KNOWLEDGE ECONOMY FORUM VI Technology Acquisition and Knowledge Networks Cambridge, England. April 17-19, 2007 Panel 2A April 19, 2007 Standards and Quality Certification: Technology Upgrading & Trading Tools Standards, Markets, and Regulation: The Two Faces of Standards in the Knowledge Economy Paul Temple Department of Economics University of Surrey

The Two Faces of Standards Standards and regulation: close relationship between Standards and regulation Standards as a source of ‘codified’ information about technology. Today the standards catalogue of the British Standards Institution contains around 30,000 documents describing technology – test methods, reference materials etc. Many documents underpin Markets by facilitating communication between firms

The Economics of Standards: A Brief Review 1980s growing interest in the role of standards in processes by which technology is adopted by user population. This was fuelled by awareness of critical role of standards in ICT Subsequent work on the microeconomic functions of individual standards common in literature (case studies/economic models) Some work has also focused on the broader ‘macro’ economic outcomes, i.e. in the development of markets and the ‘diffusion’ of technology

first econometric analysis on the implications of the activity of Standards bodies for broader ‘macro’ economic outcomes conducted by Swann et al (1996). This work emphasised the impact of standards ‘catalogues’ for trade. national standards promoted ‘non-price’ competitiveness of exports over and above the impact on productivity also – contrary to common opinion - promoted imports but what about productivity? Macro studies of standards

Standards contributed to about 13% of the UK’s long run productivity growth in the post-war period Based on earlier German research, a study for the DTI in London suggested that....

Standards and Regulations: The ‘new EU approach’ Since 1985 ‘national’ standards have increasingly been replaced by harmonised European standards ‘new approach’ directives allow products to be tested for conformity against a harmonised standard developed by the European standardization bodies – CEN/CENELEC/ETSI – which are then marketed through member bodies – AFNOR, BSI, DIN etc. European standards focus on product specifications Efficiency aspect: firms minimize costs to achieve conformity

The Internationalisation/Harmonisation of European Standards Catalogues

The EU ‘Harmonisation’ of the standards Catalogue of the BSI

Standards and Markets the use of standards is not uniform across economies manufacturing and in particular the engineering sectors of economies are particularly intensive in the use of standards many standards assist market entry by providing the Infrastructure through which product characteristics can be measured - test methods, reference materials etc. Many standards ‘link’ different sectors of the economy particularly in respect of capital investment

Mechanical Engineering 4919 Electrical and Instrument Engineering 5940 Metal Products Metal Manufacture Chemicals Food, Drink, Tobacco Transport Equipment 2419 Textiles Paper Printing Other Manufacture < Standards in UK Manufacturing

Standards as a source of knowledge: Research using the Community Innovation Survey (CIS) The CIS has proved to be an important tool for the analysis of both technological innovation (new to world) and the diffusion of innovation (new to firm) The survey can be used to assess the role of standards in providing accessible ‘codified’ information about technology and providing both information and constraining innovation Research by Peter Swann using CIS3 established a positive correlation between the information content of standards and their potential role in constraining innovation

ENTERPRISE CIS4: importance of information sources for innovation in UK Internal Suppliers Clients 64% 68% 69% competitors consultants Technical standards Professional associations 55% 53% scientific journals conferences government research universities % rating each source at least of some importance (low//medium/high) 51% 26% 25% 62%40%

Standards and Innovation Outcomes Relative Probabilities: for the range of innovation outcomes covered in CIS3, for those enterprises that cite standards as being relevant are 2-3 times a likely to rank an outcome as ‘high’ Relative probabilities computed as: Pr (Innovation outcome = high | standards regarded as relevant) Pr (Innovation outcome = high | standards regarded as of no relevance)

Some conclusions: The paradox of standards Research suggests standards promote trade and competition Standards associated with regulation/bureaucracy/red- tape Standards an important and low cost source of codified information on an international basis and hence not an immediate source of competitive advantage for firms. However standards may be associated with human capital formation at the level of the firm Relationship with innovation complex but innovators rate standards as an innovation source more highly than non- innovators