The IPL newsletter: Volume 8, Issue 159

INTRODUCTION

This newsletter is published by The Innovation Policy Lab at the Munk School of Global Affairs, University of Toronto, and sponsored by the Ministry of Research and Innovation. The views and ideas expressed in this newsletter do not necessarily reflect the views and policies of the Ontario Government.

The Global Challenges of the Knowledge Economy: China and the EU

Can Huang and Luc Soete, UNU-MERIT
This paper addresses some of the challenges confronting the European Union and China as they build their knowledge economies, and their on-going and possible future actions to address such challenges. The authors argue that there is an urgent need to develop a new European Lisbon Agenda, preparing the EU for globalization. A new and “outward-looking” Lisbon strategy would focus on three key areas: international trade in services, internationalization of research networking, and access to brains and talent. The paper shows that the success of the Chinese economy over the past three decades can be partially attributed to its ability to absorb globally advanced technology and huge flows of foreign investment, its large pool of knowledge and talent, and its enactment of a policy framework that provides incentives to domestic and foreign firms to innovate – a strategy very much reminiscent of Europe’s own internal Lisbon agenda. To move further, China needs to overcome the obstacles of regional disparities, transform its industry and deepen industry-academy linkages, which are also unavoidable tasks for the sustainable development of Europe. This paper contends that the scope for comparative studies of the EU and China, for mutual learning from each other’s experience – even for joint initiatives – is substantial.

A Race to the Top: A Review of Government’s Science and Innovation Policies

Lord Sainsbury of Turville
A country’s innovation rate depends on inter-linked activities which include: industrial research; publicly funded basic research; user-driven research; knowledge transfer; institutions governing intellectual property and standards; supply of venture capital; education and training of scientists and engineers; innovation policies of government departments; science and innovation policies of Regional Development Agencies (RDAs); and international scientific and technological collaboration. The two most commonly used measures of innovation performance are the quantity of industrial research and the volume of patenting. The UK’s performance is unimpressive on both counts. However, performance is greatly affected by the structure of industry. UK companies spend similar proportions of their sales on R&D as their competitors within a sector, but have a stronger presence in successful sectors where little, if any, R&D investment as a percentage of sales (e.g. oil and gas, financial services) is reported. This suggests that rather than seeking to raise the amount of research performed by all industries policies should focus on the four major goals developed by the TSB:
• to help leading sectors and businesses to maintain their position in the face of global competition;
• to stimulate those sectors and businesses with the capacity to be among the best in the world to fulfil their potential;
• to ensure that the emerging technologies of today become the growth sectors of tomorrow;
• to combine all these elements in such a way that the UK becomes a centre for investment by world-leading companies.

Trends in publicly funded R&D show that there has been a steady increase in the amount of money spent by the Research Councils, but a decline in government department funding of R&D as a percentage of GDP, mainly accounted for by a decline in MOD spending. This is of concern for the quality of public policy-making, and the stimulation of innovation in the companies with which government departments interact. Research outputs from publicly funded R&D remain, however, of a very high standard. On the
latest data (2004), the UK was ranked second in the world to the USA in its share of world publications (9 per cent) and world citations (12 per cent). The UK is a more consistent performer across the range of research disciplines than most other countries, ranking second in the world in seven of the ten disciplines.

The policy response to the UK’s innovation performance needs to consider two crosscutting issues:

1. The different requirements of manufacturing and services: we need to build up skills in the management of fragmented manufacturing chains, and to focus research efforts and skills development on the complex, high-value production activities likely to be successful in high-cost economies. A better understanding of how innovation takes place in the very different industries which make up the services sector is required, so that the Departments for Innovation, Universities and Skills (DIUS) and for Business, Enterprise and Regulatory Reform (DBERR) can apply their current policy initiatives more effectively.

2. The role of Higher Education Institutions (HEIs) in the knowledge economy: HEIs play an increasing role in the economy and the UK, with its world-class universities, is well placed. A diversity of excellence is required, with research universities focusing on curiosity-driven research, teaching and knowledge transfer, and business-facing universities focusing on the equally important economic mission of professional teaching, user-driven research and problem-solving with local and regional companies. Research, teaching and knowledge transfer are fundamental roles for any HEI. But the way these are done will be very different and some students will be attracted by one type of educational experience and some by the other.

