I4g Report - Workshop November 2012

i4g Research & Innovation Policy Workshop Innovating out of the Crisis
Workshop Report
High Level Economic Policy Expert Group Innovation for Growth | i4g Relation of research & innovation with smart, sustainable and inclusive growth
Research & Innovation
EUROPEAN COMMISSION Directorate-General Research and Innovation Unit C.2 Relations with Stakeholders i4g Secretariat Contact: Mathias RAUCH European Commission Office ORBN 10/107 B-1049 Brussels Tel. +32 229 65625 E-mail: mathias.rauch@ec.europa.eu
EUROPEAN COMMISSION
i4g Research & Innovation Policy Workshop Innovating out ofthe Crisis
Brussels, 28 November 2012
Workshop Report
High Level Economic Policy Expert Group Innovation for Growth | i4g Relation ofresearch & innovation with smart, sustainable and inclusive growth
2013
Directorate-General for Research and Innovation
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i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis
Table ofcontents
Introductory Remarks 1. Summary 2. Opening Session & Key Note Speech: Innovating out of the crisis Clara de la Torre Welcome & Opening Speech Luc Soete (ERIAB) Innovating out of the crisis: Some personal reflections 3. Innovative Public Procurement Lena Tsipouri (i4g) Public Procurement of Innovation (PPI) David Mowery US Government Procurement Policy and Technical Change: A Selective Survey Charles Edquist Public Procurement for Innovation (PPI) or Pre-Commercial Procurement (PCP) 4. The Innovation Divide: What Policies for Cohesion Countries? Lena Tsipouri (i4g) Growth Impeding (Obstructing) Innovation: The Case of Greece George Siotis Some Thoughts on EU Innovation Policies in Greece 5. Finance for Innovation and Growth Reinhilde Veugelers (i4g) Financing for Innovation: Addressing Europes Early Stage Venture Gap Andrea Bonaccorsi (i4g) The Role of Public Capital in Financing Innovative Companies: Shifting from Venture to Seed Capital Investment Mariana Mazzucato (i4g) Smart, Inclusive, and Sustainable Growth: Risks and Rewards in Innovation 6. Annexes - Workshop programme - Speakers - High Level Economic Expert Group - List of participants 4 7 19
20 21 31
32 34 45 49
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60 65 73 74 76 82 85
Introductory Remarks
The High-level Economic Policy Expert Group Innovation for Growth i4g ofthe Directorate-General for Research and Innovation (DG RTD) has drafted aseries ofpolicy papers inits first year ofexistence. The intention ofthe workshop Innovating out ofthe crisis was todiscuss aselection ofthese policy papers with the Cabinet ofthe Commissioner for Research & Innovation, with other policy DGs, with strategy units inside DGRTD, and with distinguished external experts. The presentations, information exchange and comments were programmed asan internal test ofvalidity and quality ofthe i4g Policy Briefs and the open discussion and commentaries were perceived asinformed statements, but strictly informal ones. Shortly after the Commissioner for Research and Innovation had assumed her mandate she asked DGRTD toestablish aHigh Level Economic Expert Group(1) providing advice: >> on the implementation ofthe Innovation Union; >> on the transformation from aresearch funding DGto aninnovation DG, orbettertoaresearchandinnovation DG; >> on how toovercome alack ofcapacity ofstrategic justification for the new policy throughthedelivery ofreliable economic stories; >> on how todepart from knowledge accumulation policies towards economic growthfacilitatorpolicies byinnovation; and >> on how tochange from aresearch input orientation towards thehighereffectivenessofpoliciesforoutputs. The Innovation for Growth experts were asked toprovide the best possible advice from aneconomic point ofview onpolicy impacts ofresearch and innovation tothe Commission. Questions that emerged include the following: >> How can Cohesion Countries innovate and grow? >> Is excellence the only appropriate criterion for innovation and for Cohesion Countries? >> How should spill-overs beorganised for the laggards? >> How should public procurement beused for innovation? What experiences exist already? >> Do new finance instruments, such asventure capital, improve innovation? Orare Seed Capital and Business Angels the way forward toincrease the deal flows desperately needed for investors? >> Why dont wepossess the Googles, Apples, Facebooks, etc? >> How can innovation happen intimes ofcrisis? For the workshop, i4g suggested some ideas tobe discussed around the theme Innovating out ofthe crisis. The theme originates inan i4g policy paper that contributes tothe Annual Growth Survey (AGS) and the European Semester.
(1) See details for mandate, activities, and performance ofthe Innovation for Growth i4g High Level Economic Expert Group inAnnex 3 ofthis documentation.
Therefore, the i4g contribution Innovating out ofthe crisis received particular attention attheopening session ofthe workshop. John Bell, Head ofCabinet ofCommissioner Mire Geoghegan-Quinn, introduced the policy context towhich the Innovation for Growth i4g experts contributed. Prof. Luc Soete presented the Policy Brief that was responded toby Martin Larch from the Directorate-General for Economic and Financial Affairs (DG ECFIN). Besides the main theme, three further complementing policy issues were evoked atthe workshop and they have been treated indedicated sessions accordingly. These themes and their specific treatments atthe workshop were asfollows: >> Innovative public procurement: This session had i4g Policy Brief input from Prof. Lena Tsipouri and was augmented byan additional presentation onUS innovative procurement practices byProf. David Mowery from the University ofCalifornia atBerkley, and anoutside expert comment from Prof. Charles Edquist. Innovation inCohesion Countries the case ofGreece: Prof. Lena Tsipouri presented the session-opening i4g Policy Brief and invited comments came from Prof. George Siotis from the Commissions Task Force for Greece. Discussants were Mikel Landabaso, DirectorateGeneral for Regional and Urban Policy (DG REGIO), and Gianluca Spinaci, Committee ofthe Regions (CoR). Finance for innovation and Growth: The session saw three i4g Policy Briefs presented byProf. Reinhilde Veugelers onVenture Capital and fast-growing enterprises, Prof. Andrea Bonaccorsi onSeed Capital and Prof. Mariana Mazzucato onrewards for the state asarisk taker. The invited comments came from Marc Schublin from the European Investment Fund(EIF).
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All sessions were concluded byheads ofunits inthe Innovation Directorate ofDG RTD, namely byPierre Vigier, Peter Droell, Dimitri Corpakis and Jean-David Malo. With this workshop, the i4g High Level Expert Group intended tomark the beginning ofannual research and innovation (R&I) policy workshops. The workshop shall also contribute asan input for DGRTD tobecome astrategic DG, approaching innovation and growth from and toovercome the departure of the DGfrom only research support. Inthis context economic advice toastrategic DGis crucial. This working document contains PowerPoint contributions to, comments onand conclusions for the first i4g policy workshop Innovating out ofthe crisis, which took place on28 November 2012 atthe Berlaymont Building inBrussels, asthey were presented atthe workshop. Italso contains asummary ofthe event. Brussels, 21 December 2012, i4g Secretariat: Werner Wobbe and Mathias Rauch
1. Summary
1. Summary
Set Up
The High Level Economic Policy Expert Group Innovation for Growth i4g ofDG RTD supports the policy implementation ofthe Innovation Union. Itshall therefore provide the best possible advice onpolicy impacts ofresearch and innovation (R&I) tothe Commission. Inits first year ofexistence, i4g has drafted aseries ofpolicy briefs and more detailed policy papers. Atthe workshop, aselection ofi4g Policy Briefs was presented and discussed with the Cabinet ofthe Commissioner for Research & Innovation, with other policy DGs (ECFIN, REGIO, MARKT), strategy units ofDG RTD, and distinguished external experts. The workshop served asan internal validity and quality test for the i4g Policy Briefs. The open discussion and commentaries were perceived asinformed statements, but strictly informal ones. With this workshop, the i4g High Level Expert Group intends tomark the beginning ofan annual R&I policy workshop series. Clara dela Torre chaired and opened the first session. She expressed her appreciation ofthe i4g work and reminded participants that not all i4g products were being presented today. Already one bigger piece has been delivered before the summer, namely the i4g contribution tothe European Research Area (ERA) impact assessment for the ERA Communication onthe Socio-economic benefits ofERA. The prevailing theme ofthe workshop Innovating out ofthe crisis originates from ani4g policy paper that contributes tothe Annual Growth Survey (AGS) and the European Semester.(1) The i4g contribution Innovating out ofthe crisis was given particular attention atthe opening session ofthe workshop. John Bell, Head ofCabinet ofCommissioner Geoghegan-Quinn, familiarised the workshop participants with the policy context towhich the i4g experts contributed. The Commissioner and her Cabinet wanted tomove R&I tothe centre ofthe EUcrisis response. The Commission needs welldesigned policies for the implementation ofthe Innovation Union. Inthe current transformation from aresearch funding DGto aresearch and innovation DGwith strategic policy competences, the analytical and strategic advice ofi4g ismost welcome. The mission isto depart from knowledge-accumulation policies toeconomic growth facilitator policies through innovation. The aim isto overcome the lack ofcapacity ofstrategic justification for the new innovation policy bydelivering robust and reliable economic evidence, rather than 100% academic certainty. In the opening session, Prof. Luc Soete presented the i4g Policy Brief that was responded toby MartinLarch from DGECFIN. Todeepen the overall theme, three complementing policy issues were evoked atthe workshop and they have been treated indedicated sessions accordingly. These themes and their specific treatment atthe workshop were asfollows: >> Innovative public procurement: This session had i4g Policy Brief input from Prof. LenaTsipouri and was augmented byan additional presentation onUS innovative procurement practices byProf. David Mowery from the University ofCalifornia atBerkley, and anoutside expert comment from Prof. Charles Edquist. Innovation inCohesion Countries the case ofGreece: Prof. Lena Tsipouri presented the session-opening i4g Policy Brief and invited comments came from Prof. George Siotis from the
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(1) See i4g Policy Brief No1: Innovating out ofthe Crisis.
Commissions Task Force for Greece. Discussants were Mikel Landabaso, Directorate-General for Regional and Urban Policy (DG REGIO), and Gianluca Spinaci, Committee ofthe Regions (CoR). >> Finance for innovation and Growth: The session saw three i4g Policy Briefs presented byProf. Reinhilde Veugelers onVenture Capital and fast-growing enterprises, Prof. Andrea Bonaccorsi onSeed Capital and Prof. Mariana Mazzucato onrewards for the state asarisk taker. The invited comments came from Marc Schublin from the European Investment Fund (EIF).
All sessions were concluded byheads ofunits inthe Innovation Directorate ofDG RTD, namely byPierre Vigier, Peter Droell, Dimitri Corpakis and Jean-David Malo. Their specific role was toreflect onthe implications for R&I policy within the realm oftheir particular unit.
1. Innovating out ofthe crisis

In his key note Luc Soete argued, inline with i4g Policy Brief No. 1(2), that more radical structural reforms than those presented under the Annual Growth Survey (AGS 2012) are needed inanalogy with the three headlines ofthe Europe 2020 strategy (smart, inclusive, and sustainable growth). Smart growth requires smart public policy through: >> stronger cooperation inR&D with third countries and astronger focus onthe deployment ofICTbased technologies due tothe internationalisation ofknowledge; a shift from the Barcelona target toanew 3% knowledge investment policy target consisting ofa2% higher education and 1% public R&D effort, without being subjected toany fiscal consolidation measures; and limiting R&D tax credits across all EUMember States to0.1% ofGDP toavoid net welfare losses aswell asabeggar-thy-neighbour effect.
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Sustainable growth influencing the direction oftechnological change by: >> >> establishing aEuropean policy commitment togreen technologies; enhancing both public and private research investments and technology transfers, while redressing the protection ofintellectual property rights for those technologies; and making the EUaglobal leader through Innovation Partnerships for green technologies, including China and the other BRIC+ countries asamatter ofpriority.
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(2) See i4g Policy Brief No1: Innovating out ofthe Crisis.
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1. Summary
Safeguarding social cohesion inaEuro-crisis by: >> >> leveraging Structural Funds toboost local innovation and efficiency gains inthe public sector; smart public specialisation, leading into anew phase ofeconomic integration ofpublic services inthe EU; pilots for new innovative procurement ofdebt-stricken countries, regions ormunicipalities inGreece, Portugal, Spain orItaly through new North-South European Private-Public Partnerships (PPPs) aimed atreducing public electricity expenses and based onnew creative financing solutions; and granting Commission Structural Funds asaform ofregional RSFF byshifting the purely grant nature ofStructural Funds toaloan facility.
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The subsequent discussion focused onpotential ways tore-balance growth and austerity policies. Asameans toimprove Member States revenues itwas proposed toconsider taxing bits and bytes tocapture intangibles inthe economy.(3) The challenges, i.e. inregards topublic finance, for pro-active innovation policy inazero-growth scenario were also discussed. Smart growth consolidation was seen asone potential option toexplore, aswell ascutting back onsubsidies for outdated technologies (e.g. inthe energy sector). Several speakers concluded that deeper integration was needed inorder toovercome the current crisis. Martin Larch (DG ECFIN) responded from amacroeconomic point ofview ashe isin charge ofcoordinating parts ofthe European Semester inDG ECFIN. Heacknowledged that the crisis brings out diagnostic clarity and that ithas made clear that Member States cannot escape from reforms. The AGS 2013, aswell asthe AGS ofprevious years, puts the growth-friendly consolidation tothe fore. Itmeans the following for each Member State: fiscal consolidation, protecting tothe greatest extent possible, growthfriendly expenditure, coupled with structural reforms inview ofstrengthening competitiveness and innovation. The country-specific recommendations issued under the European Semester also encompass policies fostering R&I, yet mostly inan indirect way byimproving framework conditions. One key issue pertaining tofiscal policy inthe crisis context isthe quality ofpublic finance and the issue todo more with less and respecting the 3% ofGDP reference value for the budget deficit. Several discussants pointed tolack ofdata, e.g. onthe use ofStructural Funds, which still hinders good policy making. Thus, John Bell concluded that inview ofthe upcoming European Council oninnovation (scheduled for October 2013), more robust data and convincing arguments stressing the economic importance ofinnovation are required. Healso stressed that all stakeholders have amoral obligation toact onthe challenges posed bythe innovation divide within the EU. Asregards public sector innovation, heproposed that i4g could provide advice onthe role the EUcould play tosupport Member States. Potential areas ofaction could include best practice exchanges orareview ofstate aid practices.
(3) See Luc Soete and Karin Kamp: The BIT TAX: the case for further research. MERIT, University ofMaastricht, Netherlands.
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Pierre Vigiers concluding remarks can besummarised asfollows: >> >> Despite the crisis, R&I investment isholding rather strong inthe EU. Facing the current economic and financial crisis smart consolidation iscritical inall Member States; they have the choice ofwhich pathway ofconsolidation they choose inview ofresearch, knowledge infrastructure and innovation. Considering smart consolidation, the quality impact ofpublic and private spending has tobe taken into account, while aiming atimproved competitiveness and effectiveness: in view ofthe ERA agenda, impact measurement iscrucial; in general, the impact ofpublic activities onprivate performance has tobe better understood and, inparticular, the impact onpublic spending oneconomic decisions (i.e. investment behaviour) ofprivate firms and individuals. >> Considering the issue ofeconomic development and changes tobe fostered, central issues are: fast-growing innovative firms; and IPR issues, and probably activities toimplement patent pools. Clara dela Torre highlighted inher session chairs conclusion the issue ofpublic sector innovation with regard toquality, productivity and effectiveness ofservices.
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2. Innovative Public Procurement

