Europe INNOVA 2012 Conference

Moderne Innovation Policy:

How can we invest better and avoid wasting tax-payers' money?

- The perspective of the Danish EU Presidency”

By Thomas Alslev Christensen, Head of Department for Innovation Policy

Ministry of Science, Innovation and Higher Education

Denmark

1. Warming up to Europe INNOVA 2012

The title of my pre-conference key note address is “Modern Innovation Policy: How can we invest better and avoid wasting tax-payers’ money?”

This is the only key note address you will get in connection with Europe INNOVA 2012.

All other key note addresses are banned!

Now, I would like to ask you: Are the following three statements true?

Firstly, the concept of innovation policy is well established and well known in all EU member states and throughout society.
Secondly, there is an at least decade-old tradition for a well-documented and effective innovation policy.
Thirdly, innovation policy is mature and needs only to be modernised slightly in order to better address the big challenges of our modern societies.

I would be perfectly happy if these statements were true, but I am afraid that they are not.

Accordingly, allow me to begin with some reflections on our grand challenges of society and innovation policy.
Next, I will focus on the state-of-play of the innovation policy discipline.
I will then take a critical look on the traditional innovation policy and discuss the behaviour of innovation policy makers.
Next, I will put forward some suggestions to what could constitute a modern innovation policy: How can innovation policy play a much more prominent role in national and international policy making.
Finally, I will give you an offer you cannot refuse!

2. Grand challenges and innovation

The truth is that today’s societies are facing so many problems and challenges that many politicians and policy makers seem to give up trying to solve the most severe ones. This week we heard again from the so-called Club of Rome. They predicted that it is actually too late to prevent geological, demographic and climate disasters.

We have heard warnings before. That was in 1972. Most of us can remember the book The Limits to Growth which was commissioned by the Club of Rome. The book has a 30 year anniversary. According to the view of “Limits to Growth” there is an almost impossible challenge of unchecked economic and population growth with finite resource supplies in the world.

In 1972, the world was inhabited by 4 billion people. Today, it is estimated that the world population exceeds 7 billion. Thirty years from now it will exceed 9 billion, and it is estimated to stabilise in the 22nd century at between 11 and 12 billion people.

With more people follow more diseases, housing problems, health care and social problems as well as challenges for the education systems.

At the same time, modern societies are completely dependent on stable energy supplies. While the population and energy consumption will be growing the next thirty years, oil production will stagnate and then decline.

However, the “Der Atomausstieg” (the farewell to nuclear power) of Germany and Japan– two of the world’s leading economic powers and energy consumers – put the “Die Energiewende” (the need to move to renewable energy) on top of the world agenda already today!

The larger food production necessary to supply the increasing population requires more energy and a better or stable climate. But the growing climate change will have a negative environmental impact and will destroy food production in many areas of the world.

The obvious solution would be to already today invest huge amounts of money in solutions to the problems we know already do or will exist very soon. But the current economic and severe debt crisis in Europe makes it very difficult to convince financial markets as well as politicians, governments and finance ministries to increase investments in our future. The current change in the political climate in some countries will not remove the crisis or problems.

The Club of Rome indicates that it is too late to prevent the disaster.

However, I will not accept this point of view! Should we just give up?

Even if we don’t have the solutions to all of the grand challenges of today, we can only avoid the disaster scenarios if we make changes – we need more concrete solutions to the many small and bigger problems. We need the solutions we already have found to be implemented in a larger scale.

This is why an active modern innovation policy is so important. However on the one hand, it may be difficult to assert that innovation policy will solve all our problems, but on the other hand, if the solutions to the problems and the grand challenges should not come from new knowledge, new ideas and inventions and new innovation – where should they come from?

I don’t believe in miracles or in utopias. But I believe in science, education and innovation.

The world famous German scientist Wernher von Braun has said: “In future, utopias should hurry if they should not be overtaken by reality.”

I think this is exactly the motivation we need for modern policy makers. We need to remember what has been proven during the past 70 years: if we invest in research, development and innovation, scientists and innovators will come up with solutions we have not even dreamed of today.

Since this seems so simple, why is it so difficult to find more understanding and support for innovation policy? Because we as innovation policy makers have - to a large extent - failed.

