The document discusses innovation policy and new directions. It notes slow productivity growth, rising inequality, and global challenges like climate change that innovation can help address. New insights show heavy business investment in intangibles, widening productivity gaps between frontier and other firms, and the importance of firm dynamics. Digital technology is transforming innovation across sectors. New questions concern responding to digitalization, jobs and skills, balancing innovation and inclusive growth. Concentration in R&D and IP raises issues. New directions emphasize experimentation, systemic approaches, and implementation.

1. Innovation policy - new insights, new
questions, new directions
Dirk Pilat, Deputy Director
Directorate for Science, Technology and Innovation
dirk.pilat@oecd.org
2016 EU-SPRI CONFERENCE
Exploring New Avenues for Innovation
and Research Policies
Lund, 9 June 2016

2. Outline
1. The challenges - why innovation matters today
2. New insights
3. New questions
4. New directions and some conclusions

3. 1. THE CHALLENGE – WHY
INNOVATION MATTERS
TODAY

4. THE WORLD IS FACING COMPLEX CHALLENGES –
SLOW PRODUCTIVITY GROWTH …
Productivity growth has declined since the 1990s
Annualised growth of labour productivity (output per hour worked)
Source: OECD estimations using OECD National Accounts database; OECD Productivity database;
International Labour Organisation database.
Statlink: http://dx.doi.org/10.1787/888933367500

5. … GROWING WITHIN-COUNTRY INEQUALITIES …
Disposable income inequality has increased since 1990
Household disposable income, total population
Source: OECD estimations based on OECD (2015), In It Together: Why Less Inequality Benefits All;
and OECD Income Distribution database. Data: http://dx.doi.org/10.1787/888933367530

6. 6
…, AS WELL AS CLIMATE CHANGE, ENERGY, WATER,
FOOD, AGEING AND OTHER GLOBAL CHALLENGES
Source: NASA

7. 2. (SOME) NEW INSIGHTS

8. Business investment in fixed and knowledge-based capital
(as % of business sector gross value added, 2013)
Source: OECD calculations based on INTAN-Invest data, www.intan-invest.net and OECD, Structural Analysis
(STAN) Database, http://oe.cd/stan, June 2015. 8
1. Firms invest heavily in innovation …
Knowledge-based capital accounts for half of all
business investment
0
5
10
15
20
25
30
35
%
Non-residential GFCF including machinery and equipment KBC assets in National Accounts including software and R&D
Other KBC assets including organisational capital and training

9. 9
Pre-production
Intangible
Pre-production
Tangible activities
Post-production
Intangible
R&D
Design
Logistics:
purchase
Production
Logistics
Marketing
Services
Value chain
activities
Value added
Value Chain in the 1970s
Global Value Chain in the 2000s
The smiley curve
… as investments in innovation are often key to
value creation in global value chains

10. 2. We need to look beyond the average …
e.g. productivity gap between firms at global frontier & others
The productivity gap between the globally most productive firms and other firms has widened
Note: “Frontier firms” is the average labour productivity (value added per worker) of the 100 or 5% globally most productive firms in each
two-digit industry. “Non-frontier firms” is the average of all firms, except the 5% globally most productive firms.
Source: OECD preliminary results based on Andrews, D., C. Criscuolo and P. Gal (2016), “Mind the Gap: Productivity Divergence
between the Global Frontier and Laggard Firms”, OECD Productivity Working Papers, forthcoming; Orbis database of Bureau van Dijk.

