EU-US Innovation Gap policy and instruments

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1 EU-US Innovation Gap policy and instruments An Outline of a Multi-Year Study led by I. Goldberg and F. Biagi with S. Forge, C. Blackman, US economists/sbir experts (tbc), A. Garcia, G. Turlea, A. Sabadash, J. Stancik, W. Szewczyk, JP Simon Seville, November 2011

2 EU-US Productivity, Innovation and R&D Gaps definitions, policy relevance Definition of the innovation (INNO) gap between the US and the EU Measures: Old days TFP=INNO or R&D=INNO; Today: INNO = new product in surveys, patents, exports Why measure gaps? Nothing like jealousy to motivate policy makers to make brave decisions: welcome Wal-Mart or Chinese science graduates to stay ( blue cards") Why not compare to US, not China? Can EU learn from China how to innovate?

3 R&D Innovation Productivity Growth Productivity Labor and Capital Innovation Human Capital Intellectual Property Rights, R&D Capital Trade, FDI, ICT, Standards Venture Capital Business Environment Mobility/Migration Policy framework Instruments Tax credits, matching grants

4 Bridging the Gap: my chosen three 1. Public vs. Private Financing 2. Business Environment (e.g. IPR) 3. Human capital migration, mobility Footnote: Compare to Bruegel (2011, A.3.2) on characterizing barriers for development. Three sets of barriers are investigated in particular: Limited access to finance; Failing IPR and Failing ecosystems

5 Study Outline Chapter 1: Introduction Chapter 2: The gap -- statistical evidence Chapter 3: Case studies evidence: web (Google, Apple, Facebook, Amazon, Skype, XING), robotics, E-paper and display technologies. Role of government or lack thereof in the emergence of Web subsectors in the US vs., EU?

6 Study Outline (2) Chapter 4 Bridging the Gap with Instruments: Are US Instruments (SBIR) replicable in the EU? Chapter 5: Bridging the Gap with Policies (business environment, human capital) Annex: Are INNO support instruments effective? Econometric literature review

7 Chapter EU specialized in low/med R&D intensity sectors EU is specialized in sectors with low or medium R&D intensity, while US, Japan and Asian Tigers are more oriented on higher R&D intensive sectors. Does it follow that innovation policy should target sectors? Wait...

8 Chapter 3: Methodology - Case Studies Objective: : micro study of INNO gap in subsectors to learn whether and how policy can bridge gap. Case studied vs. econometrics (H. Pack) Google: Is it possible to build into Europe s institutions tolerance of unconventional behavior by brilliant people? Stanford University s tolerance of Page and Brin who consumed half of Stanford's entire network bandwidth

9 Chapter 4: Public Policy- instruments in US vs. EU Matching grants: Preserve private risk; additionality (e.g. SBIR) Soft loans: Hi-risk should not apply Tax credits: Large firms lobby for it but start-ups have no use for it (no profits to carry over); Procurement to be studied (e.g. SBIR) Venture Capital - How to subsidize while preserving private risk? State VC in Russia. 8

10 Chapter 5: Policy - Sequencing instruments In countries which have had early stage grants for long time, venture capital seem to flourish : e.g. USA, Israel where early stage grants for long time preceded venture capital. Lessons from Israel s Sequencing of Innovation: Since 1976, subsidized commercial R&D projects in private firms. (Before only academic, RDIs) Venture capital is supported 20 years later. 9

11 Chapter 4/5: Policy: Grants vs. Public VC (US government funding is 2/3 grants; only 20% to VC) 12

12 Chapter 4/5: Business Environment How to enhance entry and exit Global ranking for 2011 US, UK, Denmark, Ireland and Norway are in the top 10 of the 183; Spain 49 th, Italy 80th and Greece, 109 th. US 6 days to open a company there; Germany 15 days. Except UK and Nordics, other member states lag behind the US in most indicators of the business environment.

13 Chapter 5: Innovation/ Industrial Policy Sector neutrality vs. targeting EU is specialized in low or medium R&D intensity sectors??? sector targeting. Does Aghion (2011) imply that sectoral targeting is needed to compensate for low levels of asset tangibility? Sector targeting is NOT logical conclusion of credit market failure. It can be addressed by horizontal or neutral matching grants to qualified applications in all sectors.

14 Absorption or Innovation? Poland Minister Rostowski: what s the right proportion of absorption/innovation?. New to the world? New to EU-North or to EU-South or to EU-East? New to a firm?

15 WB ECA Growth Study: Productivity gap within in 2002: EU 12 well below (2002; Yearly value added EU15-South per worker, thousand USD 05) EU15-North EU15-Continental EU12-North EU12-South/Baltics GBR SWE DNK FIN DEU FRA NLD BEL AUT ITA ESP GRC PRT POL CZE HUN SVK SVN ROM BGR LTU LVA EST Source: Eurostat

16 but while EU12 catches up, EU15 South is left behind Innovation in EU-15 North; Absorption in EU-12 and EU South? GBR SWE DNK FIN DEU FRA NLD BEL AUT ITA ESP GRC PRT POL CZE HUN SVK SVN ROM BGR LTU LVA EST Source: Eurostat

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