STI-policy and economic trends: some critical

views
INNO-Grips workshop:
Innovation Policy in an Anti-Cyclical Conjuncture
30 September 2010, Institut der deutschen Wirtschaft Köln

Mika Nieminen
VTT Technical Research Centre of Finland
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Content

 R&D investments as a starting point

 What evidence do we have?

 Why might we be sceptical?

 But why might we be optimistic as well?

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R&D investments as a starting point

 Roughly speaking in public STI policy there are two kinds of
instruments: a) insititutional-regulative instruments (who has the
right to act and in which way); b) money related instruments (how
much, to whom with what criteria?)

 Of these the more effective policy instrument is money - especially

in the case of scarce resources and resource dependence
=>
 How public STI investments affect economic performance & may
help to overcome economic downturns?
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What evidence do we have?

 In general, both social and private rate of return to R&D investments have
been measured in number of studies to be positive; social rate of return
systematically higher than private
 Some evidence that public R&D investments & subsidy increase firms’
R&D investments & innovation activity
 => risk sharing with the help of public funding, tax reliefs increase R&D
leading possibly to wider positive effects via knowledge spill overs &
strenghtened value chains (otherwise underinvestment situation from the
perspective of social benefits)
 Public R&D investments may decrease unemployment and help to
maintain critical knowledge infrastructure during economic down-turns
(especially in the case firms decrease R&D investments – however, this
does not seem to be the case during the last downturns)
 I.e. STI policy may to some extent help to shorten downturn or make it
easier to start a new upswing (with new products & markets)
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Why might we be sceptical?

 BUT: public intervention during economic downturn may turn out to be

artificial respiration => may maintain unhealthy economic structures &
activities (Big question: when public intervention is legitimate – i.e. deals
with real market failure case?)
 The real sources of downturns are beyond the reach of STI policy (e.g.
current downturn relates to financial markets)
 STI policy is predominantly supply-side policy with only few possibilities to
affect demand-side (exceptions e.g. public procurement & regulation and
decisions beyond STI policy like energy solutions)
 There is always a time-gap between the investment and the results =>
R&D investement-research-results/knowledge/publication/patent 2-6
years; R&D investment-prototype-product in the markets even15/20 years
=> increasing R&D investments during downturn produce results only after
years the downturn is over
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Why might we be sceptical?

 Most of the economic benefits of public R&D are indirect and take place
after years (e.g..Salter & Martin 2001): Increasing the stock of useful
knowledge, training skilled graduates, creating new scientific
instrumentation and methodologies, forming networks and stimulating
social interaction, increasing the capacity for scientific and technological
problem solving, to a lesser extent creating new firms .
 Usually STI policy very much leans on linear technology-push model of
innovation, which is, however, currently understood restricted (and even
rare) innovation model: innovation is systemic, demand-driven and
requires collaboration and interaction of number of actors from providers to
users as well as support from institutions
 This complex and systemic nature of innovations makes directly effective
policy measures hard to design & difficult to implement

=> There are only few possibilities the current STI policies may help directly
to beat short term economic downturns!
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But why might we be optimistic as well?

 STI policy helps to maintain and develop knowledge capacity and

infrastructure in a country
 That is a prerequisite to transfer new knowledge to a country (absorptive
capacity), create its own industrial activity & develop innovations which, in
turn, may create possibilities for sustainable economic growth
 STI policy
 Creates & maintains long-term capacities (human capital,
general know-how, specialized knowledge)
 Yields especially indirect effects in the system (e.g. education,
networking)
 Maintains necessary diversity of knowledge (various disciplinary
knowledges, new knowledge hybrids)
 Creates niches & protects them for renewal (new technologies,
social innovations)
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VTT creates business from

technology