11. 11
… and not only at the size, but also at the
age of a firm …
Average over 18 countries, 2001-2011, in %
Source: Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm

12. …as the dynamics of young firms matter for
growth & innovation
Average size of start-ups and old firms, in persons employed, services sector
Source: Updated from Criscuolo, Gal and Menon (2014), www.oecd.org/sti/dynemp.htm
0
10
20
30
40
50
60
70
80
Employees
Start-ups (0-2) Old (>10)

13. 3. Design matters for innovation policy …
Direct funding of business R&D and R&D tax incentives,
as a percentage of GDP, 2013
Source:OECD, R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm and Main
Science and Technology Indicators, June, 2015, www.oecd.org/sti/msti.htm
0.0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
0.5
%
Direct government funding of BERD Indirect government support through R&D tax incentives Data on tax incentive support not available

14. NLD
NLD
NLD
NLD
ESP
ESP
FRA FRA
ITA ITAJPNNZL NZL NZL NZL
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
1minusB-index
Large/Profitable SME/Profitable Large/Loss-making SME/Loss-making
… and we need to take a more granular look
Implied generosity of R&D tax relief provisions – NLD vs OECD
Implied marginal tax subsidy rates on R&D expenditures, 2015
B-Index country distribution, by firm size and profit scenario
Source: OECD, R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm, December 2015.
Based on OECD STI Scoreboard 2015. StatLink: http://dx.doi.org/10.1787/888933274335
ITA, JPN, NZL
ITA, NZL

15. 4. Digital technology is a game-changer for
innovation and has become ubiquitous…
0
50
100
150
200
250
300
350
Millions
Smartphones Other mobile phones
Quarterly shipping trends of smartphones, 2010-13
Sources: NBC News, St Peter’s Square: http://instagram.com/p/W2FCksR9-e/ and OECD Broadband Portal,
http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm

16. 1616
… with data-driven innovation affecting all parts
of the economy
HealthPublic Admin. Retail
TransportationAgriculture
Science & Education
Manufacturing

17. 5. SKILLS ARE A MAJOR CHALLENGE FOR THE
DIGITAL …
Individuals who judge their computer skills to be sufficient if they were to apply for a
new job within a year, 2013 (as a percentage of all individuals)
0
10
20
30
40
50
60
70
80
90
%
All Individuals Individuals with high formal education Individuals with no or low formal education
Source: OECD Measuring the Digital Economy: A New Perspective, 2014, http://dx.doi.org/10.1787/888933148354.

18. … and innovation-intensive economy
Less than 40% of adults have the skills to succeed in a technology-rich
environment
(Percentage of 16-65 year-olds scoring at proficiency levels 2 and 3)
Source: OECD Survey of Adult Skills, October 2013,
https://www.oecd.org/site/piaac/surveyofadultskills.htm .
0
5
10
15
20
25
30
35
40
45
Level 3
Level 2

19. 6. Systems thinking is key: e.g. misalignment
between climate objectives and other policies …
ECONOMIC
TRADE
COMPETITION
FISCAL
INNOVATION
SOCIAL
INVESTMENT
CLIMATE
Source: OECD (2015), Aligning Policies for a Low-Carbon Economy, http://www.oecd.org/env/aligning-
policies-for-a-low-carbon-economy-9789264233294-en.htm

20. … where the incentives for investment and
innovation still favour fossil fuels
Sources: OECD (2013), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels; IEA (2013), World
Energy Outlook; IEA (2013), Tracking Clean Energy Progress Report; OECD (2013), Effective Carbon Prices.

21. 3. NEW AND OUTSTANDING
QUESTIONS

22. 1. Responding to the digitalisation of
economy and society …

23. … and the future of jobs and skills …
Source: OECD calculations based on PIAAC and Arntz, Gregory and Zierahn (2016), see:
https://www.oecd.org/employment/Automation-and-independent-work-in-a-digital-economy-2016.pdf
0
5
10
15
20
25
30
35
40
45
50
Significant change in tasks Automatable
Percentage of workers in jobs at high and medium risk of
automation

24. … linked to shifts in the nature of work
Source: Levy and Murnane, 2013
Index of Changing Work Tasks in the U.S. Economy

25. 2. Reconciling productivity, innovation and
inclusive growth …
25
Household disposable income, total populationProductivity gap between the globally
most productive firms and other firms
Source: OECD (2016), OECD Economic Outlook – June 2016,
http://www.oecd.org/eco/outlook/economicoutlook.htm .