In her i4g Policy Brief(4), aswell asin her workshop presentation, Lena Tsipouri provided the following key messages: >> Powerful tools tofoster innovation are specifically designed public procurements targeting innovations (PPI). Therefore, public procurement shall beutilised tostimulate innovation and tocreate newmarkets. Awareness raising and changing the minds ofprocurers isessential toovercome the slow and timid application ofPPIs inEurope and tofight barriers and risks associated with the change ofprocurement culture. Actions tobe taken for better use ofPPI include: building upthe necessary human resources and skills for operating PPIs;
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(4) I4g Policy Brief N 2, Public Procurement ofInnovation (PPI).
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1. Summary
Structural Funds envisaging enabling measures intheir guidelines; and a Minister responsible for procurement and innovation and/or the establishment ofspecialagencies. Moderate innovator countries and catching-up countries would, according toLena Tsipouri, benefit most from PPI, asintervention needs are moderate and Structural Funds would beinstrumental. In his presentation, David Mowery showed that 64% ofUS federal procurement isskewed towards defence, the rest mostly onconstruction (energy efficiency) and health-related topics. Heasserts that procurement policy has potential asan instrument ofinnovation policy. Healso stressed that precommercial procurements (PCP), such asthose ofthe Defence Advanced Research Project Agency (DARPA) inthe US,are not the same asPPI. Heclaimed aclose analogy between procurement and prizes. Particularly USmilitary procurement has influenced adoption inthe civilian economy asmuch asinnovation. Recent experimentation bynon-governmental organisations (NGOs) with procurement inglobal public health might establish potential for new lessons. USmilitary procurement has had positive and negative effects indualuse technologies. Military influence inIT has declined over time. Spin-off revenues also benefited from the scaleofUS military procurement programmes, which enabled competition among suppliers. However, procurement has enjoyed less success inUS energy policy. A high degree ofsimilarity inuser requirements between governmental and civilian applications isseen asan important factor inthe successful use ofprocurement ininnovation policy, but isdifficult for government agencies topredict ormanage. Similar user requirements are akey precondition tobenefit from economies ofscale and scope effects. Clearly, spill-overs from defence toinnovation inthe broader economy doexist (e.g. reduced reliance ofships onfossil fuel, better batteries, etc.). However, other demandside policies (subsidies, mandates, etc.) arguably have been more effective inspecific technologies (e.g.photovoltaic, biofuels). Mowery also introduced adistinction between direct effects ofPPI (e.g. purchase ofnew product/service, state asthe lead customer) and the more catalytic effects ofPPI (when PPI stimulates largely private economic activity). Charles Edquist clarified that innovation procurement isabout new functions that need tobe performed, rather than simply the purchase ofnew products. Over areasonable period oftime, astrong positive side effect onjob creation occurs. Pre-commercial procurement (PCP) isby definition no innovation procurement, because PCP does not procure (commercial) products. In the subsequent discussion, itbecame clear that the European Commission cannot practice innovation procurement asit isarather small procurer, but PCP and catalytic procurement would certainly beworth looking at. Edquist highlights the importance ofPCP upto the pilot phase for EUpolicy action. John Bell agrees and asserts this tobe exactly DGRTDs field ofaction. Another source ofdebate was the tradeoff relation between PPI and the need for fiscal consolidation. Keith Sequeira wondered where and how tofind the sophisticated public users inEurope. Atechnologically advanced and demanding civil service seems tobe avital prerequisite for PPI and the actual use ofinnovative technologies.
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The concluding remarks byPeter Drll were asfollows: >> >> >> European PPI covers around 0.5% ofGDP and should bedoubled atleast. The current fiscal consolidation stands incontradiction toenforced PPI activities. The USundertakes 64% offederal procurement inthe defence equipment sector. The EUcannot cope with nor implement similar procedures inPPI asthe US. Therefore, the EUhas tofind its own strategy. An EUapproach would bebased onuser-similarities ofproducts inorder tocreate substantial markets for innovative products, such as, for example, those inhospitals orin lightening (lead-user) markets. Achievements reached sofar inthe EUare anapproach onlead-user markets byInnovation Partnerships and trans-border procurements. PPI requires high knowledge and skills inthe public administration toperform PPI. Europe has ashortage ofpersonnel inthat area. Itshould consequently invest intraining and knowledge transfer.
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3. The Innovation Divide: What Policies forCohesion Countries?

Lena Tsipouri introduced the complex issue oftackling the innovation divide(5) still persisting between the so-called Cohesion countries and regions (benefitting largely from the Unions cohesion policy/ Structural Funds) and the rest ofEurope. She focused onthe structural characteristics that may bedetected, following years/decades ofinefficient cohesion funding onmost countries and regions. Furthermore, she reflected about policy implications for research and innovation, atnational, regional and European levels. Spotlights were onthe Greek case that isat the moment atthe epicentre ofthe Eurozone crisis, with the Commission paying particular attention toit. The Greek case reveals apeculiar development model where growth did not necessarily stem from innovation, but from anill-conceived consumption process. Along process ofde-industrialisation resulting from insufficient adaptation tothe developing Internal Market conditions has resulted inaservices-dominated economy that creates little added value. Structural Funds support has been instrumental inmodernising hard infrastructure, but did very little tomodernise the economic structures ofthe country orspur innovation. Cohesion policy-supported Operational Programmes did not deliver oninnovation, but largely helped maintained the status quo. Inmany ways they supported the survival ofinefficient systems. As regards R&I activities inGreece, Lena Tsipouri concluded that scientific excellence isnot the problem, but the capacity toinnovate and tocommercially exploit research results. Given the fact that Greeces GDP today is6% lower than pre-crisis levels, George Siotis (European Commissions Task Force onGreece) commented that Structural Funds had alow impact oncompetitiveness due toextremely poor application and simple absorption asthe main objective. Hehighlighted the
(5) See i4g Policy Brief No. 6, Growth impeding (obstructing) innovation: the case ofGreece.
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1. Summary
need tolearn extensively from the Greek failure where data provided were neither valid nor usable for researchers and policy makers. Hence, amuch higher importance should beattached toevaluation processes. Referring tothe experiences ofItalian regions, Gianluca Spinaci (CoR) proposed tolook atinvestments inregional capacities and infrastructure, e.g. the modernisation ofhealthcare institutions, asaway tofoster both public and private sector innovation. Mikel Landabaso (DG REGIO) reminded those present that innovation ismuch broader than R&D. Also, infrastructures and functioning institutions are crucial for successful innovation processes. The broad spreading ofgrants toalarge number ofsmall enterprises missed the innovation potential. These facts have convinced DGREGIO toapply the Smart Specialisation Strategy, which fosters abetter selection and concentration. During the following discussion, Andrea Bonaccorsi proposed toconsider additional conditionality and tofund the capacity todeliver results rather than actual projects. Luc Soete advocated achange towards revolving funds, byshifting from grants toloans. The concluding remarks byDimitri Corpakis were asfollows: >> The case ofGreece islargely atypical ofother Cohesion Countries, and cannot betaken asabasis for deriving general policy implications for research and innovation: the country suffered adevastating civil war (1944-49), whose impact can still befelt; Greece islocated inthe extreme periphery ofthe Union; no particular vision for development seems tohave captured the imagination ofthe people. Itremains difficult toidentify the core economic sectors that made orcould make adifference inthe countrys economic development inthe future. >> Cohesion Countries dopresent some similarities interms offramework conditions that favour orhamper innovation and thereby jobs and growth. Looking atthe core oftheir national innovation systems, their academic communities and the business world follow trajectories that are largely asymptotic (they seldom meet). Academics pursue their scientific interests with little orno contribution tothe local economies, and inturn, local economies develop with little orno connection toresearch and innovation stakeholders. Low-tech sectors predominate, creating insufficient demand tothe universities and research centres that thus enter inadownward spiral ofmutual avoidance and non-communication. This process creates more pressure for foreign assistance tolocal companies. Insufficient support toinnovative initiatives leads largely toseriously fragmented innovation systems; atypical pattern inCohesion Countries. Successive efforts ofthe Unions cohesion policy have not yet succeeded inreversing the trends dominating national innovation systems inless-developed regions. Many factors can beblamed for this, including lack ofcompetition, heavy and unrealistic planning and programming procedures, insufficient monitoring ofimplementation, aswell asdeficiencies ofsetting ambitious but achievable objectives.
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Anadditional difficulty resulting from increased globalisation isthe inability ofmany local stakeholders toposition themselves inthe context ofglobal value chains and identify those market niches that could make adifference. The goal then isto redefine cohesion policy inorder toachieve aradically new approach togrowth, based inter alia onresearch and innovation. >> Cohesion policy has made Smart Specialisation anex-ante conditionality for all research and innovation investments. Focusing onthe particular products orprocesses that aMember State/region could identify, R&I strategies for Smart Specialisation would guide and identify future choices and investments. The ex-ante conditionality onSmart Specialisation includes the need toput inplace aperforming national orregional innovation system, with the appropriate framework conditions for stimulating relevant private investment. Inaddition, the clause ofThematic Concentration ofresources ofthe European Regional Development Fund (ERDF) onjust four thematic objectives (Research and Innovation, SME Competitiveness, Low Carbon Economy, and investment and uptake ofICT) inall regions (80% inrich and 50% inpoorer regions) will provide agood basis for healthy interactions with Horizon 2020, especially inthe areas ofIndustrial Leadership and Societal Challenges.
4. Finance for Innovation & Growth

