Innovation, Technology and Productivity Luc Soete University of Maastricht “The Network Society...
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![Page 1: Innovation, Technology and Productivity Luc Soete University of Maastricht “The Network Society and the Knowledge Economy: Portugal in the global context”,](https://reader030.fdocuments.in/reader030/viewer/2022033105/56649d785503460f94a5a4c0/html5/thumbnails/1.jpg)
Innovation, Technology and Productivity
Luc SoeteUniversity of Maastricht
“The Network Society and the Knowledge Economy: Portugal in the global context”, A Seminar promoted by His Excellency the President of the Portuguese Republic, Dr. Jorge Sampaio, March 4th and 5th, 2005, Lisbon, Centro Cultural de Belém.
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Outline• US-EU growth and productivity gap
– Follow-up on Jorgenson paper– Relationship with ICT investment (see e.g.
EIU-report) complex and unclear
• Focus on knowledge investments– US-EU investment gap at the centre of
Lisbon and…– Poor EU growth performance (Sapir, Kok)
• Policy proposal: “Activating knowledge”
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1. Productivity Growth and the Network Society• Growth Accounting
– Assumptions:• Homogeneous Production Function• Competitive Markets (output and input)• Optimizing firm behaviour
– Contribution of each factor of input to output growth and productivity growth
– Per Sector: contribution of ICT sector to macro (productivity) growth
– Remainder (residual): Total Factor Productivity
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Spillovers?• Growth accounting -> just direct effects• Investment in and use of ICT -> network effects
– Direct: increase of the value of the network due to increased number of users
– Indirect or virtual: market mediated effect• Network externalities• Likelihood of important time lags: importance of
organisational structural changes• If network effects exist, they are captured by
TFP (the residual) in the traditional accounting framework
• Quid about other network effects more associated with notion of network society?
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ICT network effects?
TFP Growth and ICT Capital (1995-2000)
ITA
BEL
GER
SWE
FIN
NLD
IRL
FRA
US
UK
DEN
0
0.01
0.02
0.03
0.04
0.05
0.1 0.12 0.14 0.16 0.18 0.2 0.22
ICT Capital as % of value Added
TF
P G
row
th R
ate
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Adding network effects to growth accounting
Traditional:
ln ln ln lnkj j hj
Y A v K v H
ln ln ' ln ln lnj j kj j hj j
Y A K v K v H NewNew::
ln ln ' lnj jj
A A K
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Results (Meijers 2004)• ICT is clearly different from other
capital– Software shows additional contribution of
about 8 and 11%– Telcom between 0 and 6%– Hardware shows negative contribution
between 0 and -6%– In total roughly half to equal to the direct
effect
• Considerable time lags involved
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Culture and the Info-state
Sweden
NorwayDenmark
Netherlands
FinlandUK
BelgiumGermany
Ireland
FrancePortugal
Spain
Italy
Greece
Principal of culture
Info
sta
teNetwork society effects?
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ICT use and culture • On the horizontal axis, a principal
component measure of 13 different aspects of leisure activities is plotted (a principal of culture indicates the differences/closeness of cultural indicators, from left to right does not mean better, it just indicates that countries are different in a cultural sense)
• On the vertical axis the Info-state as measured by George Sciadas(2003 Ed.) http://www.orbicom.uqam.ca/index_en.html.
• Need for further investigation, just a start
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2. Knowledge investments “It’s growth stupid”
• Lisbon anno 2004: lack of internal growth dynamics in Europe since Lisbon striking– macro-economic sound policies but…– little growth incentives with respect to enhancing
structural reform– holds for common agricultural policy, regional social
cohesion policy but also RTD support policies• Without growth enhancing policies, the “non-active”
nature of knowledge activities is exacerbated: – emigration of S&E– outsourcing of private knowledge activities
• Remember: the EU has 70,000 PhDs a year, the US 40,000
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An emerging knowledge gap• From a long term perspective: lagging behind
in private R&D in post-war Europe, but 60’s till 90-’s characterized by catching up
• EU-US Business Enterprise R&D gap has suddenly grown rapidly over 90’s, declined since 2000 because of reduction in US BERD
• Gap most significant in ICT sectors and life sciences; in traditional sectors, gap non-existent
• Gap also in government funding, foreign funding biased in favour of EU because of inclusion of intra-European R&D flows
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Gap in EU25 - US R&D spending
-90000
-80000
-70000
-60000
-50000
-40000
-30000
-20000
-10000
0
10000
20000
1995 1996 1997 1998 1999 2000 2001 2002 2003*
Mill
ion
200
0 P
PP
do
llars Industry
(BERD)
Government(GOVERD)
Universities(HERD)
Other (PNP)
Source: OECD-MSTI. 2003*: MERIT estimate.
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Gap in EU25 - US R&D financing
-90000
-80000
-70000
-60000
-50000
-40000
-30000
-20000
-10000
0
10000
20000
1995 1996 1997 1998 1999 2000 2001 2002* 2003
Mill
ion
200
0 P
PP
do
llars
Industry
Government
Foreign
Other national
Source: OECD-MSTI. 2002*: MERIT estimate. 2003: not available.