26. … and making use of the new opportunities
offered by digital technology
Percentage of households with Internet access by
country in 2008 and 2015
Source: Eurostat, Community Survey on ICT usage in households and by individuals, February 2016.
Possible benefits:
 Access to networks
 Access to free or low cost
information
 Emergence of Internet-
based services (incl.
education and health)
 Benefits from the sharing
economy
 New opportunities for
micro-entrepreneurs

27. 3. Concentration and dynamics: R&D and IP
rights are highly concentrated …
0
10
20
30
40
50
60
70
80
90
100
0 250 500 750 1 000 1 250 1 500 1 750 2 000
%
R&D ranking of companies
R&D expenditures Patents Trademarks
Source: OECD Science, Technology and Industry Scoreboard 2015 based on OECD, STI Micro-data Lab:
Intellectual Property Database, June 2015. http://dx.doi.org/10.1787/888933273408.
R&D expenditures and the IP bundle of the top R&D companies, 2012
Cumulative percentage shares within the top 2000 R&D companies
27

28. … and start-up rates have been falling in
many OECD countries
Source: OECD DynEmp v.2 database (see www.oecd.org/sti/dynemp.htm ).
Data for some countries are still preliminary.

29. R&D budgets 2008-2015, G7 and Korea, Index 2008 = 100
Source: OECD, Main Science and Technology Indicators Database, www.oecd.org/sti/msti.htm, January 2016.
4. The role of the state in the supply- …

30. Innovation activity as part of a public procurement contract by type of requirement
As a percentage of firms with public procurement contracts
Source: OECD analysis, based on final CIS2012 results. Note: Some firms may be required for some contract and not for others.
http://www.oecd.org/science/inno/procurement-for-innovation.htm
… and the demand-side of innovation

31. 4. NEW DIRECTIONS AND
SOME CONCLUSIONS

32. New directions (1)
1. Measurement, learning and experimentation
– Learning and Evaluation: Much scope to learn more about innovation
and what works in innovation, e.g. by better use of micro data and
other new sources of data (e.g. Manchester/NESTA compendium:
http://www.innovation-policy.org.uk/compendium/ )
– Experimentation: Learn more about policies by greater use of
experimental policies and RCTs (e.g. NESTA’s IGL:
http://www.nesta.org.uk/project/innovation-growth-lab-igl ) and greater
use of design thinking in policy formulation
– Measurement: A familiar challenge, but new opportunities to
measure key aspects of innovation (OECD: Blue Sky Forum of 19-21
September - oe.cd/blue-sky )
32

33. Confidential business
data in participating
countries
Non-
confidential
harmonized
output
For example: new microBeRD project on public
support for R&D, based on microdata
Statistical code
run on microdata
at local premises
R&D microdata
+ Corporate tax data
+ R&D grant/loan data
+ Business register data
+ Patent data
+ Innovation data
• Innovation in Firms
(CIS data)
• DynEmp
• MultiProd
Inspired by previous
OECD work...

34. New directions (2)
2. More systemic approaches:
– Broadening and strengthening the role of innovation, which is
central to achieving many important public policy goals
– Connecting more to other research and policy areas, e.g. economic policy,
entrepreneurship, digital economy, health, energy, public sector innovation –
innovation in analysis and policy often occurs at the intersection of
disciplines …
– Reconciling policy objectives, e.g. innovation, productivity, sustainability
and inclusive growth, and developing new analysis and policy experiments
– Engaging with a broader range of actors and stakeholders, to increase
ownership and enable learning, which also requires new platforms and
sharing of practices, e.g.: www.innovationpolicyplatform.org
– A greater focus on implementation, institutional factors, governance and
the political economy of reform
34

35. SOME RECENT WORK
oe.cd/innovation www.oe.cd/sti-scoreboard

36. Website: oe.cd/blue-sky
Information: OECD.BlueSky3@oecd.org
Registration is now open

37. THANK YOU
Follow us on Twitter: @OECDinnovation
Website: www.oecd.org/sti
Innovation Policy Platform:
www.innovationpolicyplatform.org
Newsletter: www.oecd.org/sti/news.htm
Contact: dirk.pilat@oecd.org