OECD’s new innovation strategy will pave the way to “era of green growth”

The strategy has been three years in the making, and the economic scars of the financial crisis have forced some rethinking on its final shape. For a start, exits for venture investors are in short supply, re-skilling and retraining is needed to get the unemployed back to work, industry must be reactivated whilst at the same time carbon dioxide emissions are reduced.

“The only way to address these delicate trade-offs and build a stronger, cleaner and fairer world economy, is to develop new sources of growth. Innovation, in its broadest, most far-reaching sense, stands out as one of the most efficient ways to do so,” said Angel Gurria, OECD Secretary-General, launching the Innovation Strategy in Paris.

Gurria said that while innovation has always been an important driver of growth, it is now more important than ever. “We need to reboot our economies with a more intelligent type of growth, driven by new start-ups, by the most innovative small and medium enterprises and banks, and by our need to develop efficient renewable energies and green technologies for a low-carbon era.”

The good news is that the OECD’s analysis shows that recessions can be a breeding ground for innovation activities and entrepreneurship, generating new sources of growth. Over half of the companies on the 2009 Fortune 500 list began during a recession or bear market.

From this it follows that the need to cut back spending should not lead to cuts in spending that is designed to promote innovation. But while importance of innovation as a driver of growth was recognised in many of the stimulus packages launched to offset the impact of the crisis, with the weight of fiscal deficits there is a risk of such spending being cut.

Gurria says this would be a mistake. “While cuts may provide short-term fiscal relief, it will hurt growth in the long term, not to mention the ability to deal with challenges such as climate change, hunger and disease; all of which require innovative solutions.”

But innovation cannot be generated by throwing money around, and understanding of the process of innovation is also crucial. Gurria noted that the nature of innovation has changed dramatically over the past decade due to globalisation; to the emergence of new players like China and India; to the widespread diffusion of information and communication technologies; and to competitive pressures to engage in open innovation.

On top of this, the crisis represents a paradox for the innovation system as it creates an opportunity for innovation through “creative destruction”, while at the same time eroding the capacity of the system of innovation to deliver, as aversion to risk grows and public debt mounts.

“Individually, any of these changes marks an important shift; collectively, these changes have transformed the nature of innovation – how it is performed, where it occurs, who does it and what it consists of,” says Gurria.

Given this it is necessary to rethink policies designed to nurture and guide innovation. This will include rethinking the role that universities and public research organisations play in economies. They need to be viewed as essential nodes in the innovation system, given more freedom and independence, and encouraged to compete and become world class innovation catalysts.

In short says Gurria, “We need to see innovation as a system. Our innovation policies must have a broader view than simply supporting science and technology.” Countries need innovation strategies that encompass the whole of government and are capable of aligning the different ministries, policies and reforms around a nation-wide innovation crusade.

Entrepreneurship and the creativity of young innovative firms that are the source of disruptive innovations must be supported. As Gurria pointed out, new data from the US, shows that firms less than five years old accounted for nearly all the increase in employment in the private business sector over the last 25 years.

In this complex context of crisis and change, the OECD is offering its innovation strategy as the basis for whole of government exercises that look at innovation not from the narrow lens of science and technology, but from a wide expanse of policy areas.

It is built around five priorities for government action: 1) Empowering people to innovate; 2) Unleashing innovation in firms; 3) Creating and applying knowledge; 4) Applying innovation to address global and social challenges; and 5) Improving the governance of policies for innovation.