Futures-Diagnosis

The publication of the OECD’s Innovation Strategy this week provides strong support for the Big Potatoes position that future innovation remains fundamental to resolving the global economic crisis we are facing.

The OECD report is to be welcomed despite the confusion at its heart about the role of R&D. As can be seen from the Wordle text cloud below, the report places great emphasis upon research, science and knowledge, longer-term thinking and perspectives and most welcome of all, an insistence on the enduring importance of R&D.

Before dealing with the key confusion at the heart of the report about the role of R&D, it is worth noting a few key findings which make this a refreshing and welcome contribution to the public debate about innovation:

• Innovation, productivity and Economic growth: The report’s key finding is that future growth must ‘increasingly come from innovation-induced productivity growth. As it states: ‘Innovation – the introduction of a new or significantly improved product, process or method – holds the key to boosting productivity’;
• Longer-term thinking vs short-term pragmatism: The report argues for increased investment in future long-term sources of growth, such as education, infrastructure and research. It argues this must remain a continuing priority  as countries seek to move beyond the current crisis. It correctly points out that while cutting back public investment in support of innovation may provide short-term fiscal relief, it will hurt long-term growth;  ’a continuing strong baseline of investment is essential if productivity benefits are to accrue and a return to growth is to be achieved’. Moreover, it highlights that while improving the efficiency of government spending will always be necessary, innovation in the delivery of public services is long overdue;
• Science remains an essential ingredient of innovation: the investment in research and the development of knowledge is suggested as the cornerstone of future innovation;

Science continues to be an essential ingredient of innovation. Modern innovations, from the transistor to the Internet search engine, have drawn on scientific knowledge. Most basic research is still is done in the public sector, predominantly by higher education establishments or by public research institutions. Data on science-patent linkages show that the role of science in innovation continues to increase, and that sectors such as pharmaceuticals and semiconductors rely heavily on scientific research, which is becoming increasingly multi-disciplinary in nature.

The role of R&D and open innovation – some confusion

While the report highlights the critical role of R&D it nevertheless makes too many concessions to today’s prejudice that  innovation is really about everything apart from R&D. In the spirit of the cult of innovation without R&D they argue:

‘innovation today encompasses much more than research and development (R&D), although R&D remains vitally important. Innovation rarely occurs in isolation, it is a highly interactive process of collaboration across a growing and diverse network of stakeholders, institutions and users. Moreover, the emergence of new and important players has added to the complexity of the multifaceted international landscape of innovation’.

When was innovation not a ‘highly interactive process of collaboration’, for example? Invention and pure research could be based upon isolated and discrete interactions, but innovation has always been a collaborative endeavour. As evidence for this assertion the report argues that while R&D remains vitally important, ‘many highly innovative firms do not engage in R&D at all. (See their Figure 3 reproduced below – apologies about the size – the blue columns represent firms that innovate without spending on R&D, the grey columns those with in-house R&D).They argue that increasingly, firms in services and manufacturing create value through a wide range of complementary technological and non-technological changes and innovations. The final assertion is that as the complexity and costs of engaging in innovation have increased, so has collaboration. Partnerships and crowdsourcing are on the increase to the extent apparently ‘that firms that collaborate on innovation spend more on innovation than those that do not, an indication that collaboration is more a means to extend the scope of a project or complement firms’ competencies than simply a means to save on costs. In most countries, collaboration with foreign partners is at least as important as domestic co-operation, a sign of the formation of global networks of innovation.

This growth of global innovation networks is certainly a phenomenon that is worth deeper analysis. But the main problem with this argument and the evidence provided is that while many innovative firms may not be spending on R&D they are nevertheless living off the gains of past R&D efforts. The report does not provide a breakdown of what sector these non-R&D spending innovative firms are in. But to some extent that does not really matter. As they say themselves recognise (see the set out quote above) the transistor, the Internet were the result of scientific endeavours, in other words, research efforts, that today underpin so much of the global information economy. Everything innovative forms do today rests upon the legacy of past R&D successes and failures.

By stressing the importance of non-R&D led innovation, the OECD report falls into today’s cult of innovation everywhere but in R&D we criticise so centrally in the Big Potatoes Manifesto. While we certainly need to deepen our understanding of what is happening at the level of innovation networks, crowdsourced collaboration and ‘open-innovation’, it remains vital to insist upon returning R&D to poll position if innovation is to do what the report so correctly highlights – get us out of the current economic mess we’re in.

Filed under: Economics of Innovation, Science and Innovation, Big Potatoes Manifesto, OECD