Session 4 was dedicated tothe topic offinance for innovation and growth. Given the present state ofthe EUs Venture Capital (VC) market, the following isparticularly worrisome: The level ofthe EUs VCmarket isdown tothe level of1984, which equals asmaller volume than the VCmarket inIsrael. The Commission VCmarket roughly equals 250 Funds, investing insome 3500 companies, ofwhich 30% goto USwhen successful. Three i4g members looked atthis topic from different angles and presented their i4g Policy Briefs. Andrea Bonaccorsi proposed tomove from ahorizontal division oflabour between private and public VCfunding toavertical one, where the public deals with Seed Capital(6). The reason isthat cooperation proves difficult due tovery different rules and culture. The state should not invest more than EUR500000 per company, not seek profits and not take aseat onthe board. Anadditional advantage ofsuch procedures would bethe low cost, because VCrules would not apply insuch cases. Reinhilde Veugelers reminded participants that developing aviable VCmarket, incorporating acritical mass ofinvestors and investments (a thick market), isalong-term endeavour(7). Intheir early stages, VCmarkets display high vulnerability for (crisis) shocks. She suggested that beyond the quantity ofVC available, what matters more ishow effectively the market allocates Funds tothe most promising projects: smart VCfunding, which requires thick markets. Government should not replace/crowd out, but instead leverage private market forces. David Mowery insisted that unforeseeable project risks and scale-related costs (due diligence, deal negotiation) makes the demand for VCvery skewed. Mariana Mazzucato observed that, since 1990, most policy makers and economists alike have stopped considering distributional questions(8). Her proposal toallow for some return oninvestment whenever the
(6) i4g Policy Brief No. 5, The public role infinancing innovative companies: shifting from venture capital toseed investment. (7) i4g Policy Brief No. 4, Financing for Innovation: Addressing Europes Early Stage Venture Gap. (8) i4g Policy Brief No. 9, Smart and Inclusive Growth: reforming the risk-reward nexus ininnovation.
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1. Summary
state takes arisk asan investor into R&I projects would allow for much needed additional state revenues that could bere-invested. She reminded participants that the current debate oneco-systems for innovation fails totake into account that eco-systems can beboth functional and dysfunctional (predator-prey relationship). The feasibility ofher proposal toestablish agolden IPR share for public funders was discussed extensively. David Mowery cautioned that the net returns would probably bevery small and referred tothe experiences with the Bayh-Dole Act(9) inthe US, plus the potentially high administrative cost ofmonitoring (and relating the profits tospecific IP). According tohim, returns inthe USare negative. According toMarc Schublin, the European Investment Fund (EIF) currently has negative returns. Therefore itcurrently moves tolater stage investments. Heused the example ofSkype funding toillustrate the situation ofVC inthe EU: The EIF funded aLuxembourg-based VCfund, which got a300-fold return onits EUR200000 investment, but since then noreturns from other investments. Healso mentioned that out ofthe 6000 companies that benefitted from the EIF VC, 30% went tothe US. Jean-David Malos concluding remarks onSession 4 can besummarised asfollows: >> As highlighted byMarc Schublin, EIF Director, the situation ofVC inEurope isin dire straits. The level ofEU VCfundraising has dropped by70% from 2008 to2010 and the situation iseven worse in2011 and 2012, falling back to1984 levels. This represents asmaller market than the Israeli one. Moreover, inall stages (from early togrowth stage), the level ofEuropean private equity investment has been hugely diminishing from 2008 onwards. Inaddition, the EUmarket remains fragmented, affecting both cross-border fundraising and investing ininnovative small and medium-sized enterprises (SMEs). Last but not least, the financial and economic crisis has increased risk aversion within the institutional investor community. This tendency isbeing reinforced bythe new wave ofprudential regulation (Basel III; Solvency II). In this context asaccess torisk finance ingeneral and support toVC inparticular are instrumental toinnovation, new technology implementation and firm growth public intervention isnot only legitimate but necessary. For these reasons, out ofthe 34 commitments ofthe Innovation Union flagship initiative, three are directly linked tothe issues ofimproving access tofinance for SMEs, todebt and equity financial instruments tosupport R&I and growth, tostrengthen cross-border matching ofinnovative firms with suitable investors, and toimproving the VCmarket. Several actions are already proposed (in particular inHorizon 2020 and inCOSME) and are under examination: designing relevant debt and equity financial instruments providing, incomplementarity with existing national/regional schemes, relevant support toenterprises (in particular SMEs and small MidCaps) throughout their lifecycle (from avery early stage tothe growth/expansion stage), allowing inparticular the possibility tosupport the growth ofR&I-driven SMEs byacombination ofgrant and debt and/or equity funding (i.e. Horizon 2020 SME Instrument);
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(9) The Bayh-Dole Act (Patent and Trademark Act Amendments of1980, PL96-517) created auniform patent policy among the many federal agencies funding research.
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ensuring relevant legal framework conditions, including inthe State Aid area (and inparticular inthe context ofthe review ofthe Risk Capital Guidelines); improving the eco-system bymaking itinnovation- and investor-friendly, inparticular strengthening supports allowing enterprises tobecome investor-ready onthe one hand, and increasing investors knowledge ofpromising enterprises onthe other.
5. M ajor Conclusions and Messages for the i4g Work Programme 2013-14
In the final session, participants reflected onthe workshops results, its major conclusions and the issues that would deserve further reflection inthe i4g Expert Group. The following list oftopics resulted from the discussion, benefiting among others from interventions byJohn Bell, Clara dela Torre, and LenaTsipouri: 1. The innovation divide: Policies for Cohesion Countries. Within its work programme, i4g should look atinnovation conditions and measures ofthe Cohesion Countries and the EU-12 Member States. 2. Innovation patterns ofmulti-nationals and the constant reshaping ofglobal value chains: Impactfor R&D investments and public policy. 3. The EUs 3% target and innovation. The economic relation between input and output and related tothat: What kind ofimpact has the funding ofresearch excellence oninnovation? 4. What isthe right economic policy mix totransform research into innovation and economic impact? 5. Public sector innovation: how can efficiency, effectiveness, and quality assurance befostered? 6. Other issues following the workshop: contribution ofR&I toeconomic growth; State aid policy Where isthe red line todraw? economic productivity ofRTD, including service sector productivity; measurement ofintangibles and taxing ofintangibles (L. Soete).
2. Opening Session & key note: Innovating out of the crisis
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2. Opening Session & Key Note: Innovating out ofthe crisis
Welcome & Opening Speech

Clara dela Torre(1)
A year ago the Commissioner asked DGRTD toestablish aHigh Level Economic Expert Group togive advice onresearch and innovation policies. This economists group was named Innovation for Growth orin its short form, i4g. During its first year ofexistence, i4g has produced brief statements orPolicy Briefs and papers onvarious subjects relevant toR&I policies. The objective ofthe workshop isto discuss selected pieces ofi4g policy advice. The overriding theme isHow toinnovate and how the research community can contribute tocombat the economic crisis?, orin anutshell: Innovating out ofthe crisis. Not all pieces ofi4g work will bepresented today. Already one bigger piece has been delivered before the summer break, namely the contribution tothe ERA impact assessment for the ERA Communication. Itis the report onthe Socio-economic benefits ofERA. Further i4g work isto come and the workshop issupposed toprovide input. The workshop isconceived asan open discussion platform and itis mypleasure towelcome colleagues from other DGs ofthe Commission. Itis good practice toexchange intellectually between policy DGs and toassess the policy relevance ofthe expert papers. Welook forward toyour comments and suggestions. Itwill help usto reflect and toimprove our R&I policy. To start our workshop programme, first ofall awarm welcome and mycompliments tothe i4gmembers. Let mebriefly mention todays highlights before Igive the floor toour distinguished speakers: >> It ismy particular pleasure towelcome our special guest experts from the US David Mowery and from Europe Charles Edquist onthe theme ofInnovative Public Procurement. i4g does not shy away from ahot issue inEurope: the innovation divide and the issue ofinnovation inCohesion Countries. Ilook forward tohearing the opinion ofProf. Siotis from the Reichenbach Task Force and its work inGreece. New finance mechanisms for innovation and growth are arelatively new topic inDG RTD and Iam glad that Marc Schublin from the European Investment Fund iswith ustoday. The big and overriding theme Innovating out ofthe crisis will bepresented byLuc Soete. Hehas now left i4g tobecome Chair ofour general advisory committee, ERIAB. Ilook forward tothe comment from Martin Larch ofDG ECFIN.
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I appreciate the high-level participation from other policy DGs ofthe Commission, Iam grateful tothe initiative ofthe Cabinet tohave convened the High Level Economic Expert Group Innovation for Growth i4g,
(1) Director, DGRTD, Directorate C, Research & Innovation.
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and Iam also grateful for the active participation ofour Cabinet inthe workshop. Merits goto i4g for the excellent preparation. Ihave tobe thankful that you the participants selected because ofyour expertise have accepted the invitation and Iam now looking forward toyour highly interesting contributions and tothe discussion.
Innovating out ofthe crisis: somepersonal reflections

Luc Soete(2) A personal i4g view
>> Going back tothe Europe 2020 strategy highlights three central entry points for the EUto innovate out ofthe growth crisis: first, the importance ofinvestments inR&I, both public and private the rate oftechnical change anold European (Lisbon) concern that needs urgently tobe reassessed within the fiscal consolidation framework ofthe AGS 2012. Toput itbluntly, what the AGS proposes isanything but smart growth; the importance ofthe direction oftechnical change: environmental sustainability, societal and new social innovation areas. Such adirection depends heavily onpublic policy; onsetting out clear, consistent rules and regulations across Member States inan internal domestic pro-growth direction. What the AGS proposes isanything but sustainable growth; the regional growth impact ofR&I policies inEurope within the context ofasovereign debt crisis, concentrated inanumber ofperipheral countries. How can Structural Funds beleveraged toboost local innovation and efficiency gains there? While the AGS talks about social issues, itdoes not address inclusive, social cohesion growth. >> All three areas call for more radical structural reforms inpolicy making than those presented under the AGS 2012, from the perspective of: an obvious lack ofeffectiveness ofsome ofthe proposals; the need for more radical reform inthe multi-level (European, national regional) governance ofR&I policy; and opportunities for new innovative solutions tothe current fiscal consolidation framework. >> Without these reforms, the EUis doomed toalow growth, high unemployment future this decade, but also the next one
(2) i4g (2011/12), Director ofUNU-MERIT, Rector Magnificus ofMaastricht University, the Netherlands.
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Baseline macroeconomic results for the EU-27 (average annual rate of growth)
2010/2015 Final private consumption Public expenditure Investment Exports Imports GDP Final consumption deflator Employment Unemployment rate Real disposable income 1.5 0.4 2.4 6.2 5.0 1.7 2.4 -0.2 c 1.6 2015/2020 1.9 1.8 1.9 3.2 3.3 1.9 3.1 -0.2 8.2% 1.7 2020/2030 1.8 1.8 1.8 2.0 1.9 1.8 3.2 -0.3 7.6% 1.7 2010/2030 1.8 1.4 2.0 3.3 3.0 1.8 3.0 -0.2 8.1% 1.7
Source: plan.be
1. Achieving harmonised growth?

>> Fiscal consolidation common toall EUMember States: much more ofthe fiscal austerity type insome countries, consolidation inothers; huge differences between short-term financial public needs (cash access) insome Member States vs. long-term financial concerns (ageing, healthcare, welfare systems and pension payments tobaby boomers) inother Member States; as aresult, very different prioritisations with respect tolong-term knowledge investments inMember States. >> New situation ofgrowth divergence between Member States and regions: pursuing differentiated growth-friendly fiscal consolidation will not solve this; growth divergence between EU-15 countries, based oncentre-periphery impact ofaccess tothe EUSingle Market, isdominant; exacerbated byfinancial markets responses tosovereign debt within amonetary union (see Paul deGrauwe, and Yuemei Ji, 2012): The systematic mispricing ofsovereign debt observed inthe Eurozone also had the effect ofgiving wrong incentives topolicymakers. During the boom years, when financial markets were blind tothe sovereign risks, noincentives were given topolicy makers toreduce their debts, asthe latter were priced sofavourably. Since the start ofthe financial crisis financial markets driven bypanic overpriced risks and gave incentives topolicymakers tointroduce excessive austerity programs.
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European research and innovation policy and competitiveness

>> How can EUR&I and structural change policies respond within such adifferentiated fiscal consolidation public debt context, whereby some Member States and regions are inaposition tomatch EUfunding relatively easily, while others are lacking public funds toobtain EUR&I orStructural Funds. Need toreprioritise investments inknowledge asthe only long-term sustainable solution tothe EUgrowth crisis inaback-to-basics approach: the European integration process isonly politically sustainable ifbased onreal growth convergence; international competitiveness ofmanufacturing, agriculture and tradable services isessential for such real growth convergence; at current interest rates, public knowledge investment ineducation, research and innovation, even ifit isbased ondeficit spending, will yield high net rates ofreturn. >> Start again from the argument already made two years ago inan expert group report onthe ERA for the Commission: there istoday anabsolute need for aclear public funding commitment toknowledge investments (R&D, innovation, higher education) inEurope across all Member States.
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On Europes rate oftechnical change

>> It made little sense back in2002 tointroduce aBarcelona 3% R&D/GDP target, aspart ofthe 2000 Lisbon strategy, whereby one asked the private sector, asopposed tothe public sector, toinvest most inR&D (2% vs. 1%) without offering private firms any means toleverage such aneffort. Asking for more private investment inR&D without offering acredible plan for integrating further the final Single Market both inproducts and services, was viewed inretrospect asmissing the point: companies invest private resources inR&D only ifthey consider the final market large enough torecover the investment; having national markets fragmented byregulation, language, and entry processes, implies anincrease inthe marginal costs ofthe overall time-to-market decision, leading toareduction ofthe rate ofreturn toR&D investment; the institutional separation between European research, leading toproof-of-concept oraprototype stage, European innovation policy and European competition policy, remained acontinuous source ofuncertainty; many services ofdirect relevance toinnovation (financial services, telecom services, education services, social services) remained exempt from the Single Market services Directive and hence became atEuropean level dominated byfragmented national regulation.
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3% public knowledge investment vs. 3% fiscal consolidation

>> Hence the old proposal for analternative 3% public knowledge investment target with clear policy advantages over the old Barcelona 3% target: it focuses onwhat governments are directly responsible for, whether interms ofdirect funding such aspublic R&D, orin setting the funding rules asin the case offunding directly higher education orfixing tuition fees with respect tohigher education; the new 3% target thus offers credibility. Public authorities can bekept accountable for succeeding orhaving failed toreach the target; all European Member States are challenged toeither find their own public resources toincrease such knowledge investments, oralternatively tocall upon private resources toinvest inindividuals future human capital; the target isrealistic even under the severe fiscal consolidation conditions Member States with large sovereign debt problems are confronted with today, because italso offers scope for lowering the public funding part ofhigher education infavour ofraising private funding through, for example, tuition fees; the growth inprivate R&D investment asa% ofGDP can beviewed asthe outcome ofthe policy: public R&D and higher education investment have attracted increased private domestic orforeign investment. >> Proposal: separate public investments inknowledge (education, research and innovation) from the fiscal consolidation targets.
The alternative 3% target for 2020

%
4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0
d ite St s ce s y n n e d d d d d a a 7 ly in rk ia ia al m m lic lic ate Kore anad inlan ede nma ustr elan stral rland ran erag alan Japa relan rtug EU2 rman olan pub Spa gdo lgiu Ita pub F av Ze P Re I Po A e Ic Au he F in Be e C Sw De R K G t k h e d CD New va ec ite eN OE Cz Slo Un Th
Tertiary education privately funded Tertiary education publicly funded Government-nanced R&D
Un
25
Education expenditures as % of GDP

% of GDP
7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 South Europe Central Europe United Kingdom East Europe North Europe
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
2. Achieving sustainable-friendly fiscal consolidation

