ENHANCING INDUSTRY-SCIENCE RELATIONSHIPS THE ROLE OF GOVERNMENTS

1. ENHANCING INDUSTRY-SCIENCE RELATIONSHIPS THE ROLE OF GOVERNMENTS • Jean Guinet • Science and Technology Policy Division • DSTI, OECD • Seminar on “Growth strategies – Czech ambition and OECD experience”(Paris, 11 January 2006)

2. Outline • Preamble: • Innovation and economic performance: the growing importance of industry-science relationships (ISRs) • Enhancing ISRs: a role for government • Public promotion of ISRs: the need for an overall strategy • Public-Private Partnership (PP/Ps) as a key tool • Good practices in PP/Ps: lessons from case studies

3. Welfare Economic growth Employment growth Productivity growth Innovation Quality of labour Capital deepening R&D Domestic R&D FDI R&D & international R&D spillovers Science Base

4. Successful countries have characteristics in common • Good fundamentals, including international openess • Above average improvement in innovation performance due to: • High rate of investment in education, ICTs and R&D • High share of business in financing R&D • An increasingly diversified base of innovators, with a greater role for SMEs, thanks inter alia to a supportive financial system • Solid regional pillars of national development, i.e. vibrant innovative clusters • High level of networking among innovators, especially improved linkages between science and industry

5. Industry-Science Relationships (ISRs) are becoming increasingly important for the following main reasons: • Increasing scientific content of innovation • Overlaping waves of science-based technologies(Electronics, new materials, biotechnology, nanotechnology, advanced analytical and measurement methods). • ICTs enhance the role of codified knowledge (e.g. the rise of computer-aided design and computer-aided manufacture (CADCAM) has resulted in a move away from craft-based technology to technology based on more formal bodies of knowledge in many traditional engineering sectors. • Changing business R&D strategies: Open Innovation Model • Focus on core business and short to medium term research agenda. • Individual products and processes incorporate an increasing range of technologies.

6. 4 . 0 C a n a d a 3 . 5 E t a t s - U n i s R o y a u m e - U n i 3 . 0 F r a n c e 2 . 5 I t a l i e A l l e m a g n e 2 . 0 J a p o n 1 . 5 1 . 0 0 . 5 0 . 0 8 5 8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 Science contributes increasingly and more directly to innovation Links between science and innovation – measured by the average number of scientific articles quoted in patents

7. Open Innovation in Biotechnology Patenting in Biotechnology -- Changes in the role of actors (between1995 and 2003) Source: OECD case study on biotech innovation systems.

8. Despite obvious potential mutual benefits ISRs face a number of obstacles that only governments can lower SCIENCE INDUSTRY Non-conducive framework conditions (e.g. barriers to entrepreneurship) Ineffective intermediaries Deficient legal and regulatory framework Speed-up the acquisition of new knowledge Increase the innovation capacity of firms Upgrade innovative networks and clusters Secure and diversify the funding base Provide guidance for research priorities Improve research tools and capabilities Inappropriate researchers’ incentives Regulatory obstacles to researchers’ mobility and entrepreneurship Over-specialisation in non-business relevant research fields Low propensity to innovate and lack of absorptive capacity Lack of qualified S&T personnel Short time horizon of investment in innovation

9. Incubators LTOs Regulatory reforms Others Procurements PP/Ps Co-operation Joint labs Spin-offs, patenting & licensing Markets for knowledge Research contracts Labour mobility Co-publications Social and professional networks Conferences & expos Informal contacts Labour market entry Flow of graduates to industry Connecting Science to Innovation – the need for an overall strategy

10. Priority channels of ISRs to be promoted • The HRST route (mobility of researchers, social networks) • The entrepreneurial route (new technology-based firms, including spin-offs) • The patenting route (licensing IPR that results from publicly-funded research) • The co-operative route (joint projects involving scientists and innovators) • At cross-roads: Public-Private partnerships for Research and Innovation (PP/Ps) Framework conditions (regulations, clusters) Policies to foster interactions within innovation systems Policies to support NTBFs, including spin-offs Policies to promote patenting by PROs Public-private partnerships

11. PP/Ps for innovation: Definition • “Any formal relationship or arrangement over a fixed-term/indefinite period of time, between public and private actors, where both sides interact in the decision-making process, and co-invest scarce resources such as money, personnel, facility, and information in order to achieve specific objectives in the area of the area of science, technology, and innovation” • A public-private partnership -- as opposed to more casual, arms length or hierarchical relationships – is characterised by the following: • Institutionalisation • Government as a partner. • Shared objectives and a clearly defined public interest • Active involvement and co-investment of resources

12. PP/Ps play an increasing role within the innovation policy tool-kit of most OECD countries • Pioneering programmes in the late 1980s (e.g. United States, Australia) Many new intiatives at the end of the 1990s • Fostering Industry-Science Relationships has become their main target because: • They provide effective springboards for frontier-end pre-competitive R&D in areas of strategic importancewhere innovation is deeply rooted in science • P/PP is the best approach to build innovative networks in new multidisciplinary research fields (e.g. nanotechnology, genomics) • But also because they can contribute to other objectives and yield broader benefits: • Input and output additionality • Behavioural additionality • Improved R&D procurement • New avenues for commercial spill-over from public research • Linking SMEs with scientific research • Improved inter-ministerial coordination on innovation issues • Increased synergies between regional innovation systems

