Public Support for Enterprise Innovation Policy: The Case of Poland Marcin Piatkowski Senior Economist The World Bank, Warsaw Rio de Janeiro, June 9, 2011

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Other issues Post-crisis economic growth in Poland and the EU-10 is likely to be lower than before the crisis Structural reforms could re-accelerate growth: enhancing technology absorption and innovation will be essential Key issues: inefficient R&D spending, low enterprise R&D expenditure, low innovation output, suboptimal industrial structure “The 10 billion euro question” – how to efficiently spend public and EU money on supporting innovation until 2020?

Post-crisis growth likely to be lower Figure: GDP Growth Rates in EU-10, EU-15 and the pace of convergence, 2005–2012, in percent Source: World Bank based on Eurostat

Also relative to non-EU countries Figure: GDP Growth Rates in EU-10, EU-15 and the World, 2008–2012, in percent Source: World Bank based on the IMF and Eurostat

Key issue: Low R&D spending Private sector R&D spending % of GDP Germany Total R&D spending % of GDP Slovenia Czech Rep. Hungary Germany Slovakia Poland Romania Bulgaria Slovenia Czech Rep. Hungary Poland Public and scientific sector R&D spending % of GDP Bulgaria Slovakia Germany Romania Slovenia Czech Rep. Poland Hungary Bulgaria Slovakia Romania Source: Eurostat

Which is inefficient… Figure: Assessment of the Amount and Quality of Public R&D Spending in EU-27

Little public support for private R&D Figure: Structure of R&D financing in Poland, by sectors, 2008 Enterprises are facing a funding gap: In their innovation activities they rely mostly on their own funds In business enterprise R&D dominant are enterprises’ own funds, with little involvement of foreign and public funds The funding gap is not filled by public funds Source: IBS

Low share of high-tech in manufacturing Employment share of high-tech and medium-high-tech manufacturing *1 % in economic active population Employment share of knowledge intensive service sectors *2 % in economically active population Germany Czech Rep. Germany Hungary Slovakia Slovenia Slovenia Czech Rep. Hungary Poland Slovakia Bulgaria Romania Poland Romania Bulgaria *1 OECD definition; chemicals, machinery, electrical equipment, motor vehicle, other transport equipment, electronics, medical instruments *2 Eurostat definition; telecommunications, IT services, R&D services Source: Eurostat

Higher and more efficient R&D would raise GDP Table : Overall Effects on GDP Levels of Achieving Lisbon Targets in Selected EU-27 Countries by 2025

So, what to do?

The 10 billion euro question! Figure: Public innovation-related spending, billion PLN Source: IBS

A few outstanding issues… Diagnostic Question (“Why”) 1. Stage of Poland’s tech development – innovation or absorption? 15. Integrate results of technology foresight? 19. Potential of new markets? 14(5). Horizontal or sectoral policy? 2. Technology or non-technology investment? Policy Question (“What”) 16. Innovation support based on tech stages? 17. Innovation support based on business stages? Implementation Question (“How”) Objectives and indicators 8. Entrepreneur-science collaboration? 10. Collaboration among enterprises? 11. Creativity of employees? 20. Skills / jobs for future competition? 9. Industry-RDI collaboration? 12. Private funds for risky projects? 18. Innovative attitudes? Choice of instruments 4. Financial: direct or indirect? Loans or grants? 7. Non-financial: research infra, tech park, incubator…? Resulting mix of measures 6. Scope and spread – fewer instruments with bigger budgets, or vice versa? 3. Analysis of effectiveness of different types of support? 13. Measure demand for educated talent?

And a few others too How should the entire innovation system work? Horizontal or sector-specific support? What are the pre-conditions (e.g. human capital, legal framework) for enterprise innovation? How to boost creativity in companies and in citizens? How encourage Poles to cooperate (which from the nature are individuals)? “Broad” questions What's better for the support system - grants or loans? Should we support directly on indirectly (or the relation of those two)? The % of support for innovation and technology absorption? What kind of support taking into consideration different stages of innovation process More non-technological innovations or technological mainly? A limited number of instruments with large budgets or small tailor maid projects with smaller budgets? The pros and cons with respect to systemic instruments like tax incentives? “Middle” questions “Specific” questions Should “absorption” measures switch to loans? What kind of financial institution would be appropriate? How to support service sector innovation? How to draft instruments which contribute to addressing global challenges? How to measure the effectiveness of public spendings?

Public support instruments Source: Gulda (2010)

Public support instruments: mapping Figure: Public support instruments, 2007-2013 Source: IBS

Big $$$ involved…. Figure: Total budget for public support instruments, 2007-2013, PLN billion Source: IBS

Has it worked? Ex post evaluation studies Most studies focused on M&E rather than IE Studies largely based on opinion surveys among beneficiaries Difficult to perform a truly robust IE: Short data sets and difficult access to data, difficult to establish causality without a control group Defining and asessing projects’ outcomes (innovativeness, R&D additionality, risk profile, impact on sales etc) is a key issue Concerns regarding the project selection process (e.g. financial and time costs for applicants)

Outstanding questions What can be done with ex-post data: Create a new control group based on other sources of data? Use discontinuity IE based on point tresholds? Use instrumental variable approach? Will the IE work, provide robust results? Will we learn something that we already don’t know? Does it make business sense: costs of IE relative to surveys? 2018-12-04

Ex ante evaluation – some issues Change process design? Are we choosing the “right” companies and the “right” projects? Which criteria would work best? What selection process would be optimal? Impact evaluation? What outcomes to track? Crowding out vs. additionality? Non-randomized applicants? How to control for other sources of funding?

THANK YOU!