World Economic Forum 1

A tentative framework for discussion

Manuel Trajtenberg

Prof. of Economics, Tel Aviv Universityand

Head of the National Economic Council, Israel

Stanford, September 3, 2008

World Economic Forum 2

The Innovation “Heat-Map”

1. Tracing innovation as it unfolds Need a comprehensive view of innovation, and good

proxies – new data. Means different things in different places, e.g. in the

developing world.

2. Try to predict where innovation is likely to unfold Much more ambitious! Identify what are the key factors for innovation to

emerge as sustained force of change.

World Economic Forum 3

Tracing innovation as it unfolds: 1. Commonly used measures

1. R&D as good proxy, but:

R&D only formal input for innovation, narrow view.

Much process innovation not the result of purposive R&D

Particularly innovation in services, from financial services to retail trade. Very important: see burst in productivity in the US after 1995.

World Economic Forum 4

Tracing innovation: 2. Patents as proxy - shortcomings

• Recent explosion in patenting: not necessarily concomitant growth in innovation, but patenting as strategy, expanding scope of patentability

• Great deal of innovation in processes and services not patentable

• Patent counts not enough, need qualitative measure of patents, such as citations counts, claims, etc.

• Limitations of patents as indicative of IP regime, and of appropriability - much more to incentives than that!

World Economic Forum 5

Innovation and growth: a broader perspective

1. Cumulative effect of widely distributed small improvements, highly significant for economic growth.

2. But also “big” innovations: “General Purpose Technologies” (GPTs) as “engines of growth”, e.g. electricity, ICTs, Biotech? GPTs spread over wide range of applications, prompting

them to innovate as well Innovation in adopting sectors prompts further advances in

the GPT itself, feeding a positive, self-sustained loop.

How to trace both the “small’ and the “big” innovations? How to capture interdependencies?

World Economic Forum 6

a broader perspective – sum up

Expand definition and scope of innovation

Go beyond traditional measures

In so doing, increase awareness of potential for innovation in non-manufacturing sectors and service sectors in particular

In countries below the S&T frontier: innovation as “new to the firm”, “new to the country”, may be as important.

World Economic Forum 7

II. Where is innovation likely to unfold?

(i) Traditional factors,

1. S&T infrastructure and skills

2. Availability of capital, risk taking

3. Supportive Gov policies and regulatory environment

4. Access to global markets,

(ii) “Soft” factors

World Economic Forum 8

Where is innovation likely to unfold? (ii) the “soft” factors

1. Factors stimulating and facilitating innovation

Competitive, dynamic environment; globalization as key

Prices as accurate signals of all-inclusive econ values & future scarcities (see water, energy, climate change)

Malleability & flexibility of institutions

Social norms: rapid change as key norm, ability of society to absorb change in a non-disruptive way.

2. Creative talent, entrepreneurial spirit

Not just “nerds”, but curiosity, can-do-it attitude

Importance of role models, appealing challenges

Demographics, aging.

World Economic Forum 9

The big tension – take I: Localization vs. globalization

Why localization? Agglomeration effects, localization of knowledge

spillovers: powerful centripetal force - clusters. Innovation as recombination of ideas, need

geographical proximity, immediacy

But gains from globalization, Global parceling out of widely distributed comparative

advantages Also in S&T

World Economic Forum 10

The big tension – take II: pooling vs. mobility

Why pooling? ….. of innovative resources across firms, sectors, countries

increasing S&T complexity cross-disciplinary nature of frontier S&I increasing specialization of researchers.

But increased mobility …. of scientists and inventors,

1/3 of patenting inventors move across firms Both localization and globalization require mobility Advantages to S&TI “hubs”

World Economic Forum 11

Thanks a lot

Lets go innovate…