1. Chairman OECD Working Party on SME and Entrepreneurship
KEY POLICY CHALLENGES IN FOSTERING INNOVATION International Conference “Industry and Innovation 2014” Sofia, October 2014
SALVATORE ZECCHINI
Chairman OECD Working Party on SME and Entrepreneurship

2. Can a boost to R&D and Innovation (RDI) prop up currently stagnating economies ?
Multifactor Productivity (MFP) differences can explain part of differences in per-capita income
RDI is a major component of Multifactor Productivity
MFP has provided a sizeable contribution to economic growth

3. From innovation policies to growth: A model link

4. MFP drives per-capita GDP differences (Source: OECD, Johansson et al

5. MFP as a main contributor to economic growth (Source: OECD, Johansson et al. 2012)

6. Gvt expenditure in RDI rose even during the last major economic crisis (Source: EU Lessons…2013)

7. But in countries most affected by crisis RDI funding first had an anti-cyclical effect, then declined

8. Bulgaria’s funding to RDI followed the same pattern (Source: EU Innovation Scoreboard 2014)

9. Bulgaria’s performance in innovation is not so unfavourable (Source: EU Innovation Scoreboard 2014)

10. Focus: Main challenges for government support policies in RDI
Is there a need to support RDI, particularly at a time of fiscal stringency?
Who should be the target for support?
How should support be structured?
What are the most appropriate means to support?
How to ensure efficient and effective implementation?

11. Innovation is a process involving many actors, forms and institutions in a non-linear sense.
Product of continuous interaction of many actors
It is affected by economic, social and regulatory environment
Prone to systemic failures
Need to intervene on the many components of national innovation system
The two main weak links are SMEs and finance

12. Bulgaria’s innovation indicators (Source: EU Innovation Union Scoreboard 2014)

13. Barriers to innovation
SMEs difficult access to outside finance,
lack of competition in the market place,
unfavorable investment climate,
the social culture,
some regulatory constraints,
the weak linkages between large and small companies,
the dearth of cooperation between universities and entrepreneurs, particularly the start-ups.

14. Where to intervene? On the main shortcomings of the national innovation system (Data source: EU Innobarometer 2014)

15. Factors hampering innovation (% innovating firms with 10 to 49 employees, 2010 – Source: OECD)

16. Factors hampering innovation (% innovating firms with 50 to 249 employees, 2010 – Source: OECD)

17. Factors hampering innovation (% innovating firms with more than 250 employees, 2010 – Source: OECD)

18. Still, 2/3 of surveyed firms innovated in the last 3 years (Data source: EU Innobarometer 2014)

19. SMEs invest in R&D and innovate less than large firms

20. SMEs introducing product and process innovation in 2008 and 2010

21. Surprising: few innovative firms received any funding support (Data source: EU Innobarometer 2014)

22. SMEs generally received much less government aid than large firms

23. Tax incentives benefit more multinational corporations than start-ups and SMEs

24. Equally surprising: the majority of supported firms did not consider public support important!

25. What policy approach, to overcome system failures, government failures, SMEs hardship, financial market failures, incomplete markets for funding RDI?

26. Conclusion: there is no policy model valid for all the countries.
Policy approaches are rather homogeneous across countries, with limited differences in their focus in spite of wide disparities in innovation performance
Conclusion: there is no policy model valid for all the countries.
The choice has to be based on the country’s characteristics and its validity tested on the ground in terms of innovation performance
Barriers to innovation: SME financing problem, low competition, poor investment climate, social culture, low technology transfer, weak linkages between firms and universities, few collaborative projects

27. Government needs to develop a long term vision and a strategy with clear goals
Issues:
Policy governance
Top-down approach vs. bottom-up
The latter is more successful
Create an innovation constituency within private business sector
Choice of policy instrument mix
Poor implementation and bureaucracy

28. Essential support
Develop high skills, training, mentoring of firms, incubators, accelerators
Improve firms’ absorption capacity and business environment
Promote Production and Diffusion of innovation
New standard settings and regulations
Debt and equity funding of start-ups, innovative firms
Policy coherence and effective policy implementation
Public procurement
Fine tuning of tax incentives (incremental investment)

29. Invest in an innovation culture within the society at large, not just the entrepreneurs
Main policy message resulting from more than a decade of experience: Create an enabling environment conducive to research, development & innovation and Generate a culture that promotes innovation. Firms themselves should have an important role in shaping government policy and monitoring its implementation.