3. The many big mistakes of innovation policy makers

I would like to summarise the problem for innovation policy makers in the following points – of course I am aware that there can be variations across countries and regions:

Firstly, the history and tradition of innovation policy is short. The notion of “innovation policy” is new. We did not talk about “innovation policy” in Lisbon and Barcelona ten years ago when we adopted the open method of coordination, the Lisbon-process and the Barcelona target.
Secondly, the definition of other public policies and the role of regional and central governments are much more clear when it comes to tax policy, fiscal policy, defence policy, immigration policy, education policy, social policy, environment policy, agriculture policy and health policy.
Thirdly, “The innovation policy” discipline has not been part of classical text books for politicians, journalists and civil servants. And it is not an integral part of the standard literature at universities or high schools.
Fourthly, almost no macroeconomic estimations of the regional or national impact of investments in innovation policies have been made, making it difficult for politicians and finance ministries to measure the contribution of innovation policy to growth, employment and the tax base.
Fifthly, too few policy makers are able to verify the impact of their innovation policy instruments. The typical reasons are that instruments very often do not survive political changes, and that policy makers do not ensure sufficient long term data and observations making it possible to do econometric impact assessments.
Sixthly, in many cases we have used the term expenditure on innovation instead of investments in innovation. This sends a signal that we perceive innovation policy as a public policy which increases public deficits and does not provide us with an investment return by increasing public tax income or helping us save public spending.
Seventhly, innovation policy has been focusing on a project-oriented approach. During the last decade, more than two hundred thousand projects have been supported (from my ministry alone probably up to 10,000 R&D and innovation projects since 2001). But what has happened to all these projects? Where are the two hundred thousand innovations, new innovative companies and new innovative solutions to our many problems?
Lastly, because of the difficulties of defining the role of innovation policy and measuring the impact of the many various innovation policy instruments and projects, too many policy makers and innovation programme owners spend a lot of time explaining that it is impossible to measure the impact and that the outcome is much larger than you can see.

If we are to be completely honest with ourselves, we know very little about the real added impact of concrete innovation policy instruments on key performance indicators that are relevant to society. This could for instance be impact on tax revenues, efficiency gains in the public sector, employment growth and productivity growth in the business sector, new patents and innovations and so on.

I could continue along those lines until I get completely depressed. However, I am a positive person believing in the future and I think that we have not lost the battle –it has not really started – and we have many possibilities to do it much better.

In the future we need much more innovation, and therefore we need to develop a modern innovation policy which does not repeat the mistakes I have mentioned above.

4. The path towards a modern and effective innovation policy

So far – the best way to develop a modern and effective innovation policy is to learn from past experience and not forget to learn from our many failures, mistakes and wasted investments:

Firstly, we should treat innovation policy as an investment which requires a certain expected return. We should explain in a clear language what the return of investments in innovation policy is. This is not as difficult as it sounds: According to the new international literature, it is possible for econometric researchers to estimate additionality with respect to labour productivity, innovations, patents, employment, gross profit growth, export growth and so on. We – as policy makers – should provide researchers with the relevant data so they can conduct the analyses.
Secondly, we should move from a project-oriented approach to a systemic approach. A systemic approach produces more synergies, knowledge transfer and spill-over effects which increase the impact of innovation policies. We know from economic studies conducted by the OECD and the European Commission that a systemic approach can double the impact of policies.
We should do more to follow up on our investments in R&D and innovation projects in order to increase the impact and improve the result. This could be done by substituting controls and bureaucracy with active involvement and real interest in projects.
We should understand that enterprises are individuals, and that the innovation potential - and what triggers this potential - varies across enterprises and industrial sectors. Many of the current innovation policy instruments and models are not flexible enough to adapt to the differences and changes in the industrial sector, including internationalisation requirements.
We should avoid investing in areas where the chances of a positive return are too small. We should support the industries with growth potential for the future – and not declining industries which have no chance of survival whatsoever.
We should involve all relevant actors in our innovation policy strategies, since businesses, the public sector, educational and research institutions, business associations and labour unions are all key actors in increasing the innovation capacity of our society. The involvement could be in a dialogue or in concrete innovation partnerships, clusters and networks, because the success of private business as well as public organisations requires collaboration, knowledge transfer and new competences all the time.

5. Stress test of innovation policy in Europe

As in many other policy areas we need to improve innovation policy. Here we should find inspiration in the modern transport policy, policies for financial institutions, health policies - just to mention a few examples. We should stress test our innovation policy to find out what works and what does not work.

This will be the focus of the last Europe INNOVA Conference which will be held by the European Commission in collaboration with the Danish EU Presidency on 23-24 October 2012.

We will stress test ministers, policy makers, regional and national programme owners and the European Commission. The questions to be addressed could be the following:

Can we find the perfect SME innovation scheme inEurope?
What is a perfect cluster policy?
How do we exploit new knowledge and IP in a way which produces economic growth?

We will also

Test the innovation policy bureaucrat
Discuss what an effective eco-innovation system should look like
Hear the worst case story about a cluster organisation in Europe?
Find out what has happened to the hundred thousands of projects that have obtained support in Europe during the past decade
Try to find the worst policy maker in Europe
Try to make the “perfect” SME-programme owner?
Discuss the ten best innovations we need in the 21st century in order to solve the grand challenges
Discuss the success criteria for modern innovation policy makers

I hope you will join us in Copenhagen in this stress test of innovation policy in Europe.

Thank you for your attention!