Innovation bonds will be a “third way of financing innovation” and a “neutral instrument,” said Gretschmann in the opening session, ‘How innovation can stimulate economies and support long-term prosperity,’ at the Science|Business Innovation Economy conference in Brussels earlier this month.
The key problem is not a shortage of innovation in the system, but that innovation carries with it a lot of risk. For Gretschmann, this highlights the shortcomings in the more traditional venture capital model of financing innovation, where investors are seeking profit margins of “roughly 1,000 percent” on successful investments, to compensate for all those that fail. “If the profit margin is only 20 per cent it is too little,” he said.
The European Council has been trying for years to improve the conditions for innovation. “The most difficult thing to do it to find the money: venture capital only works in a bullish market.” Until now the other alternative has been to finance innovation through soft loans, “But that is not ideal either,” said Gretschmann.
Two kinds of innovation bonds are under consideration. The more radical approach would see the formation of a knowledge bank where people with an innovative idea could trade certain rights in return for money to develop the idea. A more conventional approach would be to provide state loan guarantees, offering lower returns to private investors of maybe 25 to 50 percent, but with a lower risk.
Gretschmann was one of several speakers who stressed the importance of using the financial crisis to reform the economy, talking of the need to create a European Innovation Space, a term he prefers to the European Commission’s concept of the European Research Area.
Never waste a good crisis
Alfons Sauquet, Dean of Spain’s ESADE Business School, believes that universities will play an important part. “A critical factor in the next 10 years will be to what extent companies are able to tap into what comes out of the universities. That is going to be one of the critical factors, at least for Europe.” Companies, here, he added, have been “lukewarm” on that front, “in comparison at least with the US.”
Other speakers highlighted universities as an element of the innovation economy that is ripe for crisis management. “We have got 4,300 universities in Europe, most of which are underperforming,” said Professor John Wood of Imperial College and chairman of the European Research Area Board (ERAB), the body charged with drawing up a new model for how the ERA will operate in the future.
Coming up with ideas on how to modernise Europe’s universities, is, said Wood, high on the agenda for ERAB. A paradigm shift is needed, he believes, in how scientists are trained. “For that to happen we must modernise our universities and to rethink their role.”
Andy Wyckoff, Deputy Director of the OECD’s Directorate for Science, Technology and Industry, reinforced the need for university reforms. “Get on with it,” he urged. “The rest of the world is not standing still.” Students will “vote with their feet” while multinational companies will be attracted to centres of excellence wherever they are in the world.
Sauquet also believes Europe’s universities need reform. “The issue has to be addressed at some point if we want to tap into Europe’s human capital.”
Gretschmann is not convinced that in the case of universities it is possible to, “steer the course of events by political measures”. Talk of bringing about a European renaissance overlooks the fact that there were no politicians around pushing the original Renaissance. “It was just the knowledge ecology, the right environment. We have to create the right university thinking environment. You don’t do it by laws.”
One country certainly sees university reform as a part of its recovery agenda. Patricia Kelly, Deputy Secretary of Australia’s Department of Innovation, Industry, Science and Research, said the financial crisis and the sudden acceptance that governments should spend to revive their economies, is being seen as an opportunity to examine the country’s university system.
Australia has spent more per head of the population on stimulus measures than any other country, said Kelly. A focus on spending on infrastructure, such as setting up a countrywide broadband network, will provide a short to medium term economic boost through the initial installation, but also provide dividends for the future.
Meanwhile moves to improve the performance of research will position Australia for an accelerated recovery.
“If the recession is not too prolonged we could look back on it as having prompted bold measures,” Kelly said.
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