>> A green economy will require amajor private sector commitment tocreating more efficient green technology options. However, private sector investment is, apart from the current financial uncertainties, unlikely tobe forthcoming aslong asthere isno clear and full commitment tosetting aneffective price onGreen House Gas (GHG) emissions bysetting tight caps that will not bequietly loosened bythe issuance ofadditional emissions permits toalleviate industrial distress. The current danger isthat the public debt crisis leads toan inadequate-effort level equilibrium trap asexemplified bythe case ofcarbon-capture technologies. Because current costs ofcarbon-capture pilot operations are too high tomake itbelievable that firms facing CO2 emissions limits would adopt these methods, many countries (in particular those with coal deposits) resist tight caps onCO2 emissions inthe absence ofaffordable carbon capture they would lose access tothat source ofenergy, and profits, respectively. As aresult, the necessary private investment inR&D (required tocreate the expectation that those caps would turn out tobe tolerable) issimply not forthcoming. Furthermore, there isaneed tobroaden research and innovation toinclude the rest ofthe world. Atthe same time such broadening raises questions asto how toachieve green competitiveness for European industry.
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There isan urgent need toget out ofthe Euro-focus and again become leading leader ingreen technologies inrelation tothe rest ofthe world. Why not think ofInnovation Partnerships asproposed inthe Innovation Union flagship initiative with BRIC countries (e.g. incase ofNER 300 and Carbon Capture Schemes and/or energy renewables), but also with other developing countries?
Green-friendly consumption
>> From aglobal perspective, atthe sustainable consumption level, the innovation challenge appears (see figure below) atopposing ends: avoid the tendency towards what Emilio Calvano called destructive creation (Soete, 2012) infavour offrugal innovation. The international financial crisis and the looming crisis ofclimate change have brought tothe fore anunderstanding that the realistic solution toatruly global sustainable development strategy will not besimply toprovide the worlds investors with global financial access. Having access tothe fruits ofexpanded PPIs inscience and technology atthe global level will beno less and probably even more critical inthe long run. What makes the climate crisis aunique green growth opportunity, ifaperilous one, isthat the sustainable future for the citizens ofEurope, the USor Japan, are crucially dependent onthe speed of(green) knowledge diffusion throughout the rest ofthe world aswell asin their own countries. In short, aEurope 2020 sustainable growth strategy needs tobe called aglobal 2020 strategy, inwhich Europe takes the lead.
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Human welfare and ecological footprints compared

Ecological Footprint (global hectares per capita) Human Development Index ranking (1-177)
0 20 40 60 80 100 120 140 160 180 200
Burkina Faso Sierra Leone South Africa Cuba Trinidad & Tobago Argentina United Arab Emirates Oman
4
Japan Germany
6
Norway
8
Australia
9
USA
10
Phillipines
China
Africa Asia-Pacic Europe (EU) Europe (Non-Eu) Latin America & the Caribbean Middle East & Central Asia North America Earths biocapacity = 2.1 hectares per person
Source: Global Footprint Network 2008 report (2005 data) UN Human Development Report 2007-08
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3. Social cohesion and European public sectorintegration

>> The key sector that has upto now been ignored ineconomic integration inEurope isthe publicsector. The fiscal consolidation has forced Member States tocut back onpublic investment projects. One ofthe central problems here isthat the old 3% Maastricht criteria ofpublic deficit does not take into account the quality ofpublic expenditures. There isahuge growth difference between public expenditures devoted toconsumption activities and public expenditures devoted topublic investment across EUMember States. One ofthe most robust results from modern growth theory isthe strong positive impact ofpublic investments in, for example, infrastructure and education boosting overall productivity and hence also economic growth. Yet, ashighlighted inthe graph below, European governments have dramatically cut back inpublic investment over the past two decades. >>
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Public investments as % of GDP

%
3.2 Eurozone 3.0 2.8 2.6 2.4 2.2 2.0 United States
19
91
19
95
20
00
20
05
20
10
20
13
Source: European Commission, AMECO databank
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a) First proposal
>> >> It isnot just aquestion ofthe volume but rather the quality ofsuch investments. What Ipropose isto allow the best performing European Member State public services totake the lead inanew phase ofeconomic integration inthe EU: that ofpublic services. Asaresult, the performance ofthe public sector inEurope still responsible for the largest part ofGDP will receive adramatic boost inefficacy and efficiency. We all know the typical European joke ofthe Brussels dinner organised byan Italian, prepared byaBriton and with aGerman giving the after dinner speech. But the ideal picture also exists ofcourse. There isno reason not toexploit much more fully across Europe the diversity indifferent Member States, even regions, ofthe quality and efficiency ofpublic service delivery, i.e. Smartpublic specialisation. Think ofour Dutch tax-paying office taking onthe responsibility for earning tax revenues inGreece, Italy oreven Belgium.
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functional expenditures in % of total government expenditures 2009

%
45 40 35 30 25 20 15 10 5 0
General public services Economic aairs Other Health Education Social protection
Central Europe
East Europe
North Europe
South Europe
United Kingdom
I4G RESEARCH & InnOVATIOn POLICy WORkSHOP InnoVATInG ouT of ThE CRISIS
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SOCIAL PROTECTIOn ExPEndITURES AS % OF GdP

%
26 24 22 20 Central Europe 18 16 14 12 10 United Kingdom South Europe East Europe North Europe
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
HEALTH ExPEndITURES AS % OF GdP

% of GDP
9
North Europe Central Europe United Kingdom South Europe
East Europe
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
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b) Second proposal
>> The large sovereign debt insome ofthe peripheral European countries should beviewed aspotential pilot cases for triggering innovation inpublic procurement with the help ofthe private sector. Concrete example oflighting. About 19% ofthe electricity generated globally isused for lighting purposes and around 70% ofall existing lighting equipment isenergy inefficient bytodays standards. Lighting, and inparticular public lighting, isapure case oflow-hanging fruit innovation. New technologies such asLEDs can provide energy savings ofup to80%. Debt-stricken countries, regions ormunicipalities inGreece, Portugal, Spain orItaly, should become pilots for new innovative procurement aimed atreducing public electricity expenses and based onnew creative financing solutions. One could talk here about new North-South European PPPs. Furthermore, with the help ofthe European Investment Bank (EIB) using available Structural Funds, itshould berelatively straightforward toeliminate the lowest initial cost bias from the public sectors procurement equation inthose countries/regions. See proposal put forward byERAB members Jan van den Biesen, Anne Glover and melinking Structural Funds with innovative public procurement. This proposal goes much further than the points made under Chapter 5 ofthe AGS 2012.
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Conclusions: Reaping policy synergies

>> It isessential tore-assess the smart, sustainable and inclusive growth strategy ofEurope 2020 inlight ofthe new fiscal consolidation constraints. Current growth forecasts (as presented above from the Belgian Bureau duPlan for the DEMETER project) based onthe current fiscal consolidation plans for the period 2010-15 and 2015-20 are poor, and inall likelihood overestimated. A recent conference inThe Hague (NL) had asits title Development without economic growth. Ihad tointroduce the session onInnovation without economic growth. Astrange hypothesis given the endogenous nature ofinnovation, but revealing inbringing about the way weseem tonarrow down innovation tojust GDP measured economic performance. Innovation though has amuch broader impact. The largest companies inthe world such asGoogle orFacebook are using abusiness model based onthe barter exchange between consumer time spent onbanners and advertising and information search and communication exchange. According toMcKinsey, the total value ofonline advertising revenues isonly afraction (at most one third) oftotal consumer value ofonline information and communication. Ifone broadens this further toaccess toinformation, mobility, security, etc., astrong case can bemade that the growth value ofnew digital technologies isparticularly poorly reflected inGDP growth. In this sense government revenues seem tobecome increasingly narrowed down toataxation oftangible goods and services and their exchange, and missing the largest part ofgrowth inwellbeing inour societies. Time for the public sector todesign similar Google business models?
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Public Procurement ofInnovation (PPI)

Lena Tsipouri(1) What isPPI?
>> >> A kind ofpublic-private partnership. The government specifies adesired output (immediate and/or future needs) and the social challenges tobe met. The private businesses creativity and efficiency are mobilised tomeet the requirements with thebest technologies (available orto bedeveloped).
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PPI can beclassified according to(at least) two dimensions: 1. The character ofthe procurer: depending onwhether the procurer tenders for themself oriscoordinating. Direct or Catalytic PPI. 2. The novelty ofthe product and its position inthe innovation cycle: Developmental orcreation-oriented PPI, for completely new-to-the-world products and/or systems are created asaresult ofthe procurement process. Adaptive ordiffusion-oriented PPI, when the product orsystem procured incorporates incremental technological change.
The economic rationale

>> Market failures lead tosub-optimal investment inR&D and innovation because of risks and appropriability. Intervention for public goods (such asclimate change). Economies ofscale: many procurers have the same needs. Increasing competitiveness innew technologies ingeneral and lead markets inparticular.
>> >> >>
(1) i4g, University ofAthens, Greece, Department ofEconomic Studies.
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Experiences ofPPI (Who does what?)

>> Despite convergence ofacademic and policy recommendations, PPI remains ararely used instrument Scandinavian countries Germany Austria Netherlands Belgium UK Estonia.
>> >> >> >> >>
Three important questions

>> Is the political will ineach Member State soexplicit infavour ofcombined policies that policy makers can take the risks ofexperimenting? How can wepass from rhetoric topractice? Are the means and tools available todo so? Because werecognise that the devil isin the details. And what are the main barriers that inhibit apolicy adaptation? And how should weaddress them?
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Problems and barriers (Why does itnot work fast enough?)

3. The dominant patterns ofprocurement and the resistance tochange (inertia). 4. The significant skills needed for operating PPIs. 5. The risks ofthe PPI process. 6. Risks ofmarket distortions (lock-ins, large players dominating the global market). 7. Lack ofsophisticated demand. 8. Finally, the institutional framework.
Suggested interventions (What todo next?)

>> >> >> The PPI culture and climate Policies Governance.
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Development PPI Direct High risks, high rewards (potential lead market development), need for coordinated, ambitious interventions High risks, high rewards (potential lead market development), need for ambitious interventions and multi-level coordination
Diffusion PPI Easiest and most often encountered type; intervention needs are moderate; use of Structural Funds can play a major role Relatively easy process with coordination problems; use of Structural Funds can play amajorrole
Catalytic
US Government Procurement Policy and Technical Change: ASelective Survey

David C. Mowery(2) Overview
>> Defining and measuring federal procurement. Why procurement does not include DARPA and SBIR. >> >> How does procurement influence innovation and diffusion? Sectoral case studies: defence-related procurement and ITinnovation; energy-related procurement and innovation. >> >> Procurement policy design issues. Conclusion: Where and how can government procurement support innovation?
Federal procurement spending, FY2010

>> Census Bureau (2011) defines procurement spending ascontractual actions for construction, purchases ofequipment, and other purchases oftangible items bythe federal government. Procurement accounted for more than USD500 billion inFY2010, 15.8% oftotal federal spending. Federal procurement iseven more skewed toward defence (64% ofFY2010 procurement) than federal R&D spending, which isnot included inprocurement.
>> >>
(2) Haas School ofBusiness, University ofCalifornia, Berkeley, US.
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NSF and HHS (parent ofNIH) also represent smaller shares ofnon-defence procurement than istrue ofnon-defence federal R&D. >> Civilian federal procurement budget isdominated bythe Energy Department, Veterans Administration (medical centres). Since much Energy Department procurement isconnected with weapons development, the 64% defence-related share may beunderstated. >> Non federal government procurement spending ismuch smaller, but includes significant investment inbuildings, construction (federal and non-federal governments accounted for roughly 26% oftotal construction and repair activity inthe USin 1997).
Federal procurement spending by agency, FY2010

Million US$
350 000 300 000 250 000 200 000 150 000 100 000 50 000 0
fe ns e US Co DA m m Ed erce uc at ion En er gy EP A GS A HH S DH S HU D Int er ior Ju sti ce La bo r Na NA t. A SA rch ive s NS F US PS So c S SBA ec ur ity Tra S ns tat po e rta ti Tre on as ur y
De
Federal agency
VA
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defense and nondefense procurement spending, fy2010

Million US$
350 000 300 000 250 000 200 000 150 000 100 000 50 000 0 Nondefense Defense
Federal spending by nondefense agency, fy2010

Million US$
30 000 25 000 20 000 15 000 10 000 5 000 0
US DA m e Ed rce uc at ion En er gy EP A GS A HH S DH S HU Int D er rio Ju r sti ce La bo r Na NA t. A SA rch ive s NS F US PS So S c S BA ec ur ity Tra ns Stat po e rta tio Tre n as ur y Co m
VA
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These procurement data exclude DARPA and SBIR

>> Defence Advanced Research Projects Agency (DARPA) supports basic research and technology development (often including prototype development and testing). FY2010 budget ofroughly USD3 billion, less than 1% ofannual defence-related procurement. DARPA supports the development oftechnologies that may/may not result inprocurement purchases bymilitary services. >> The Small Business Innovation Research (SBIR) programme funds R&D (including technology development), rather than procurement. SBIR isaset-aside of2.5% (rising to3.5% byFY2020) of11 federal agencies R&D budgets for SMEs (<500 employees). Estimated FY2005 spending = USD1.8 billion. DoD, NIH, NASA, NSF, DoE accounted for 97% oftotal SBIR spending asof 2005. No explicit link tosponsor-agency procurement.
Federal government expenditure, annual ammounts bymajor object category: fiscal years 1983-2010
Billions of dollars
1 000 900 800 700 600 500 400 300 200 100 0 Salaries & wages Grants Procurements Other direct payments Retirement & disability
19
83
19
85
19
90
19
95
20
00
20
05
20
10
Source: U.S. Census Bureau, Consolidated Federal Funds Report for Fiscal Year 2010
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Where has federal procurement played arole ininnovation?

