INNOVATION AND
INDUSTRIAL POLICY
BEYOND THE 2003 SAPIR
REPORT
Ronald Janssen, ETUC
An agenda for a growing Europe
Core message of the Sapir report:
• Globalisation represents a regime change.
Europe should move from ‘assimilating
existing technologies and mass production
to an innovation/knowledge economy
• Innovation, not imitation
Formal Sapir report
recommendations
• More EU funding for innovation, build ‘centres of
excellence’ in research and education….at the expense
of the agricultural budget
• More symmetry in fiscal and monetary policies (reform
SGP, avoid pro-cyclical policies)
• Independent body to oversee the internal market
• Challenge of corruption in NMS: redirect structural funds
to national level
European Social Model: not up to the
challenge (…so says Sapir…)
• Innovation implies:
- new innovative firms exploiting new
technologies, finding ‘niches’ in markets
- High mobility of labour, from declining firms to
sectors/firms having better prospects
• Hence:
– Explicit questioning of employment protection
legislation
– Implicit questioning of unemployment benefits, early
retirement, sectoral wage deals…all what represents
the European Social Model
A job for life in Europe is a myth
Another look at ‘vested interests’
Stock options for CEOs and others:
– Keep workers in the same job and prevent
‘knowledge’ from spreading through the economy
– …which is particularly detrimental for SMEs
– … while rewarding what is in many cases simply ‘bad
management
– …and raising questions about responsible wage
formation strategy for the rest of workers
The price of excessive flexibility is less,
not more innovation
• A-typical workers have significantly less access
to continued training. Many of them caught in
‘bad job traps’.
• High inequality is bad for the knowledge society:
– Drop-out rates in US versus Europe
– 15% of US high school graduates untrainable (OECD)
– Lowest educated German workers have the average
skill level of US-workers
• Labour is not a commodity
Labour Market Agility: the alternative reform
agenda for labour markets
• Central principle indeed needs to be ‘mobility’ of
workers…
• … not by dismantling workers’ rights…
• … but by strengthening workers’ rights in
transition…
Labour Market Agility: the alternative
reform agenda for labour markets
• This implies, amongst other things:
– Access to lifelong learning/training for all workers
(role of sectoral bargaining correcting market failure)
– Rights on re-insertion (accompanying measures, job
counselling, job search assistance)
– Right to decent pay
– Adequate unemployment benefits, providing
unemployed finance while being re-trained and
looking for a productive job
Labour Market Agility: the alternative
reform agenda for labour markets
• It also implies ‘regulation’ and ‘traditional
workers’ rights such as:
– Employment protection: role of notification
period
– Sectoral wage bargaining avoiding noninnovative entrepreneurs from being ‘bailed
out’ by wage cuts from workers
Rediscovering industrial policy: the leading
role of public authorities in the US
• Public expenditure on innovation: two
times as high in the US!
– Public expenditure R and D (107 B $)
(‘creating the technology’)
– Public orders focussed on innovation and new
technologies (100 B $) (‘creating the market’)
– In Europe sum of both categories (80 or 90 B
$)
US Public sector role
• R and D expenditures in US are
centralised and focused:
– Transit through a limited number of agencies
and programmes (National Institute of Health,
NASA, National Science Foundation, Defence
programmes…)
– Size matters (Defence: 66 B/ Health 28 B $)
– Draws in foreign private R and D
The US ICT revolution:
Thank you Mr Reagan
• US public spending on R and D increased from
2.4 to 2.9% of GDP between ’81 and ’86
(compared to relative deficit of R and D
spending in Europe of 540 billion $ between ’76
and ’89).
• Flood of R and D spending resulted in re-birth of
US high-tech industry, new firms (Microsoft,
Intel), drawing in private research from abroad
Big programmes in priority sectors
• Global Information Infrastructure (Midnineties)
• National Nanotechnoloy initiative (2000)
• Different dimensions:
– Long run: R and D effort and subsidies
– Short run: Tax reductions for research and
innovation targeted to application (‘a product
for the market’.
Linking up public with private sector
• Considerable public financing of corporate R
and D (20% of all private R and D = 191 billion
dollar). Includes tax credit of 5 billion dollar
• Concentration of centralised support: 4
companies receive 43% of total budget, 8 billion
$)
• Role of universities: mandate to promote
technology transfers, create start-up businesses
(40 billion $)
US tackling ‘market failure’
• Small Business Administration: Advice SMEs on
legal affairs, on management issues but also
providing financial assistance: annual 4.5 billion
dollar for 4.000 small businesses
• Small Business Innovation Development Law: to
stimulate research in smaller firms, to promote
commercialisation of federal R and D (1.6 billion
dollar)
US tackling market failure
• ‘Anticipation of change’ through semipublic state based organisations
– Visits to corporations every three years
– Developing strategic scenarios for selected
corporations or for sectors (Centre for
Automotive Research)
– Venture Michigan Fund: ‘Fund of capital-risk
funds’ with state guaranteed return
US tackling market failure
• Policies for shocked regions:
‘Renaissance zones’ with incentives to draw
in firms and people
How does Japanese industry beat off
low cost competition?
• Specialisation in products/sectors where
labour accounts for a minimum share of
total costs
• Concept of ‘mother plant’: developing new
and advanced products in Japanese
factories
• Clustering: local networks of specialist
sub-contractors
How does Japanese industry beat
off low cost competition ?
• Offering high quality standards products
• Being ‘close to the market’ helps : re-designing
products/custom-made products/short delivery
periods
• Keep secrets, keep advanced production
process at home and avoid creating competitors
(fex chips and intellectual property)
Links with aggregate demand policies
• Who innovates when demand prospects are not
there?
• Demand stabilisation policies act as an
‘insurance’ for investments innovation
• Innovation investments are very likely to be
credit constrained, hence the first to go down in
an economic downturn. Probabibility of survival
for innovative investment is pro-cyclical.
• Demand drives investment and new investment
renew the capital stock, thereby incorporating
the latest ‘state of art’ technologies
Limits to the model of ‘innovative
competitiveness
• Sustainability dimension
• Foreign currency constraint
– Growth (GDP, employment) is coming from
the ‘services’ and/ or construction sector (US,
UK, Spain), while the share of industry is
falling rapidly
– This creates external deficits
– Which pose no problem for these countries
because of particular reasons