Human Capital and the Costs of Non-Research Alfonso Gambardella Sant’Anna School of Advanced Studies Pisa, Italy Research policy - Incentives and Institutions Ministry of Finance & Economics Rome November 28, 2002

Topics Five stylised facts about research and innovation in the 1990s Some intriguing indicators about Europe and Italy Conclusions

Fact 1: Increase in Patent Applications US applications from  80k per year in the 1980s to k in the 1990s EPO: 143k applications in Up 16% from previous year. Annual filings more than doubled compared to 10 yrs ago. There is increase in the propensity to patent (e.g semiconductors). Yet, notable increase in innovations as well.

Fact 2: Markets for Technology Notable increase in technology transactions in the 1990s (patents, technologies, ideas) Implication: Innovators develop their technologies even if they don’t have mfr or mkt assets The market is there: –EPO estimated that in Europe 20 billion $ are spent every year to develop innovations already developed elsewhere –Studies show that many companies (or patent holders) are willing to license their patents

Fact 3: Human capital externalities “Using detailed data on California biotechnology, we find that … for an average firm, five articles co-authored by academic stars and the firm’s scientists imply about 5 more products in development, … and 860 more employees.” (Zucker, Darby, Armstrong, 1998)

Fact 4: New industry & business models Information technology (and Silicon Valley) have shown how to create development via high-skill intensive business, new models of firms and of economic relationships, markets for technology, etc.. This has potentials for development as well (e.g. Bangalore, Ireland, Israel)

Fact 5: Openness Openness of science has been a major example of the impact of openness of performance in research and related activities (e.g. Paul David’s work) A recent study shows that more “open” European regions have higher labour productivity, other things being equal.

To sum up … “People” are increasingly central to the overall research and innovation business People are crucial to … –invent –manage –develop markets, institutions, and firms –create domestic and int’l networks –take strategic decisions and entrepreneurial actions (whether in research or business) –etc..

Some intriguing indicators (just released EU Key S&T figures 2002) Show that European countries are enhancing the role of “people” (HK) Italy is lagging behind. In particular: –Italy has a good innovation and research productivity; –But the key inputs (number of researchers, scale of HK) is dramatically modest –Needs to increase the size of the HK base

To sum up... European countries with low share of HK are trying to catch up Italy is an exception: –Low supply of HK, in spite of the fact that because of high productivity this is a valuable investment to make! –The logic is straightforward: Few PhDs, along with modest expenditures on tertiary edu  few researchers/HK  small research output (patents or publications)

Conclusions What are the costs of a low supply of HK? “Using detailed data on California biotechnology, we find that … for an average firm, five articles co- authored by academic stars and the firm’s scientists imply about 5 more products in development, … and 860 more employees.” (Zucker, Darby, Armstrong, 1998)

What then? Increase the supply of PhDs! Develop high quality Doctoral Programmes to: –Implement a sound basis of research and HK –Provide the teachers for the other levels of tertiary education They could follow either a one-to-one, apprentship-like “industrial PhD” approach (e.g. in engineering); or an anglosaxon-like PhD (with courses, etc.)

Supply of PhDs! Most importantly, PhD programmes should be managed by reputed researchers who have experience with leading int’l PhD programmes (and research), possibly within independent or semi-independent institutions  Create the “Graduate Schools”

“What are the research university?…. …. Those with a graduate programme.”