>> Most federal procurement involves purchases ofartefacts for specialised government missions. Defence-related procurement provided demand-side pull that complemented R&D. In some technologies, defence-related procurement accelerated innovative progress and adoption inthe overall economy. >> Less common are policies designed touse government purchases ofnew technologies with civilian applications toaccelerate innovation and adoption. Small number ofexamples inenergy. Other demand-side policies have been more important inenergy innovation and adoption (CAFE standards, biofuels mandates, and feed-in pricing for alternative energy sources).
How does procurement affect innovation & adoption?

>> Government may bealead customer, making large purchases ofanew technology orproduct atan early stage inits development. Several types ofbenefit associated with lead customer procurement bygovernment: substantial early purchases -> producers can exploit production economies ofscale; production-related learning effects -> reductions inproduction costs and prices, aswell asimprovements inproduct quality; learning inuse -> incremental improvement inperformance, applications knowledge. >> Collectively, these benefits can accelerate improvement inprice/performance ratios, supporting broader adoption bynon-government users, expansion ofthe installed base, and more rapid learning inuse.
>>
How does procurement affect innovation?

>> Procurement may support entry bynew firms, enhancing competition and (potentially) accelerating price reduction, innovation, and improvements inproducts. Procurement contracts act asaprize for developers ofnew technologies, not all ofwhom may receive R&D support. >> Procurement may legitimise product standards, expanding markets for suppliers ofcomplements, and thereby accelerate adoption.
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>>
Procurement thus can accelerate both technological improvements and technology adoption inthe overall economy. But the magnitude ofthese procurement-driven benefits depends onbroad similarity between the technological characteristics ofproducts developed for government users and those used innongovernment applications.
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Defence-related procurement policy influenced ITindustry structure

>> Procurement insemi-conductors and computers triggered substantial entry. In 1959, new firms insemi-conductors received 22% offederal R&D contracts, yet accounted for 63% ofindustry sales, 45-50% ofwhich went tothe military. Flamm (1987): 80 firms entered the UScomputer hardware industry during the 1950s, virtually all ofwhom focused onmilitary market. >> Procurement policy reduced entry barriers and supported inter-firm flows ofknowledge and knowhow, especially inthe nascent semi-conductor-components industry. Department ofDefense awarded contracts tovertically specialised merchant producers, influencing the long-term evolution ofUS industry structure. Department ofDefense orders enabled entrants toreduce costs and penetrate civilian markets. Second-sourcing procurement requirements accelerated inter-firm technology flows. Competitive procurement programmes were facilitated bylarge scale, making itpossible topurchase new products from more than one supplier.
The declining influence ofUS military procurement within IT

>> By the late 1960s, adecline ingovernment procurement asapercentage ofoverall demand and increased divergence between civilian and military functional requirements -> reduction inmilitary procurements influence oninnovation. Federal share ofstock ofUS computers declined from roughly 70% inthe early 1950s to30% bythe mid-1960s (Flamm, 1987). But the federal share ofannual sales remained significant inhigh-end computers (40% in1972, 13% in1980). -- Similar trends insemi-conductor sales (Figures). Military SWdemand, which motivated the 1958 development ofCOBOL, bythe 1980s was insufficient toestablish ADA asamilitary standard SWlanguage.
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Very High-Speed Integrated Circuits (VHSIC) programme, launched inthe 1980s toencourage development ofICs for military applications, was unsuccessful. By the early 1990s, Pentagon procurement officials shifted from military-spec toCOTS (civilian off-the-shelf) product specifications insome areas, recognising that civilian technologies were advancing more rapidly and were less expensive than those developed specifically for some military applications.
Government purchases of semiconductor devices as share of total shipments

Government Share of Total Shipments (%)
60 50 40 30 20 10 0
19
55
19
57
19
59
19
61
19
63
19
65
19
67
19
67
19
69
19
71
19
73
19
75
19
77
Government purchase of integrated circuits as a percent oftotal shipments

Government Share of Total Shipments (%)
100 90 80 70 60 50 40 30 20 10 0
19 62 19 63 19 64 19 65 19 66 19 67 19 68
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Military procurement and innovation inother sectors:

>> Military procurement was less successful incatalysing civilian innovation inother sectors: numerically controlled machine tools: USsuppliers ofadvanced NCmachine tools tothe USAir Force were ill-equipped toaddress competition from non-US suppliers inless complex products; civilian nuclear power: USAtomic Energy Commission programme for the development and procurement oflight-water nuclear-submarine reactors established this technology asadominant design within the USelectric-utility industry. -- However, safety and cost problems limited adoption ofthis technology. >> Do limited civilian benefits reflect the fact that procurement inthese technologies involved complex systems rather than components? Ordo these failures reflect greater divergence between civilian and military requirements? Highlights difficulty for USGovernment inanticipating civilian user requirements for new systemlevel technologies.
Procurement and innovation inenergy technologies

>> US efforts tosupport Energy Independence, address climate change, etc., have included procurement-related components. Very different political and technological context from post-1945 military technology development: in energy, government policy has sought tosupport the development oftechnologies with applications outside ofmission agencies; weaker political consensus onscale, urgency ofcrisis -> unstable policy framework, characterised byfluctuating budgets and shifting priorities; policy failures extend well beyond procurement.
>>
Federal procurement & innovation inphotovoltaic cells, 1978-81

>> Solar PVcells benefited from (modest) federal R&D and procurement spending for space applications during 1950s and 1960s. The Federal Photovoltaics Utilization Program (FPUP) was authorised in1978 with USD98 million toaccelerate innovation and adoption. Appropriations for FPUP were far smaller, totalling USD25 million.
>>
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Department ofEnergy allocated funds toother federal agencies for PVpurchases. >> PV procurement justified byreferences tothe innovative contributions ofmilitary procurement ofsemi-conductors. However, military procurement ofsemi-conductors for military applications emphasised performance, while FPUP sought low purchase cost. FPUP supported purchases ofPV devices for federal installations (e.g. remote national parks, indigenous reservations) that were poorly suited tosome commercial applications, such ascentral-plant power generation. >> >> Political controversy over federal energy policy led tothe termination ofFPUP in1981. Despite limitations inprogramme design and incentives, PVprocurement was associated with improvements incost-effectiveness ofPV technologies. PV price/watt dropped from USD14.56 in1977 toUSD4.24 in1982. Reflected more than FPUP alone.
Federal procurement and Green Buildings

>> The USGreen Buildings Council, anon-profit, non-governmental entity, developed the LEED (Leadership inEnergy & Environmental Design) standard for commercial, residential, and other buildings in2000. Federal government buildings agency, General Services Administration (GSA), adopted the LEED standard for all federal (civilian) buildings (new construction and leased buildings) in2000. GSA isthe largest single purchaser and lessee ofcommercial property inUS. Some USstate and local governments have also adopted the standard for their public buildings. >> Recent research bySimcoe & Toffel (2012) suggests that adoption byfederal, state, and local governments ofLEED for buildings significantly accelerates adoption ofLEED inprivately owned buildings inthe same geographic areas. LEED adoption bygovernment has also expanded investment byconstruction suppliers (contractors and designers) ingreen-building expertise. >> Procurement-based endorsement bygovernment agencies ofatechnical/design standard thus appears tohave had real effects onpace ofinnovation and adoption ofenergy-efficient building technologies.
>>
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US military has expanded support for energy/green technologiessince9/11

>> One set ofprogrammes seeks reduced reliance onfossil fuels, especially inwarships, foreign deployments such asAfghanistan (New York Times, 4 October 2010). The Department ofDefense supports R&D for development ofportable green energy sources, biofuel additives for aviation, and warship fuels. >> Other programmes focus onreducing weight and improving the performance ofbatteries for communications and computer equipment inthe field. Transition toprocurement military demand for alternative-energy technologies islikely togrow. The military may constitute alarge percentage ofdemand for some innovations inthe early stages oftheir evolution. -- Requirements defined byperformance more than purchase cost. Magnitude ofany spinoff benefits for civilian innovation, adoption will depend onsimilarity between military and civilian users requirements.
>>
Procurement policy issues

>> How closely should government procurement and R&D investment programmes belinked? Should the R&D performer also win the procurement contract? Or should R&D and procurement becompeted separately? -- Trade-offs between static efficiency (price competition) and loss oftacit knowledge, etc. Separation between procurement, R&D competition increases potential for attracting new entrants into supply ofinnovative products (e.g. Texas Instruments). >> Tension between purchase-cost minimisation and support for innovation through procurement (FPUP). What role for prototypes intechnology development & procurement? Complex bleeding-edge technology development programmes (especially for systems, such asaircraft) face huge uncertainty inperformance and safety, even when CAD systems are used extensively. Prototyping and testing ofprototype performance can significantly reduce such uncertainty.
>>
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-- But cost (time and money) ofprototyping has often limited its use bythe Department ofDefense. -- Prototyping may befeasible for aircraft, but not for nuclear submarines. >> What types oftechnologies are more likely todisplay generic similarity between government and private-sector applications? Stage ofatechnologys lifecycle isimportant, inas much assimilarity inrequirements may begreater atan early point indevelopment. Government demand isalso likely tobe alarger percentage oftotal demand atan early point. Components orsystems? Potential for divergence inuser requirements arguably isgreater for systems than for components.
Conclusion
>> Procurement policy has potential asan instrument ofinnovation policy. Close analogy between procurement and prizes. US military procurement has influenced adoption inthe civilian economy asmuch asinnovation. Experimentation byNGOs with procurement inglobal public health -> potential for new lessons. >> US military procurement has had positive and negative effects indual-use technologies. Military influence inIT has declined over time; does green energy present anew opportunity for military procurement toaffect innovation and adoption inthe civilian economy? Spin-off benefits also benefited from scale ofUS military procurement programmes, which enabled competition among suppliers. >> Procurement has enjoyed less success inUS energy policy. Other demand-side policies (subsidies, mandates) arguably have been more effective inspecific technologies (e.g. PV, biofuels). >> Similarity inuser requirements between government and civilian applications: animportant factor inthe successful use ofprocurement ininnovation policy, but difficult for government agencies topredict ormanage.
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Public Procurement for Innovation (PPI) orPre-Commercial Procurement (PCP)

Charles Edquist(3) Definition and objectives ofPPI
Public Procurement for Innovation (PPI) iswhen apublic organisation places anorder for the fulfilment ofcertain functions that could (probably) befulfilled within areasonable period oftime (through anew product). The purpose (objective, rationale) ofPPI isnot primarily toenhance the development ofnew products, but totarget functions that: >> >> satisfy human needs; and/or solve societal problems.
Characteristics ofPPI
>> >> >> >> Innovation isapre-condition for delivery ofthe product. PPI isademand-side policy instrument inrelation toinnovation. PPI isavery powerful and targeted instrument. PPI must not beconfused with ordinary off-the-shelf regular procurement the largest part ofall public procurement (19.4% ofEuropean GDP in2009 = EUR2.3 trillion).
Significance ofPPI
>> PPI can influence the rate (number, speed and importance) aswell asthe direction ofinnovation processes: itcan shape innovation, i.e. create new innovation trajectories. PPI has alarge potential asapart ofmission-oriented policies tomitigate Grand Challenges: environment, climate, energy, urban development, health, transport, defence, etc. In Sweden, PPI also led toamajor consolidation ofthe supplying firms (e.g. Ericsson, ASEA/ABB) = strong unintended effects ongrowth and employment!
>>
>>
Taxonomy ofPublic Procurement:

>> Regular public procurement off-the-shelf = noinnovation.
(3) CIRCLE, Lund University, Sweden.
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>>
Public Procurement for Innovation (PPI) defined earlier: direct PPI: procurer isthe buyer = mission needs; catalytic PPI: procurer isnot the buyer but serves asacatalyst for buyers = non-mission needs; pre-Commercial Procurement (PCP) nobuyer ofproducts = not PPI, but procurement of(expected) R&D results = pre-competitive public R&D funding that istargeted.
Two paths forward:

>> >> Improvement ofrules that govern innovation procurement. Actually practising innovation procurement.
Procurement rules
>> One important innovation policy task isto create aninstitutional framework that facilitates and supports innovation. Interactive learning and communication iscrucial for innovations inparticular with regard toinnovation procurement. The EUprocurement rules have actually inhibited innovation bymaximising competition rather than enhancing interaction (and thereby supporting innovation). Critique has led tosome changes: now some dialogue (information exchange) between procurer and supplier isallowed and further changes are planned for 2013. The features ofregular procurement and innovation procurement are qualitatively different. Therefore: There should beseparate rules! The specific rules governing innovation procurement should enhance collaboration for innovation rather than maximise competition.
>>
>>
>>
>> >> >>
The practice ofinnovation procurement

>> >> The role ofthe state ininnovation policy isalso tointervene directly ininnovation processes. This means influencing innovation through policies related todeterminants ofinnovation processes, such asR&D, education, financing, incubation, etc. PPI (and PCP) isapublic activity (on the demand side).
>>
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>>
Investments inPPI (and PCP) should beenlarged tomitigate global challenges through solving societal problems and satisfying needs. These will not besolved/satisfied byprivate organisations because ofthe large uncertainties involved. This might include the creation ofvery large PPI and PCP projects ofsimilar size and significance as: the Manhattan project; the Man onthe Moon project; large defence PCP funding asin the US; hosting the Olympic Games; and the projects leading tothe consolidation ofEricsson and ABB (somewhat smaller, but with very large consequences).
>>
>>
>>
Translate problems/needs into demand through functional specification very demanding; must not specify too much! Which kind ofinstrument isbest for what? PPI (direct, catalytic) PCP Regular Who (EU, countries, regions) can best dowhat kind ofprocurement?
>>
Transforming regular procurement into PPI:

