emphasis on structural reforms
A comprehensive reform agenda
Better
tools
to
monitor
progress
(structural indicators)
Streamlining of EU economic policy
coordination : medium term orientation,
better synchronisation
11
Lisbon is a process of a
comprehensive set of structural
reforms to stimulate growth
DG ECFIN
– Product Market Reforms:
 Improve the functioning of the Internal Market for
goods & services
 Liberalisation of network industries
 Opening up of markets (entry regulation..)
 Improve the business environment (reduce regulatory
burden, esp for start-ups
– Financial Market Reforms : Promote EU financial
integration
 FSAP, RCAP, enhancing comparability of companies
financial statements, …
– Investments in knowledge-based economy
 Invest in education and training
 Invest in R&D and innovation
 Encourage production and use of ICT
– Labour market and social reforms

Improve incentives to participate and remain in the labour
marke;Increase labour market flexibility; modernisation of social
protection systems,Improve working conditions and skill levels
– Environmental policy reforms
12
Implementing the Lisbon strategy
DG ECFIN
Structural reforms touch on sensitive
areas of national competence
The « open method of co-ordination »:
 Agreements on targets with timetables
 Translation of these targets into national
policies
 Use of indicators and benchmarks
 Periodic evaluation of progress made
13
Lisbon targets
(oct 2004 for EU-15)
DG ECFIN

Employment rate of 70% in 2010: 64.4%

Halving the number of early school leavers by
2010 : reduced by 6.7%

Increase the transposition rate of
Market directives to 98.5% : 97.8%

Opening up of energy markets for business in
2004: electricity: 76%, gas 82%

Increase R&D spending to approach 3% of GDP
by 2010 : 1.99%

Reduction in greenhouse gas emissions
Internal
14
Targets for the European
Knowledge Area
DG ECFIN
(oct 2004)






Increase R&D spending with the aim of approaching 3% of
GDP by 2010: 1.99%.
The proportion financed by business should rise to two thirds
of that total by 2010: 56%
100% of schools to be connected to the internet by 2002 : 93%
100% of teachers to have training in digital skills by 2003: 57%
Internet penetration in households reach 30% by 2002: 40%
Basic governmental services 100% online by 2002: 57%
15
DG ECFIN
Structural Indicators to be
monitored for the Lisbon strategy















GDP per capita
Labour productivity per person employed
Employment rate
Employment rate of females
Employment rate of older workers
Educational attainment (20-24)
R&D expenditures (% of GDP)
Business Investment (as % of GDP)
Comparative price levels
At-risk-of poverty rate
Long-term unemployment rate
Dispersion of regional employment rates
Greenhouse gas emissions
Energy intensity of the economy
Volume of transport.
16
DG ECFIN
Innovation Indicators to be
monitored for the Lisbon Strategy
(European Innovation Scoreboard & 3% Action Plan)
1. Human resources
S&E graduates, Population with tertiary education, Participation in
life-long learning, Employment in medium-high and high-tech
manufacturing, Employment in high-tech services )
2. Knowledge creation
Public R&D expenditures (GERD - BERD) (% of GDP) BERD) (% of
GDP (by source of funding), EPO&USPTO patent applications
EPO&USPTO high-tech patent applications;
3. Transmission and application of knowledge
Innovation expenditures, SMEs innovating in-house, SMEs involved
in innovation co-operation,
4. Innovation finance, output and markets
Share of high-tech venture capital investment, Share of early stage
venture capital in GDP, volatility-rates of SMEs, Internet
access/use, ICT expenditures, SMEs sales of 'new to market'
products, SMEs sales of 'new to the firm but not new to the
market' products, share of manufacturing value-added in hightech sectors, TBP, High tech imports-exports
17
DG ECFIN
Selection of Main STI Indicators
18
DG ECFIN
Mid-term diagnosis on
indicators for European
Knowledge Area:
not much progress
EU is more or less comparable with US in
scientific knowledge creation, but
deficient in technological knowledge
creation and creation of technology
intensive economic growth
Reflecting EU’s deficiency in knowledge
diffusion and absorption capacity
19
DG ECFIN
Conclusions from the MidTerm Review : diagnosis

the Lisbon strategy has not delivered yet;
particularly wrt European Knowledge Area
 the major weakness of the strategy has
been the poor implementation of reforms
by the Member States;
 there is a sense of urgency to proceed
with the reform agenda in view of the
challenges of ageing, enlargement and
globalisation.
20
Effectiveness of the Lisbon
strategy?
DG ECFIN
Too many priorities and targets : focus on
productivity growth
 Wide set of reforms/action plans : need to
identify complementarities but also trade
offs between the areas (exploit ‘systemic’)
 Deficiencies in economic governance (how
to incentivate member states, how to
enforce compliance)
 A poor communication about the benefits
of reforms

21
DG ECFIN
Evaluation of indicators & targets

Wide set of structural indicators and targets to link knowledge
area to productivity and employment as well as to product
markets, financial markets, labour markets
 Wide set of indicators for the knowledge area (combination of
creative, diffusion and absorptive capacity)
– Areas of indicators which are important and relatively well covered



human & social capital
ICT diffusion/production
Financing of innovation
– Areas of indicators which are important and not well covered

ISL

High level of aggregation of indicators
– Sectoral dimension
– Regional dimension
 Evaluate indicators & targets as a system
– Note: this is not what current composite indicators are doing
22
DG ECFIN
Implications for STI policies :
towards a truly systemic approach

Enhancing horizontal policy coordination
among policy areas
 Enhancing vertical policy coordination
(EU-Member States-Regions)
 Improving the management of the policy
framework
23