OECD Science, Technology and Industry

Outlook 2014

Dirk Pilat, Deputy Director Directorate for Science, Technology and Innovation dirk.pilat@oecd.org

Council for Science, Technology and Innovation Cabinet Office 20 November 2014

OECD STI Outlook: 20-year tradition

• “What’s new in the field of science, technology and innovation policy? “

• International review of key recent trends in STI for the STI policy community and analysts

• Based on latest STI policy information and indicators

• OECD Flagship publication

2

Drawing on a unique policy questionnaire

3

Country coverage of the STI Outlook from 2008 to 2014

The three components of the STI Outlook 2014

4

COUNTRY PROFILES

POLICY PROFILES

OVERALL STI PERFORMANCE AND POLICY TRENDS

5

Asia on the rise

Source: OECD, based on OECD MSTI Database, January 2014 and UNESCO (UIS) 2014.

Total world R&D expenditure, in million USD 2005 PPPs and Share of major performers in the total world estimate (%)

0

5

10

15

20

25

30

35

40

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Share (%)Million 2005 USD PPP

GERD by top 10 world countries GERD Rest of the worldEU28 BRIICSUnited States JapanChina

Benchmarking Japan’s performance (1)

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Normalised index of performance relative to the median values in the OECD area (Index median = 100)

Top/Bottom 5 OECD values Middle range of OECD values OECD median Japan

Universities and public research

R&D and innovation in firms Innovative entrepreneurship

Top half OECD

Bottom half OECD

100

0

200

150

50

a. Competences and capacity to innovate

Source: OECD Science, Technology and Industry Outlook 2014. http://dx.doi.org/10.1787/888933152256

Benchmarking Japan’s performance (2)

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Normalised index of performance relative to the median values in the OECD area (Index median = 100)

Networks, clusters and transfers

ICT and Internet infrastructures

Skills for innovation

Top half OECD

Bottom half OECD

100

0

200

150

50

b. Interactions and skills for innovation

Source: OECD Science, Technology and Industry Outlook 2014. http://dx.doi.org/10.1787/888933152256

Public funding systems differ

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Allocation of public funds of R&D, by sector, type and mode of funding

Universities

Basic research

Civil oriented

Generic research

Institutional funding

Direct funding

Business R&D

Public research institutes

Project-based funding

Applied research/ development

Defence oriented

Public research

Indirect funding (tax reliefs)

Japan OECD sample medianJapan (2007)

50/50 0/100100/ 0 75/25 25/75

Thematic research

Public research

Business R&D

Balance

Source: OECD Science, Technology and Industry Outlook 2014. http://dx.doi.org/10.1787/888933152256

Selected key messages and implications for Japan

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POLICY PROFILES

OVERALL STI PERFORMANCE AND POLICY TRENDS

Policy priorities differ across countries … (Priorities based on self-assesment, % of countries)

10

05

101520253035404550

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Challenges Governance . Public research Innovation in firms Targetingpriorities

Skills for innovation

% of country responses

STI policy priorities

Source: OECD Science, Technology and Industry Outlook 2014. http://dx.doi.org/10.1787/888933151619

.. as does the policy mix … (Relative relevance of funding instruments for business

R&D and innovation, based on country responses)

11 Source: OECD Science, Technology and Industry Outlook 2014. http://dx.doi.org/10.1787/888933151731

0

10

20

30

40

50

60

70

Competitivegrants

Tax incentivesfor business

R&D

Credit loans,guarantees and

risk sharingmechanisms

Tax incentiveson IP revenuesand other profits

Innovationvouchers

Equity financingand venture

capitalinvestments

Technologyconsulting

services andextension

programmes

Other taxincentives

Repayableadvances

% High Medium Low Not used

.. which continues to change (Change in the relative relevance of funding instruments

for business R&D and innovation, country responses)

12 Source: OECD Science, Technology and Industry Outlook 2014. http://dx.doi.org/10.1787/888933151731

0

20

40

60

80

100

Tax incentives forbusiness R&D

Credit loans,guarantees and

risk sharingmechanisms

Equity financingand venture capital

investments

Innovationvouchers

Competitive grants Technologyconsulting services

and extensionprogrammes

Tax incentives onIP revenues and

other profits

Other directfunding

instruments

Repayableadvances

Other taxincentives

% Increasing Unchanged Decreasing

Some key challenges for the future

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1. Skills and job creation and the ability of economy and society to adjust to rapid change

2. The science system of the future? 3. Innovation policy mix and the scaling of firms 4. Focusing innovation on social and global challenges, such as:

• The transition to a low-carbon economy • Ageing and health • Growing income inequality

5. The role of government – “new” industrial policy

Towards a “new deal” for innovation?