>> Regular procurement isenormously large 19.4% ofGDP inthe EU, EUR2.3 trillion but has nothing todo with innovation. If 10% can betransformed into PPI, the element ofinnovation would lead tobetter results for the procurer inthe long run, interms ofneeds satisfaction and solving societal problems (but higher costs and larger efforts inthe short run).
>>
PPI isas useful asKeynesian demand management

>> Innovation procurement may mean extra spending, i.e. aKeynesian injection inthe economy.
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>>
But PPI and PCP also mean increased functionality, i.e. solving societal problems and satisfying demand not otherwise addressed the economy isenlarged. See earlier: the creation ofgrowth and employment atEricsson and ABB thanks toPPI.
>>
PPI iseven more important than Schumpeterian creation

>> >> PPI/PCP isalso Schumpeterian creation (to follow the phase ofdestruction). PPI/PCP creates dynamism not achieved byprivate organisations, but bypublic absorption ofuncertainties. This ismore than business cycle policy and islikely tocreate new growth areas where Europe can get ahead start inrelation toother parts ofthe world.
>>
Policy Instrument Mix

>> PPI can beapart ofademand-side innovation policy that supplements supply-side innovation policy instruments into aholistic, broad-based policy. PPI should bepart ofapolicy mix tomitigate Grand Challenges but the different policy instruments should not bemixed up!
>>
References
>> Edquist, Charles, Hommen, Leif and Tsipouri, Lena (ed.) (2000) Public Technology Procurement and Innovation Kluwer Academic Publishers, 322 pp. Edquist, Charles. (2004) Systems ofInnovation Perspectives and Challenges , inFagerberg, Jan, Mowery, David, and Nelson, Richard (ed.) Oxford Handbook ofInnovation, Oxford University Press, Oxford, November. Edquist, Charles and Hommen, Leif (ed.) 2008 Small Country Innovation Systems: Globalization, Change and Policy inAsia and Europe, Edward Elgar Publishing, 544 pp. Paperback in2009. Published inChinese 2012. Edquist, Charles (2011) Design ofInnovation Policy through Diagnostic Analysis: Identification ofSystemic Problems (or Failures), Industrial and Corporate Change, November 2011. Edquist, C. and J. M. Zabala Iturriagagoitia. (2012) Public procurement for Innovation (PPI) asMission-oriented Innovation Policy, Research Policy, 2012. Edquist, C. and J. M. Zabala Iturriagagoitia. (2012) Why Pre-Commercial Procurement isnot Innovation Procurement, Nov 2012, not published.
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4. The Innovation divide: What Policies for Cohesion Countries?
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4. The Innovation Divide: What Policies for Cohesion Countries?
Growth Impeding (Obstructing) Innovation: The Case ofGreece

Lena Tsipouri(1) The background
>> >> Greece isthe 27th richest country inthe world. Its economic development follows apeculiar history, asthe country has grown in episodes throughout the existence ofthe modern Greek state, alternating between outperforming and underperforming compared tothe EUaverage. Greece joined the EU(the then EEC) in1981. It has benefitted from significant regional development aid since the 1990s. However, this aid did not help transforming the productive sector into economic sustainability.
>> >> >>
The current economic analysis

>> The worldwide 2008 financial crisis produced anasymmetric shock for the country, revealing significant and chronic structural deficiencies. This has resulted inaserious contraction ofGDP and record levels ofunemployment, which could not beprevented byconsecutive rescue packages (MoUs) agreed with the European Commission, the ECB and the International Monetary Fund IMF (Troika). At the end of2011, GDP per capita was atEUR18500 million, compared toEUR19600 million atthe end of2010 (5.6% decrease). Annual GDP had decreased by1.4% inthe period 2007-11, compared toa5.6% increase inthe period 2002-07. At the end ofAugust 2012, the long term unemployment rate was at24.8% inGreece, compared tocirca 11% atthe beginning ofthe crisis and 11.2% inthe EU-17 and 10.3% inthe EU-27. Total number ofunemployed exceeded 1.2 million in2011. A further deceleration ofeconomic activity isexpected inthe next three years, asathird MoU has been agreed with the EU, the ECB and the IMF, resulting inadditional wage cuts and arationalisation ofemployment conditions instate companies.
>>
>>
>>
>> >>
(1) i4g, University of Athens, Department of Economic Studies, Greece.
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>>
The Greek financial crisis isonly the tip ofthe iceberg and could have easily been foreseen and addressed before growing out ofcontrol, had early warning signals onthe trends ofthe structural characteristics ofthe economy been taken into consideration.
GDP per capita growth EU-27 Eurozone Greece Competitivness ranking 44 41 34 36 38 35 37 46 47 61 65 67 71 83 90 96 GreeceEurozone 0.00% 0.20% 0.50% 2.00% 2.10% 4.60% 1.90% 0.30% 2.20% 0.30% -0.50% 1.10% -7.00% -8.50% -6.00% -6.00%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 estimate 2013 estimate
2.80% 2.80% 3.60% 1.90% 1.00% 1.00% 2.10% 1.60% 2.90% 2.80% -0.10% -4.60% 1.80% 1.40%
2.60% 2.60% 3.40% 1.50% 0.40% 0.10% 1.60% 1.10% 2.70% 2.40% -0.20% -4.70% 1.70% 1.10% -0.40% 0.20%
2.80% 3.00% 4.10% 3.90% 3.10% 5.60% 4.00% 1.90% 5.10% 3.10% -0.60% -3.50% -5.20% -7.10% -6.00% -6.00%
>>
Throughout the growth period, manufacturing and exports were and remained persistently and significantly below the EUaverage. Manufacturing represents less than 10% ofGDP and diminished systematically since 2005 (first date with data availability) with the exception ofaslight increase in2008. Foreign direct investments have been the lowest inthe EU-15 and have declined during the convergence period. Atthe same time outward investment has increased
>>
>>
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Exports/GDP Ratio
Greece European Union (15countries) 35.4 35.5 34.7 33.8 34.9 36.4 38.6 39.1 40.3 35.9 39.5 42.2 43.3 44.5 46 Euro area (12countries) 36.5 36.7 36 34.9 36.4 37.7 40 41.1 41.5 36.4 40.6 43.5 45 46.3 47.8 European Union (27countries) 35.9 36 35.3 34.5 35.8 37.2 39.6 40.1 41.3 36.9 40.8 43.7 44.9 46 47.6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f
24.9 24 21.1 20 22.4 23.2 23.2 23.8 24.1 19.3 22.2 25.1 27.8 30.2 31.9
>>
Is the low share ofexports due tolow competitiveness orto complacence? The domestic market and grants offered sufficient opportunities for profit with lower risks. The emphasis onexports after the outbreak ofthe crisis (despite the reduced export credits) may indicate that the second explanation isnot unfounded.
>>
Competitiveness Ranking(2)
Series Institutions Infrastructure Macroeconomic environment Higher education and training Goods market efficiency Technological readiness Business sophistication Innovation 20062007 41 34 94 37 53 51 52 46 20072008 49 35 106 39 60 58 62 63 20082009 58 45 106 38 64 59 66 63 20092010 70 47 103 43 75 53 66 65 20102011 84 42 123 42 94 46 74 79 20112012 96 45 140 46 107 47 77 88 20122013 111 43 144 43 108 43 85 87
(2) Source: WORLD ECONOMIC FORUM DATABASE.
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Scientific production and impact(3)

PUBLICATIONS Number of Greek publications Share (%) of Greek publications in EU countries Share (%) of Greek publications in OECD countries CITATIONS Number of citations to Greek publications Share (%) of Greek citations in EU Share (%) of Greek citations in OECD CITATION IMPACT Citation Impact (average number of citations per publication) Relative citation impact of publications from Greece compared to EU Relative citation impact of publications from Greece compared to OECD 2008 10625 2.48% 1.17% 2004-2008 167274 1.78% 0.80% 2004-2008 3.83 0.76 0.74 2010 10219 2.40% 1.14% 2006-2010 222132 2.06% 0.95% 2006-2010 4.49 0.84 0.83
Capacity building versus capacity utilisation

Structural indicators did not explain the good macro-economic performance. The strengths ofthe Greek performance, namely education and research could not bedirected towards the productive sector. Asignificant brain-drain after the outbreak ofthe crisis isdepriving the country ofits major strength.
Preliminary findings ofempirical research onStructural Funds impacts

More than one third ofthe companies supported cannot befound among those publishing balance sheets. State aid isthinly spread with hardly any persistent innovators. Among those identified, state aid does not appear causing astatistically significant shift intheir profitability orsales using two tothree year time lags (this may however berelated tothe crisis and further work isdone tocontrol for that). Compared with control groups the companies supported donot seem tohave been performing better onthe average than their peers. Structural policies are guided byother than competitiveness priorities: absorption ofEU Funds, short-term maintenance ofemployment and the broadest possible political satisfaction with spreading support thinly. Entrepreneurship and innovation are not infocus.
(3) Source: Greek National Documentation Centre.
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Given the bureaucracy, the role ofintermediaries and allegedly corruption the best Greek companies are not among the best performers ofsupport schemes. There may bealiquidity trap (companies interested incash rather than growth are taking the trouble ofsubmitting proposals, and many ofthem disappear after that). Evaluations and impact assessment studies are practically absent inthe country. Although the evaluation obligations tothe Structural Funds are met (with delays and quality worries, but they are) there are noreal assessments oflonger-term impacts. Hence, itis unlikely topursue evidence-based policies since the evidence itself islacking.
Conclusions
Growth inthis case obstructed innovation. One may argue that the transfer ofresources created amutation ofthe Dutch disease. The reaction tothe crisis led tosignificant contraction ofdemand. While some efforts tomake itup with exports were undertaken successfully, they were insufficient. In particular, the credit crunch, affecting equally insolvent and solvent companies, isdraining the more competitive part ofthe economy. With the combination ofaccumulated structural problems, noaccess tothe capital markets and contracting GDP, Greek economic policy iscalled tocut the Gordian knot. Stabilise the economy and atthe same time finance innovation-led growth and envisage behavioural change. All this, while there islimited emphasis onproducing the necessary evidence todocument better intervention.
Some Thoughts onEU Innovation Policies inGreece

Georges Siotis(4) A combination ofweaknesses
Greece >> >> Malfunctioning state, in(almost) all its facets. Dutch disease.
(4) Senior Economic Adviser, Task Force for Greece, Universidad Carlos III de Madrid, and CEPR.
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EU >> Metric for performance? Objective function? Need for ex-post evaluation. -- In-house, commissioned, academics?
Evaluation?
>> >> (Financed by3rd CSF). : SOL (Seismos OnLine), , . : PCSYSTEMS .. : 987000.
>> >>
The proposal consisted increating websites togive early information tocitizens. The web addresses mentioned inthe proposal were: www.sol.gr and www.seismos.gr >> >> >> If you type inthe first entry, you get the following message: Bienvenue sur www.sol.gr. sol.gr offre des liens vers des sites web sur lethme . For along time, seismos.gr (the second entry) did not exist. Now itdoes, but itis presented asaservice ofmykosmos.gr, which issimply acommercial information aggregator. There isno mention tothe 3rd CSF (maybe itis because one would really wonder why EUR1 million ofpublic money was necessary tofund seismos.gr. Ormaybe because this page has nothing todo with the initial project).
>>
Some challenges
>> Requirement toprovide bank guarantees imposed bythe Greek Finance Ministry risk driving away SMEs from EUfunded innovation projects. Excellence? Proper and systematic evaluation ofresearch institutes and universities/departments (e.g. RAND Report). Greece does rather well interms ofscience indicators (e.g. captures alarge share ofEU research funding inview ofit size, decent scientific publication record). ERC experience.
>>
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Possible avenues toexplore

>> Existing research institutes could bere-grouped along the lines ofaFrench-like CNRS (or areduced number thereof) and relations with universities could beinstitutionalised. Could bean opportunity tocreate more flexible structures. Research institutes could begeographically clustered toachieve critical mass and achieve savings infixed costs (e.g. benefit from shared infrastructure). Such aresearch campus could also host enterprise incubators, ormore generally, attract research-oriented firms inits vicinity. Attica Science and Innovation Campus project. AGreek version ofBerlins Adlershof? >> Public procurement: currently, Greece dos not have the ability toemulate smart procurement strategies. The time taken tocomplete aprocurement procedure islonger inGreece than inany other Member State apart from Malta. Numerous opportunities tostall the procedure via court appeals. More than 5000 procuring bodies. Greece has yet todevelop anational e-Procurement infrastructure. Inducement prizes? (Innovation understood inabroad sense). Obtaining aGreek patent ischeap. However, ifafter 18 months itis not turned into anEPO orTriad patent; itcan befreely copied outside Greece (-> preference for trade secrecy). EPO patents are beyond the reach ofmany Greek firms oreven research institutes. One avenue worth exploring would beto have anagency responsible for pooling patents and screen them. For the most promising ones: IPRs. Revenues generated bythe few successful patents would cover the agencies costs (and share the revenues between the agency, the inventor, and the institute/university according toapredetermined formula). The UKexperience (BTG) could beused asamodel.
>>
>> >>
>> >>
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Concluding remarks
>> >> >> Need togo beyond business asusual. In any event, avoid the saupoudrage orcaf para todos. Next programming period? Importance ofevaluation.
5. Finance for Innovation and Growth
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Financing for Innovation: Addressing Europes Early Stage Venture Gap

