The economic facts of life

Richard L. Hudson

What works? That's the most urgent question in Brussels these days, as European Union leaders grope towards a pro-growth strategy for the region.

Over the past decade, the EU has lagged US in annual GDP growth by an average 0.4 percentage points - a monumental gap, when translated into forgone jobs, income and social progress. The reasons are many: one commonly cited one is low productivity, due in part to slow take-up of technology throughout the economy - in short, the wide gap in Europe between getting ideas out of the lab and into the marketplace.

But it's always easier to identify a problem than solve it. Thus it was that a small conference here on 11 December was an unusual breath of fresh air in the normally closed Brussels policy debate. A group of about 50 economists and policy-makers, meeting as part of an innovation-policy program of the Centre for Economic Policy Research, took an afternoon to look at the hard data. They brought economic research, mostly from the U.S., on what aspects of tech-transfer management and innovation policy actually work. For those readers who prefer fact to opinion, here's a few highlights:

1. When trying to get money out of inventions, incentives matter. One of the oldest questions for revenue-hungry universities is how much of the patent-income pie to share with the professor-inventors, and how much to keep for the central treasury? Around the U.S., the percentage varies wildly from one university to another, and even from one type of contract to another within the same university. That kind of variance is paradise for an economist, as it means you can use the standard statistical tool kit to calculate the importance of inventor-share for generating revenue overall. The answer, according to Mark Schankerman of the London School of Economics: A 10 per cent rise in inventor share translates into a 40 per cent increase in licensing revenue to the university. "Incentives matter," he concludes.
   
2. The quality of the university technology transfer office matters. In the U.S., tech-transfer offices in private universities generally perform better than those in public universities, says economist Don Siegel of the University of California-Riverside - perhaps, some suggest, because they are better managed and skilled. Big offices do better than small ones. Those offices that work with incubators and science parks do better. And tech-transfer offices that offer bonus pay to high-performing staff get more licensing income - 30 per cent to 45 per cent more, according to research by
   Shankerman and colleagues.
3. University tech-transfer isn't the be-all and end-all for technology diffusion. For instance, says Bronwyn Hall of the University of California-Berkeley, it's a myth that the 1980 passage of the Bayh-Dole Act, which permitted universities to own intellectual property developed under federal research contracts, accelerated patenting in the U.S.; in fact, it only affected the share of patents held by universities, not the rate of patenting in the economy overall. In fact, there's a broad range of other instruments that matter in technology diffusion, she says. Among companies surveyed, 41 per cent cited published scientific research as important to their knowledge transfer, and about 35 per cent cited conferences. Only 17.5 per cent specifically cited patents.
4. For corporations, a mix of in-house and collaborative research is the best R&D strategy. Bruno Cassiman, of Spanish business school IESE, cited research that found a so-called "make-buy" strategy produces the highest return on R&D spending among large companies. Specifically, those companies that only "buy" their technology from outside get 9.7 percent of their sales from new products, while those that only "make" their own technology in-house have 15 per cent of sales from new products. Those companies that do both - have in-house research and collaborate extensively with universities - do best of all: 20.5 per cent of sales come from new products. The reason, he speculates: "spill-over" effects from the outside researchers helps make the in-house research more efficient, and the in-house researchers help make the outside collaborations more effective. In short, a virtuous cycle of technology development results.

The CEPR is planning additional workshops and conferences on the topic in coming months; and the amount of economic research in the field is growing quickly - all good news for the policy makers who have to choose the best course ahead. But before the research can be effective, the policy makers also have to change.

As EU Science and Research Commissioner Janez Potocnik put it, the problem is partly a lack of political attention. It's good news, he said, that innovation policy has recently been scheduled high up on the agenda of recent European Council meetings - but, as happened at an October summit meeting in Finland, other issues quickly crowded it off the agenda again. The question for the politicians, he said: "How to keep R&D and the knowledge economy at the top of the debates?"