13. PP/Ps for research and innovation in the United States Federal programmes GOALI SBIR MEP ATP UCRC Clean coal, Clean car, Nanotechnology, Biotechnology, Networking technologies, Fuel cell etc. PFI STTR STC Policies to enhance innovation competencies of firms Policies to support investment in science and R&D Policies to strengthen linkages within innovation systems Targeted support NTBFs financing SME networks A myriad of P/PP initiatives Regional (states and municipalities) programmes

14. Efficient design and management of PP/PsMain lessons from case studies

15. KEY FACTORS OF SUCCESS • Long-term commitment from both Government and Industry, based on a shared vision • Achieve critical mass but also deep reach within the National Innovation System (e.g. complement large PP/Ps with support to smaller PP research teams – e.g. the CDL programme in Austria, or the ARC Linkage Grants and Fellowships programme in Australia) • Build on existing networks but do not neglect areas where potential actors are still dispersed (e.g. multidisciplary research) and/or inexperienced in accessing government support • Implement efficient selection and steering mechanisms that ensure a sustainable balance between public and private interests

16. Avoiding drifts in the research agenda of PP/Ps Quality Low Scientific relevance Market relevance High Low Low Low Strategic importance for the economy & society

17. Efficient steering of PP/Ps – Four key mechanisms Selection of projects and participants Financing Management and organisation Evaluation

18. Selection of PP/P projects and participants • A stringent selection process where proposals have to compete, based on the quality of their scientific content, their industrial relevance and the soundness of their business plan. There are two options: • A pure bottom-up approach for the choice of technological areas (e.g. Austria and Netherlands) • A mixed approach where top-down criteria are used to pre-determine areas where PP/P are promoted (France and, to a lesser extent, Australia) • Each have both advantages and drawbacks, much depend on specific national conditions • International openness. Not only PP/Ps should be opened up to foreign firms, but also to foreign universities and public labs when these hold critical complementary competencies. • Participation of small firms. SMEs are key actors in some research areas (e.g. biotech, multimedia, etc.). In others their participation should be facilitated but not at the expense of the overall efficiency of PP/Ps (e.g. consortium of SMEs, separate diffusion centers).

19. Types of SMEs Priority policy action Financing Other Build basic capacities and provide incentives to innovate Non-innovative SMEs Project-based financial support Loan guarantee Develop innovation networks Innovative SMEs Incubators, science parks Equity financing (venture capital, business angels) Seed capital Tax neutrality P/PPs NTBFs Science-Based Spin-offs Conducive regulations in public research organisations

20. Financing • Leverage. The cost-sharing arrangements should ensure high reciprocal leverage. This is the key in ensuring sustained commitment from both public and private partners. • Long-term commitment. Support from government should be guaranteed for a sufficient long period (e.g. at least 4-5 years, up to 7 years) • A ceiling to government subsidy. Its share should not exceed 50%, and that of industry should be set at a minimum (e.g. at least 20%). The contribution of public research organisations are often mainly in-kind. • Flexibility in financial arrangements. The arrangements might be different from the start according to the technological field, and evolve over time as PP/Ps mature. • Financial self-sustainability, whereby a PP/P would continue after its initial term without subsidisation,could be a long-term objective but not in all cases.

21. Organisation and management • Autonomy and strong industry involvement. Alarge degree of autonomy should be left to partners in defining the detailed research projects portfolio of individual PP/Ps. Industry should generally be given the majority votes in governing boards. • Customization. Different organisational arrangements (e.g. network versus co-operative research institute, or mixed form) may be warranted, depending on technological areas and preferences of partners. • Leadership. PP/Ps should include all leading enterprises and public research centres in the relevant technological fields, and their managers should be well-known/respected figures that have a broad experience and good links with both academia and industry. • Visibility. The institutional form of PP/Ps should help them acquire visibility at both nationally and internationally. This helps them position themselves within international networks, and creates continuous “peer pressure” for improvement from “competing” forms of public-private relations. • Firm agreement on IPRs. Government should not impose more than broad principles. Detailed contractual provisions should be left to partners. But the existence of a clear agreement among would-be partners should be made a necessary condition for government support.

22. Evaluation • Ex-ante, interim and ex-post evaluation are all necessary. • Assessing behavioural additionality. One objective of PP/Ps is to promote long-lasting changes in the attitudes of both the public and private research communities. This raises difficult methodological challenges. • Multidimensional, thorough and objective. The involvement of foreign scientific, technological and business experts is usually required, given the limited pool of national expertise, possible conflict of interests, and the global nature of markets for end-uses of research outcomes. • Systemic. The portfolio, and not only individual PP/Ps need to be evaluated. The interaction with other policy instruments ought to be taken into account. • Closely linked to all decision processes. Evaluation shall not only inform policy makers about the economic impact of such use of budget resources, but also be inspiring for the managers of PP/Ps.

23. Thank you for your attention Contact: jean.guinet@oecd.org Web Resource: www.oecd.org/sti/innovation