1. Skills are a major challenge: 2 out of 3 people lack the skills to succeed in a technology-rich environment …

14

185 m

259 m

159 m

36 m

very low skills or optedout of the test

low skills

medium skills

solid skills

2 out of 3

people lack

skills for the digital

age

Source: OECD Survey of Adult Skills, October 2013.

… and human resources for science and technology are a challenge

15 Source: OECD Science, Technology and Industry Outlook 2014, http://dx.doi.org/10.1787/888933151941

0

10

20

30

40

50

60

% Health and welfare Science Engineering, manufacturing and construction

Percentage of entrants to tertiary education in engineering, science and health fields, 2012

16

2. Reforms to research systems

Challenges: • Science and Business • Globalisation and openness • Technology convergence • Ageing workforce • Funding breakthroughs Policy actions: • Reforms to funding, incl.

research excellence • University reforms • Commercialisation • Multidisciplinarity • “Open” science

0.20

0.25

0.30

0.35

0.40

0.45

0.50

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

%

Higher education

Government

R&D expenditure by sector, 1981-2012 (as a percentage of GDP)

3. The Innovation Policy Mix needs to be considered … Direct funding of business R&D and R&D tax incentives, 2011

As a percentage of GDP, 2011

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932891112

.. as the balance in the policy mix shifts … (based on own country ranking)

Source: OECD Science, Technology and Industry Outlook 2014. http://dx.doi.org/10.1787/888933151708

Population-targeted versus generic instruments

Competitive versus non-competitive instruments

Balance in 5 years

Balance today

Balance 10 years ago

Bulk of countries

More populationtargeted

Equally balanced

More generic(not population

targeted)

Bulk of countries

Balance in 5 years

Balance today

Balance 10 years ago

Bulk of countries

More competitive

Equally balanced

More non competitive

Bulk of countries

.. and services innovation becomes a key driver of competitiveness in global value chains

Services value added content of gross manufacturing exports, % 2009

Source: OECD

0

5

10

15

20

25

30

35

40

45%

Domestic Foreign

Growth of young innovative firms is also a challenge in many OECD countries …

Average size of start-ups and old firms, in persons employed, services sector

Source: Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm

Policies to unlock growth and innovation by young firms

• Enable experimentation: Reduce barriers to the entry (e.g. red tape), growth (e.g. size-specific regulations), and exit/failure of firms (e.g. penalising bankruptcy legislation, overly strict employment protection legislation).

• Level the playing field for new and innovative firms: Some policies favour incumbents and MNEs (e.g. R&D tax credits).

• Strengthen the innovation system for young and innovative firms, e.g. through enhanced access to (risk) capital, network development, mentoring of entrepreneurs, skills development, etc.

• Improve access to foreign markets, so firms can scale more easily across borders.

• Celebrate entrepreneurship. 21

0.7

7

3.4

4.4

0.3

16

2.5

2.5

13

16

11

0.8

23

6

0 5 10 15 20 25

2050 2010

22

5. Focusing on Global Challenges: e.g. the growing social and economic burden of Alzheimer’s disease and other dementia

Dementia cases [millions]

Source: WHO, Dementia: a public health priority (2012); http://www.tmghig.jp, Tokyo Metropolitan Institute of Gerontology (2014)

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6. Industrial policy is being discussed in many countries, but lessons need to be learned

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Embeddedness Carrots & sticks Accountability

(Rodrik, 2008)

“The emerging consensus is that the risks associated with selective-strategic industrial policy can be minimised through a ‘soft’ form of industrial policy, based on a more facilitative, coordinating role for government, consistent with the systems approach......

“The goal of ‘soft’ industrial policy is to develop ways for government and industry to work together to set strategic priorities, deal with coordination problems, allow for experimentation, avoid capture by vested interests and improve productivity.”

• Remove barriers before providing support - i.e. “don’t push on a string”

• Clarity in objective(s) – such that success and failure can be assessed in an non-discretionary manner

• Competition - keep the outsiders and the unborn (e.g. young firms) in mind – resist political economy pressures from insiders and incumbents

• Evaluate (preferably ex ante and ex post) – and incorporate evaluation in policy cycle

• Ensure public bears risk which is “proportionate” (enough to matter, not too much to lead to moral hazard)

• Plan for exit – and make plan known • Incentives/subsidies: Only for “new” activities

Some emerging lessons

Thank you

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Website: www.oecd.org/sti STI Outlook: www.oecd.org/sti/outlook Newsletter: www.oecd.org/sti/news.htm

Contact: Dirk.Pilat@oecd.org

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