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US-EU BERD gap by sector
-10000
0
10000
20000
30000
40000
50000
60000To
tal S
ervi
ces
Med
ical
,pr
ecis
ion
and
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ood,
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ehic
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lers
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tric
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United States European Union Japan GAP
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Diagnosis• Fragmented RD in the 70’s across the various EU
countries, strongly linked to national champions efforts• Emerging specialisation across the EU of business RD
during 80’s/90’s. Impact of 1992 Single Market on rationalisation of R&D of large MNC’s
• “Attraction” of US in the late 90’s a new phenomenon: concentration of R&D worldwide. – Efficiency of outside links of R&D activities as important as
internal one’s. Hence interest of firms to locate their R&D labs in best local conditions
• Emerging interest in Asia: outsourcing of certain R&D activities (Manuel Godinho’s paper)
• Reduction in BERD in the US reducing the gap, importance in Europe of foreign EU spending, likely to grow further with off-shoring to new member countries
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3. “Activating” policies• “Activating” labour market policies in the 80’s and 90’s
as a general, now broadly accepted policy framework (Luxembourg process)
• Today need for “activating knowledge” policies:– Recognition of existing strengths, of unused or
unexploited knowledge which needs to be activated (“Backing winners”, key areas, selection of excellence)
– Covers full spectrum of knowledge creation and use– Includes both public sector and private sector
• Chimney growth effects:– importance of linkages: getting a virtuous growth circle off
the ground
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A systemic policy view• Need to link supply (functioning higher education,
public and private research) and demand elements (functioning of markets, consumers preferences, clustering effects) with respect to the knowledge economy
• Focus on “systemic” aspects of the knowledge system: link to the external environment, upstream and downstream linkages, institutional set-up (national, regional, European), availability and use of ICT infrastructure
• Complexity of policy conclusions: policies shifting from specific issues towards more “systemic” aspects: from best to worse practice?
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Knowledge system
• Four concepts emerge as particularly relevant for a country’s international competitiveness and virtuous growth cycle of its knowledge system :– renewal and sustainability of its social and human
capital– quality and performance of public research institutions– technological and organisational innovative
performance and renewal of its firms– absorptive capacity of local firms and citizens, closely
linked to ICT use
• Linkages between these concepts is ultimately what matters for a virtuous growth cycle
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TECH. & INNOVAT. PERFORMANCE
AB
SOR
TIO
N C
AP
AC
ITY
(incl ICT
use)
SOCIAL & HUMAN CAPITAL
RE
SEA
RC
H C
APA
CIT
Y
A virtuous cycle
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SOCIAL & HUMAN CAPITAL
TECH. & INNOVAT. PERFORMANCE
RE
SE
AR
CH
CA
PA
CIT
Y
AB
SO
RP
TIO
N C
AP
AC
ITY
AUTBEL
DEU
DNK
ESP
FIN
FRAGRC
IRL
ITA
NDL
PRT
SWE
UK
AUTBEL
DEU
DNK
ESP
FIN
FRA
GRC
IRLITA
NDL
PRT
SWE
UK
AUT
AUTBEL
DEUDNK
ESP
FIN
FRA
GRC
IRL ITA
NDL
PRT
SWE
UK
BEL
DEU
DNK
ESP
FIN
FRA
GRC
IRL
ITA
NLD
PRT
SWE
UK
100
100 100
100
0
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Diagnosis• Supply side part (left side of the previous
picture) contrasts sharply with the demand side (right side of the picture)
• At the EU level a virtuous growth cycle did not take off
• History of emergence of Europe’s knowledge/innovation system very much one of individual member countries: – Sweden, Finland at one extreme– Italy, Portugal, Greece at the other extreme– Catching up Ireland, new member countries
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Innovation Scoreboard
ESLUIT
EL
CZSK
PT
LVCY
SIEE
IE
UK
DE DK
FISE
AT
HU
BENL
FR
PL
CH
NO
TR
RO
BG
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
0,90
0 2 4 6 8 10 12 14 16 18 20
Average change in trend indicators (%)
Su
mm
ary
Inn
ova
tio
n In
de
x
2. Losingmomentum
1. Moving ahead
4 Fallingfurther behind 3. Catching up
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Diagnosis (ctd) • EU’s S&E human capital potential underexploited:
– Little intersectoral mobility between public and private S&E– Little international mobility:
• Low immigration levels of S&E except for the UK • High emigration levels in those countries with low levels
of private BERD • Phenomenon of “Dutch knowledge disease”: a dual
phenomenon of “crowding out” – Crowding out of fundamental research in private sector– Crowding out of applied research in public sector – European (global) knowledge specialisation in private sector – National oriented improvements in quality in public sector.
• Growing national and European mismatch between private and public research activities despite EU funds and programmes for networking
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Conclusions• Need for a policy of “activating” knowledge addressing:
– At human capital level (“activate” unused potential of S&E, PhDs, etc.)
– At research level (“activate” budget using the public 1% Barcelona target)
– At private R&D and innovation level – At entrepreneurial, financial and technology transfer level
• Essence of the activation policy challenge: crowding in– of fundamental research, of SMEs, in private research,
notion of “open” innovation– of private research within university walls, notion of
entrepreneurial excellence – of intersectoral mobility: scientific entrepreneurship in
universities and professional schools