POLICY RECOMMENDATIONS

A new leadership role for the TSB. The TSB has a key role to play in addressing the fragmented technology and innovation landscape in the UK. Chapter 3 describes how its transformation into a business-driven Executive Non-Departmental Public Body in July 2007 has the potential substantially to improve the UK’s innovation performance. The Review recommends that the TSB
be given a new leadership role, working with the RDAs, the Research Councils, government departments and the economic regulators to co-ordinate public sector technological innovation activity, leverage public sector resources and simplify access to funds for business. With increased resources the TSB should extend into new areas, such as the services sectors (including the creative industries) in which technological innovation is important. It should develop an international strategy, and it should work more closely with UK Trade and Industry (UKTI) to enhance the UK’s position as a centre for investment by world-leading companies.

Building on success in knowledge transfer. The translation of university research into commercial goods and services has significantly increased in the past decade. The number of spinoff companies, the number of patents, the income from licensing agreements and the income from business consultancy have all increased (see Chapter 4). The performance of universities in this
area is now comparable with US universities. There are also significant clusters of high technology businesses growing up around these world-class research universities (see Chapter 9). Chapter 4 outlines the four main areas in which the UK can strengthen its knowledge transfer.

Using intellectual property rights, standards and metrology to improve knowledge transfer. Effective knowledge transfer requires specific institutional arrangements to pass knowledge from research establishments into wealth-creation and public policy-making, and an infrastructure of intellectual property rights, standards and metrology. Historically, the information contained in patent databases has not been fully exploited, with estimates that up to 30 per cent of worldwide R&D projects are merely a duplication of existing technology. Chapter 5 recommends that more effective use be made of the UK Intellectual Property Office (UKIPO) patent registration database, through open access and electronic searching.

Targeted support for early-stage high-technology companies. Venture capital forms an integral part of the innovation system by providing a vital early-stage source of finance and management and market experience. However, Chapter 6 shows that early-stage high-technology start-ups have experienced some difficulties in attracting equity finance, due to the specific risks involved in these investments. The Review recommends that, subject to the BSSP, a nationally-agreed specification for proof-of-concept funding should be developed to provide initial funding to entrepreneurs. Together with other recommendations, such as reforms to the Small Business Research Initiative, the new formula for HEIF and the support of RDAs for incubators, high-technology clusters and business-readiness services, this should provide a significant boost for investment in early-stage high-technology companies.

A major campaign to enhance the teaching of science and technology. Demand for science, technology, engineering and mathematics (STEM) skills will continue to grow. The UK has a reasonable stock of STEM graduates, but potential problems lie ahead. There has been a 20-year decline in the number of pupils taking A-level physics. The Review recommends a major campaign to address the STEM issues in schools. This will raise the numbers of qualified STEM teachers by introducing, for example, new sources of recruitment, financial incentives for conversion courses, and mentoring for newly qualified teachers.

A key role for government departments. Government departments can play an important role in stimulating innovation in the companies with which they interact, but in the absence of a clear directive and adequate resources, they are failing to meet the challenge. Innovation should be embedded in Departmental Strategic Objectives and the Director of Innovation at DIUS should produce an annual Innovation Report on the innovation activities of the DIUS, including the TSB, other government departments and the RDAs. Chief Scientific Advisors should work more effectively with their departments and with the Treasury spending teams to agree and manage their R&D budgets, and together to identify and act on cross-cutting areas of research.

Increasing regional focus and resource on science and innovation. National policies create a framework for innovation but the locus of much innovation is at the regional level where employees, companies, universities, research institutions and government interface more directly. There is increasing recognition of the potential of RDA science and innovation polices to drive regional economic growth.

Linking up with centres of excellence around the world. International collaboration is important if the UK is to stay at the leading edge of world science and innovation and benefit from the 90 per cent of the world’s scientific output that is produced elsewhere. The UK needs to make this collaboration a core part of its strategy, and to improve co-ordination of the UK bodies involved. The Review recommends that a number of the Global Science and Innovation Forum (GSIF) proposals be put into immediate effect: Research Councils should focus resources into single points of contact in key countries; a new fellowship scheme and alumni network should be set up by the Royal Society, with support from the other academies; the TSB should develop an international strategy; the Science Bridges scheme, establishing formal links with universities overseas, should be extended; and the Director-General of Science and Innovation should work with the USA to solve “the double jeopardy” issue for scientists.