Reinhilde Veugelers(1) Why wecare about VC
>> Remedying the European Unions deficient overall business research and development performance will require more emphasis tobe put onnurturing more new firms innew sectors, enabling them togrow toleading-innovator status(2). The specific barriers faced bythese companies need tobe addressed. This includes addressing their access toexternal finance. On the funding escalator, VCis acritical finance source atthe early phase ofcommercialisation andgrowth. The VCmarket has been crisis hit, particularly inEurope and for the higher risk early-stage projects(3).
>>
>>
>>
Specifics ofearly-stage VCfunding

>> Skewedness onthe demand side: The number ofcompanies looking for equity finance isarelatively small percentage ofthe total company population: aspiring Yollies. Skewedness onthe supply side: Net returns result from the realisation ofasmall minority ofexceptional investments within the portfolio.
>>
The VCmarket
>> Two tyrannies (G. Murray): project risk; scale-related costs (fixed costs ofdue diligence, deal negotiation and deal involvement). >> Only sufficiently developed (thick) VCmarkets can build the critical scale and expertise needed toovercome these tyrannies and avoid anearly stage VCgap.
(1) i4g, Professor atKU Leuven, Senior Fellow atBruegel. (2) See Cincera & Veugelers, 2010, Europes missing Yollies, Bruegel Policy Brief. (3) See OECD, 2012, STI report.
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Public intervention for VCin Europe

>> >> >> Developing aviable thick VCmarket isalong-term project: noquick fixes. In early stages, high vulnerability for (crisis) shocks. Beyond the quantity ofVC available, what matters more ishow effectively the market allocates funds tothe most promising projects: smart VCfunding, which requires thick markets. Government should not replace/crowd out, but instead leverage private market forces.
>>
To address Europes thin market for early-stage VCeffectively, publicintervention should:

>> be embedded within abroader innovation policy toensure asufficient supply ofprofitable projects tofund; be aninterconnected set ofpolicy instruments ateach stage ofthe funding escalator where there isamarket failure: complementarity with public R&D grants, support for angel funding, loans, etc. >> Not fall into the local isbeautiful trap: anintegrated and open EUVC market: remove barriers tooperate atEuropean scale; remove barriers for global operations (in- and outward). >> Not fall into the small and short isbeautiful trap. Small funds are often not viable and have insufficient financial resources tocover their high fixed costs (especially expert management), diversify their portfolios orprovide the follow-on funding tothe most promising investments intheir portfolios: remove barriers togrow for VCfirms.
>>
Suggestions for EU-level interventions

>> Supporting Member State initiatives: the EUlevel can provide toMember States alarger arena for policy learning; diffusion ofbest practices; state aid framework. >> Re-aligning existing EUinstruments into aholistic policy framework:
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the EUhas inplace anumber ofinstruments and initiatives, such asloans from the EIBs Risk Sharing Finance Facility, and Framework Programme project funding; these instruments should beredesigned aspart ofaholistic approach tobetter serve the funding escalator. >> Closing gaps inthe funding escalator with new EUinitiatives.
Suggestions for new initiatives atEU level

>> Grants for Yollies tobridge the lab-to-market gap(4): currently indevelopment atDG RTD; see also ERC, Prototype Funding Scheme; implementation should ease transition tofollow-up VCfunding (certification). >> A fund-of-funds toleverage Europes early-stage VCmarket. When the European Commission isproposing afund-of-funds, aspart ofthe Horizon 2020, itshould get aclear mandate for atargeted temporary stake-taking inprivate VCfirms inEurope, who have the potential togrow tocritical scale and contribute tobuilding athick European VCmarket. To avoid overlap, itshould bealigned with EIF activities.
The Role ofPublic Capital inFinancing Innovative Companies: Shifting from Venture toSeed Capital Investment
Andrea Bonaccorsi(5) and Marco Montaina(6) Main reasons for the equity gap for start-up companies inEurope
>> The secondary market (for unlisted companies) issmall, illiquid and still fragmented across MemberStates. Bankruptcy law places aconsiderable risk onboard members ofthe companies.
>>
(4) See Bruegel Policy Brief (2009/01): Grants for high risk taking innovative projects ofinspiring Yollies. Itis based toagreat extent onthe USSmall Business Innovation Research Grants programme. (5) I4g, University ofPisa, Italy. (6) Association ofItalian Private Equity and Venture Capital.
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>> >> >>
Fiscal fragmentation among national markets. Entrepreneurial culture not oriented towards growth. Absence ofafully integrated Common Market insome strategic areas for final products (see for example the Report ofthe Expert Group onThe future ofcommunity research policy).
We suggest the single most important factor isthe weakness ofthe Seed Capital sector.
Seed Capital:
>> concentrates onthe very early stages ofyoung innovative companies, which are characterised byhigh levels ofinvestment risk; is aimed atsupporting companies inmoving from the idea orprototype stage tothe first commercial revenues; offers limited amount ofequity capital (typically inthe range ofEUR200-300000 and usually not beyond EUR500000).
>>
>>
Business angels good solution but not enough

Seed Capital investments are often performed bybusiness angels, which are normally considered tobepart ofthe VCmarket, asprivate actors. While this ispartially true, italso has tobe considered that, due togenerous fiscal policies oncapital gains, business angels tend tobe, defacto, private agents ofapublic principal. Business angels alone cannot provide the large scale Seed Capital investment currently needed inEurope.
The role ofthe public sector

>> >> Recognition ofamarket failure Regional, national and EUpolicies have mobilised resources tosupport the emergence ofaSeed Capital sector.
Dominant model
>> >> Public-private partnership. Provision bythe public side ofequity capital tobe invested into aninvestment fund, tobe managed byafinancial intermediary specialised inVC. Public participation tothe ownership ofthe financial intermediary, typically with membership ontheBoard.
>>
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>>
Various pro-private market clauses (e.g. recognition ofadvance distribution ofearnings, safety nets, differential rates ofreturn tothe investment). Partial eligibility ofmanagement expenses with respect topublic schemes (e.g. EUfunding). Overall goal: toraise the (implicit) rate ofreturn ofoperations atthe early stage.
>> >>
Limitations ofthe public-private model

>> Operational model ofVC management companies means: top professional people; high costs for compliance tofinancial regulation; high fees for legal services; very high fixed costs; and expensive due diligence procedures. >> Structurally oriented towards ventures that imply: large markets; high growth rates; high but computable risk; relatively mature opportunities; the availability ofpublic capital does not result inorientation towards investment inthe early stage (=small scale, high risk, immature projects), but inincreasing the expenses for the selection ofprojects that are consistent with the VCoperational model; slow decision-making process; high transaction costs between public and private actors; and (sometimes) interference ofpolitical considerations atthe project selection stage.
From horizontal tovertical division oflabour betweenpublicandprivate

>> The public-private VCmodel isahorizontal division oflabour: the private and public sectors intervene atthe same level ofthe value chain.
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>> >>
But this model does not work appropriately. The availability ofpublic capital does not change the structural orientation ofVC management companies toinvest into relatively large, mature, high-growth opportunities. Seed Capital remains largely unexploited.
>>
Need toswitch toamodel ofvertical division oflabour

>> >> >> The public sector specialises inthe Seed Capital segment, investing public resources only. However, the public sector adopts efficient management models. The output ofthe Seed Capital cycle, managed with public resources, isthe input ofthe VCcycle, managed entirely with private resources.
An operational model for public Seed Capital

>> >> >> A Seed Capital Fund (SCF) iscreated with public resources. The management isdelegated toan investment vehicle. The investment vehicle would berequired torespect anumber ofconditions, including: invest only inequity orquasi equity instruments that are directly issued byyoung innovative companies inthe seed capital phase; take only minority stakes inthe target company; do not ask for aposition onthe board ofdirectors ofthe target company; prior toinvesting, require all shareholders ofthe target company tosign anagreement according towhich they are bound torepurchase the Seed Capital Fund stake after agiven period (e.g.three years from the investment, with apossible postponement for given reasons upto five years); the agreement must besigned byall shareholders insolidarity (in order toavoid adverse selection and moral hazard); do not invest with the goal ofmaking profits; and do not invest more than EUR500000 for each target company.
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Due diligence
The selection ofyoung companies will becarried out onthe basis ofasimplified due diligence that will, however, take into consideration all elements ofthe business plan and also the potential for future funding steps. The service will beprovided atafraction ofthe market cost. The due diligence process would becarried out byateam ofprofessional evaluators and firms ofproven experience inthe relevant sectors, compensated onafee basis. The public body setting upthe SCF will contract the due diligence team through anumbrella agreement following apublic evidence procedure. The SCF will monitor the accounts oftarget companies byappointing one member within the accounting certification board.
Price ofrepurchase ofshares

Depending onthe circumstances, the price ofrepurchase can beeither fixed inadvance, which isthe most favourable option tothe entrepreneur, orex-post, according toclear accounting rules defined inadvance (option most favourable tothe vehicle). In the case ofan ex-ante definition ofthe price, there might bean element ofstate aid, tobe evaluated according tothe regulation.
Evaluation ofgoodwill
Considering that young innovative companies are often brain-intensive and, consequently, their intangible assets are difficult toevaluate legally aspart ofthe equity capital orcollateral, the SCF could accept adilution ofits share, following aprocedure ofevaluation ofgoodwill.
Legal discipline ofthe Seed Capital Fund

Since the SCF does not raise funds with the intention todeliver aninvestment return orprofit toits investors, itwould not, atleast intheory, qualify asan Alternative Investment Fund, thus falling outside the scope ofboth the AIFMD and the VCregulation (which applies tothe same category offunds). The SCF will, however, still qualify asacollective investment undertaking with adefined investment policy, and itwill besubject tonational supervision authorities and juridical frameworks. When considering the optimal regulatory framework ofthe SCF, itis important totake into consideration the specific characteristics and operating conditions ofSeed Capital vehicles. Since these funds usually manage (and invest) alimited amount ofcapital, they pose anearly non-existent systemic risk. Because oftheir small dimensions, such vehicles greatly benefit from alight and flexible management structure.
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Smart, Inclusive, and Sustainable Growth: Risks and Rewards inInnovation

Mariana Mazzucato(7) Why were the 1990s sosmart but not inclusive?
>> Growth: real per capita productivity gains (from smart growth) that can raise standards ofliving. Equity: gains from growth shared fairly among those who contribute toit. Stability: employment and income that isnot subject toboom and bust. Sustainability: growth that isenvironmentally friendly and also replicable.
>> >> >>
Punch-line:
We need specific mechanisms toallow this; itwill not happen onits own.
Real GDP per capita, 1960-2009

2009 dollars
50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0
United states: economic growth
Real GDP per capita, 2009$
19
62
19
63
19
66
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
(7) i4g, University ofSussex SPRU, UK.
66
Gini coefficient for all US families, 1947-2009

Gini coecient
0,46 0,44 0,42 0,40 0,38 0,36 0,34
19 47 19 51 19 55 19 59 19 63 19 67 19 71 19 75 19 79 19 83 19 87 19 91 19 95 19 99 20 03 20 07
The great u-turn
MORE EQUALITY
Gini coecient
GROWING INEQUALITY
United States, annual growth rate, real GDP per capita, 1960-2009
Annual growth rate
8 Annual growth rate, real GDP per capita 6 4 2
Unstable growth 1960-2009
0 -2 -4
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
20
09
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inequitable growth 1979-2009

%
240 200 160 120 80 40 0 Productivity Average income of top 1 %
Average overall wages
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
20
09
http://www.motherjones.com/politics/2011/06/speedup-americans-working-harder-charts
Innovation and Inequality

1. Classical Economists (Ricardo: Chapter onMachinery) paid attention toeffect ofmechanisation onprofits/wages. 2. Skill biased technological change (Acegmoglu 2002). But where doskills come from? Notheory ofinnovation. Notheory ofthe top 1%. 3. Welfare state (Wilkinson 2005), globalisation (Mazur 2000), de-unionisation (Freeman 1992). Not enough attention has been paid tothe tension between how value iscreated and how value isextracted inmodern day capitalism. Implications for dysfunctionality ofinnovation eco-systems.
Risk-Reward Nexus
Characteristics ofinnovation and dynamics ofinequality (Lazonick and Mazzucato, 2012): >> >> Uncertain (Knight, 1921). Collective (Systems ofInnovation).
68
>>
Cumulative (dynamic returns and path-dependency): uncertainty Investments ininnovation entail risk-taking. who takes the risk? Innovation iscollective: need toexamine who invests ininnovation inthis collective process. who gets the rewards? Innovation iscumulative: creates the opportunity for parties who did not take the risks toreap the rewards.
UK financial intermediation and aggregategrossvalueadded

%
400 350 300 250 200 150 100 50 0 Aggregate real GVA Financial intermediation GVA Rebalancing what? Industrial policy cannot ignore distribution (prots, rents, wages)
19
45 950 1
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
09
Source: Bank of England, 2011
The Entrepreneurial State

>> >> Government does not only fix markets but does what private sector isnot willing todo. Catalyst, and lead investor, sparking the initial reaction inanetwork. Creator not only facilitator ofknowledge economy. Mission oriented (Mowery 2010). Engaging with very high risk, uncertainty, radical change. Courageous, but abit nave onthe returns.
>> >> >>
I4G RESEARCH & InnOVATIOn POLICy WORkSHOP InnoVATInG ouT of ThE CRISIS
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nATIOnAL InSTITUTES OF HEALTH BUdGETS 1938-2011

2011$billions
35 30 25 20 15 10 5 0
1938 1940 1942 1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Total NIH spending, 1936-2011 in 2011 dollars=$792 billion NIH budget for 2012=$30.9 billion
NIH Budget 2011$b
Source: http://officeofbudget.od.nih.gov/approp_hist.html
(VC will ride the wave, who will kick/push?)

