INNOVATION AND GROWTH

INNOVATION AND GROWTH

RATIONALE FOR AN INNOVATION STRATEGY

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies.

The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD.

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? OECD 2007 No translation of this document may be made without written permission. Applications should be sent to rights@.

3 INNOVATION AND GROWTH: RATIONALE FOR AN INNOVATION STRATEGY ?

Pref ace

Undoubtedly the capability to innovate and to bring innovation successfully to market will be a crucial determinant of the global competitiveness of nations over the coming decade. There is growing awareness among policymakers that innovative activity is the main driver of economic progress and well-being as well as a potential factor in meeting global challenges in domains such as the environment and health. Not only has innovation moved to centre-stage in economic policy making, but there is a realisation that a co-ordinated, coherent, "whole-of-government" approach is required. Many OECD member countries have adopted national strategic roadmaps to foster innovation and enhance its economic impact. Even countries that have generally refrained from active industrial policy in recent years now seek new ways to improve the environment for innovation in order to boost productivity and growth. The United States, for example, came forward with the "Innovate America" strategy in 2005. The EU's "Lisbon Agenda", initiated in 2000, has now been updated and strengthened.

In addition to the rapid advances in scientific discovery and in general-purpose technologies such as ICTs and biotechnology, the accelerating pace of innovation is being driven by globalisation. These pervasive trends were picked up at the summit of the G8 at Heiligendamm in June 2007 which identified research and innovation as areas requiring high-level policy dialogue between the G8 members and major emerging economies.

A shorter version of this document was submitted to the meeting of the OECD Council at Ministerial level "Innovation, Growth and Equity" held in Paris in May 2007. It provided supporting evidence, based on the findings and recommendations emerging from recent OECD work, to underpin the Ministerial discussions on how policies should be updated to address the changing relationships between innovation and national progress. At that meeting, Ministers asked the OECD to develop a broad-ranging Innovation Strategy to build on existing work, address remaining knowledge gaps, and above all provide a cross-disciplinary mutually-reinforcing package of policy elements and recommendations to boost innovation performance.

? OECD 2007

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Executive Summary

The challenge

Today, innovation performance is a crucial determinant of competitiveness and national progress. Moreover, innovation is important to help address global challenges, such as climate change and sustainable development. But despite the importance of innovation, many OECD countries face difficulties in strengthening performance in this area. Indeed, many OECD countries have seen little improvement in productivity performance in recent years despite the new opportunities offered by globalisation and new technologies, especially the information and communication technologies (ICT).

A reform agenda

Government policies can support innovation by continually reforming and updating the regulatory and institutional framework within which innovative activity takes place. In this context, reforms are needed to make public policy and regulatory framework more conducive to innovation in a range of policy areas from the general business environment -- especially in the services, particularly in the network industries -- to international trade and international investment, financial markets, labour markets, and education.

Governments can also play a more direct role in fostering innovation. Public investment in science and basic research can play an important role in developing ICT and other general-purpose technologies and, hence, in enabling further innovation. This highlights the importance of reforming the management and funding of public investment in science and research, as well as public support to innovative activity in the private sector. The latter calls for an appropriate mix of direct and indirect instruments such as tax credits, direct support and well-designed publicprivate partnerships, support for innovative clusters and rigorous evaluation of such public support.

In view of the changing environment for innovation, it is also important to consider whether the current system of IPR rules and practices continues to stimulate innovation while allowing access to knowledge. In certain cases the abuse of the control with which IPR owners are endowed could hamper competition, fair use and the diffusion of technology. However, regardless of issues related to the flexibility of the IPR system, stronger efforts are needed to combat counterfeiting and piracy, which are serious and growing problems.

The need for political leadership and resolve

Implementing reforms to foster innovation may prove difficult. Strong political leadership and efforts to develop a clear understanding by the various stakeholders of the problems and the solutions -- including the costs they involve -- can all help to communicate the need for reform and facilitate acceptance.

? OECD 2007

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