High Wind farms Utility-scale solar First-gen biofuel refineries Fabs for solar cell using established technologies
TECHnOLOGy RISk In CLEAn TECH
Capital intensity of project
First commercial plants for unproven solar cell technologies Advanced biofuel refineries Offshore wind farms Carbon sequestration
Wind and solar components of proven technologies Internal combustion engines Insulation/building material Energy efficiency services
Energy efficiency software Lighting Electric drive trains Fuel cells/power storage Wind and solar components of unproven technologies
Low
Technology risk
High
Source: Ghosh and Nanda, 2011
Who takes the risks, who gets the returns?

A new pharmaceutical product that brings in more than USD 1 billion per year in revenue is a drug marketed by Genzyme. It is a drug for a rare disease that was initially developed by scientists at the National Institutes of Health. The firm set the price for a years dosage at upwards of USD 350 000. While
70
legislation gives the government the right to sell such government-developed drugs at reasonable prices, policy makers have not exercised this right. The result is an extreme instance where the costs of developing this drug were socialised, while the profits were privatised. Moreover, some of the taxpayers who financed the development of the drug cannot obtain it for their family members because they cannot afford it. (Vallas et al. 2011).
InnOVATIOn IS COLLECTIVE, UnCERTAIn And CUMULATIVE
Some agents VC and large shareholders enter late, but reap integral under curve
VC
Time
Source: Lazonick and Mazzucato, 2012
Capturing the rewards

> Certain parties position themselves to reap rewards far beyond the risks that they have taken, with direct access to returns in product markets or to gains on financial markets. Top executives: stock-based compensation that depends on control of corporate boards and stockmarket manipulation. Venture Capitalists: exit on the speculative stock market (NASDAQ), often with PLIPOs (product-less IPOs) equity investors often take capital gains even when the venture generates no products, let alone profits. Private equity firms: load up industrial firms with debt, pay themselves dividends, fire workers, and make a killing. Hedge funds: 2/20 system for managing other peoples money fund managers can win even when investors lose and even when investors win, rewards hugely disproportionate.
>
>
>
>
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What sort ofinnovation eco-system?

Parasitic vs. symbiotic.
What tospend profits on? R&D orstock price?

In 2011, along with USD6.2 billion individends, Pfizer repurchased USD9 billion instock, equivalent to90% ofits net income and 99% ofits R&D expenditure. While consumers pay inflated price for drugs, big pharma allocates billions tobuy-backs, and then finds that itdoes not have new blockbusters inthe pipeline toreplace those whose patents are now expiring. Amgen, the largest dedicated biopharma company, has repurchased stock inevery year since 1992, for atotal ofUSD42.2 billion through to2011, including USD8.3 billion in2011. Since 2002, the cost ofAmgens stock re-purchases has surpassed the companys R&D expenditures inevery year except 2004, and for the period 1992-2011 was equal tofully 115% ofR&D outlays and 113% ofnet income (source: Lazonick and Tulum, 2011).
Stock repurchases, dividends, net income, R&D expenditures, 1980-2006 (Lazonick 2011)
Ratio
2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 RP/NI TD/NI (TD+RP)/NI RP/R&D
19
80
19
85
19
90
19
95
20
00
20
05 006 2
And itis happening again ingreen-tech!

The American Energy Innovation Council (AEIC) has spent atotal ofUSD237 billion onstock repurchases between 2001 and 2010. However, in2010 the AEIC asked for three-fold spending onclean technology toUSD16 billion annually, with anadditional USD1 billion given tothe Advanced Research Projects Agency for Energy (ARPA-E).
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The major directors ofthe AEIC hail from companies with collective 2011 net incomes ofUSD37 billion and R&D expenditures ofapproximately USD16 billion. That they believe their own companies enormous resources are inadequate tofoster greater clean technology innovation isindicative ofthe states true role asthe first driver ofinnovation. (Mazzucato, 2013 forthcoming).
Risks and Rewards

Moving beyond eco-system hype (old wine innew bottles) toadivision ofinnovative labour, and getting something back. Can tight EUbudgets afford toinvest inrisky innovation? How toreconcile investment (in expensive and risky R&D) with the golden rule ofdeficit reduction?
Nokia vs. Google

When SITRA, the Finnish Governments public innovation fund, provided the early-stage funding for Nokia, itlater reaped asignificant return onthis investment afact accepted bythe Finnish business community and politicians. The reason why the USGovernment has not reaped areturn from its early-stage investments incompanies such asGoogle (which benefitted from astate-funded grant for its early algorithm) and other such success stories including Apple, Intel and Compaq (which received public SBIR funding) isdue tothe lack ofunderstanding inthe USA, and many other economies, ofstate-led growth-inducing investments, which allow conservative forces toportray the state asonly amenace inthe economy.
Creative thinking ontools toclaim back returns

>> >> >> >> >> >> Innovation fund that firms pay into IPR golden share Income contingent loans Public VC(reinvested back), e.g. SITRA Shares National Investment Bank (e.g. Brazils BNDES, 21% return onequity).
Lazonick and Mazzucato (2012), Risks and rewards inthe innovation-inequality relationship, FINNOV DP2.11.
6. Annexes
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6. Annexes
Innovation for Growth i4g

Programme
Relation of research and innovation with smart, sustainableandinclusive growth
i4g Research & Innovation PolicyWorkshop

Innovating out of the Crisis
Wednesday, 28 November 2012 Venue
Berlaymont Building Rue de la Loi 200 1040 Brussels 3rd floor, room 3
8:45-9:15 9:15-10:45 Registration and Coffee 1. Opening session & key note: Innovating out of the Crisis Chair: Clara de la Torre (DG Research & Innovation, Director C) W elcome address, Clara de la Torre (DG Research & Innovation, Director C) O pening statement from Commissioner/Cabinet: The economics of innovation and the quest for new ways to smart, sustainable, and inclusive growth in Europe, John Bell (Head of Cabinet Research & Innovation) K ey Note: Innovating out of the Crisis, Luc Soete (ERIAB Chair) D iscussant: Martin Larch (DG ECFIN) O pen Discussion C oncluding remarks (implications for RDI policy making): Pierre Vigier (DG RTD C.6) Coffee Break 2. Innovative Public Procurement Chair: Frdrique Sachwald (i4g member) P resentation of the i4g Policy Brief on public procurement, Lena Tsipouri (i4g chair) A US contribution on Public Procurement of Innovation, David Mowery (University ofCalifornia at Berkeley) D iscussants: Charles Edquist (Lund University), Jaroslav Kracun (DG MARKT C.3) Open Discussion Concluding remarks (implications for RDI policy making): Peter Droell (DGRTD C.1)
10:45-11:00 11:00-12:45
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12:45-13:30 13:30-15:15
Lunch Break 3. The Innovation Divide: What Policies for Cohesion Countries? Chair: Andrs Rodriguez-Pose (i4g member) P resentation of the i4g Policy Brief Innovation in cohesion countries: the case of Greece, Lena Tsipouri (i4g chair) O bservations from the European Commissions Task Force for Greece, George Siotis D iscussants: Mikel Landabaso (DG REGIO), Gianluca Spinaci (Committee ofthe Regions) O pen Discussion Concluding remarks (implications for RDI policy making): Dimitri Corpakis (DG RTD C.5) Coffee Break 4. Finance for Innovation & Growth Chair: Maureen McKelvey (i4g member) Presentation of the i4g Policy Brief on Financing Innovation, Reinhilde Veugelers, (i4g member) P resentation of the i4g Policy Brief on seed capital, Andrea Bonaccorsi (i4g member) P resentation of the i4g Policy Brief on reforming finance, Mariana Mazzucato (i4g member) D iscussant: Marc Schublin (European Investment Fund EIF) O pen Discussion C oncluding remarks (implications for RDI policy making): Jean-David Malo (DG RTD C.3) Concluding Session Chair: Lena Tsipouri (i4g chair) Take away from this workshop, point of view of the Cabinet (John Bell, Head of Cabinet Research & Innovation) Discussion on the prospective i4g work programme 2013 Concluding remarks, Lena Tsipouri (i4g chair)
15:15-15:30 15:30-17:30
17:30-18:00
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6. Annexes
List of speakers
1. Opening session & key note: Innovatingoutofthecrisis
Clara de la Torre
Clara de la Torre is Director responsible for Research and Innovation in the European Commission. Before that, she was Director responsible for Inter-institutional and legal matters related to the Framework Programme in DG Research also at the European Commission. Her professional career mainly focussed on research policy where she started her activities at the European Commission in 1987. She covered awide variety of fields ranging from programme evaluation to energy research or socio-economic analysis. In the late 1990s, she dealt with National Research Policies & Intergovernmental Cooperation. She also represented the European Union in non-EU schemes such as EUREKA. She also worked at the Joint Research Centre both in Brussels and Seville, where she was advisor to the Director of the Institute for Prospective Technological Studies. Clara de la Torre has a degree in Economics and Business Administration (Specialisation in Quantitative Economics) at the Universidad Autnoma of Madrid.
John Bell
Head of Cabinet of Commissioner Mire Geoghegan-Quinn for Research and Innovation John Bell had previously been Head of Cabinet of the Commissioner for Health and Consumer Affairs. Before that he was Head of Strategy & Analysis (Unit O2) in the Health and Consumer Protection Directorate-General (DG SANCO) of the European Commission, dealing with better regulation, future policy strategy, and modernising governance. He has been a Commission official since 1993. Since then he has worked on a range of issues from project and financial management on ex-Yugoslavia, to public administration reform across Central and Eastern Europe. As Poland Country desk officer he managed the Europe Agreements trade, legislative and political pre-accession relations and prepared the Commissions Opinion on Polands Membership. As a member of Cabinet with Commissioner David Byrne (EU Commissioner for Health and Consumer Protection 1999-2004) he was responsible for health and enlargement issues within the portfolio. Prior to entering the Commission he completed his doctorate on cultural nationalism in Northern Ireland at St. Johns College, Oxford, which followed his academic career specialising in Anglo-Irish studies at University College Dublin.
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Luc Soete
Luc Soete is Rector Magnificus of Maastricht University, the Netherlands. Previously he was Director of the United Nations University research and training institute: UNU-MERIT Professor of Internal Economic Relations and Director-Dean of the Maastricht Graduate School of Governance (MGSoG) at Maastricht University. He is a member of the Advisory Council for Science and Technology Policy (AWT) and the Royal Dutch Academy of Science (KNAW). Over the past 30 years, Luc Soete has contributed as (co-)author and (co-)editor to some 11 books, 50 refereed articles and some 100 chapters in books. In 2002, he received the MSM Honorary Fellow Award, in 2007 the Belgian Commandeur in de Kroonorde and in 2010 aDoctor Honoris Causa from his Alma Mater, the University of Ghent, from which he graduated in economics. He obtained a DPhil in economics from Sussex University where he worked as senior research fellow at the Science Policy Research Unit in the late 1970s and 80s.
Martin Larch
Martin Larch is Head of Unit in Directorate-General for Economic and Financial Affairs (DG ECFIN). In April 2008, he joined the Bureau of European Policy Advisers as adviser for EU Budget Review, Economic Policy in the Economic and Monetary Union, Country Developments. He joined the European Commission in June 2000 in the DG ECFIN, where he first worked as Desk Officer for Italy, assessing the economic situation and policy of the country in the context of the EU fiscal surveillance framework. In November 2006, he was appointed Deputy Head of the Unit in charge of Public Finances in the Euro Area and the EU, where he coordinated and contributed to the production and publication of the annual Public Finances in EMU report of DG ECFIN. Linked to his activities in DG ECFIN, he has published a number of articles on fiscal policy and policy surveillance in the EU in reviewed economic journals. Martin Larch obtained aneconomics degree and a PhD in economics from Vienna University. He followed doctoral and postdoctoral studies at the Institute for Advanced Studies, Vienna and the European Institute at the London School of Economics.
Pierre Vigier
Piere Vigier is Head of Unit Economic analysis and Indicators in DG Research and Innovation. Since April 2003, he has been holding positions in the European Commission related to the development of the European innovation policy, first in the Enterprise and Industry DG, then in the DG Research and Innovation. He is currently in charge of the dialogue with Member States for the Research and Innovation part of their national reform programmes, and for monitoring progress in the R&D intensity and Innovation Europe 2020 headline Innovation indicators. Pierre Vigier, holds three Masters Degrees in Law, Economics and Political Science. A specialist in European industry and innovation, he began his career within a number of ministerial Cabinet offices in France (Prime Minister and Foreign Affairs in particular) and at the Territory Planning Agency. He joined the European Commission in 1988.
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6. Annexes

Lena J. Tsipouri
Prof. Dr Lena J. Tsipouri is a professor in the Department of Economic Sciences at the University of Athens and a senior researcher in the Centre of Financial Studies of this University.
David C. Mowery
David C. Mowery is the Milton W. Terrill Professor of Business at the Walter A. Haas School of Business, University of California at Berkeley. He is Director, PhD Program, Haas School of Business, U.C. Berkeley and Deputy Director, Institute for Management, Innovation, and Organization as well as Research Associate, National Bureau of Economic Research. At Haas since 1988 2009-present, William A. & Betty H. Hasler Chair in New Enterprise Development 1988-present, Professor, Haas School of Business Director, PhD Program, Haas School of Business Deputy Director, Institute for Management, Innovation, and Organization Research Associate, National Bureau of Economic Research 1982-1988, Assistant and Associate Professor, Social and Decision Sciences Department, CarnegieMellon University 1987-1988, Assistant to the Counselor, Office of the United States Trade Representative 1987-1988, Fellow, Council on Foreign Relations International Affairs Fellow 1986-1987, Study Director, Panel on Technology and Employment of the National Academy of Sciences 1984-1986, Visiting scholar, Center for Economic Policy Research, Stanford University 1981-1982, Post-doctoral Fellow, Harvard Business School
Charles Edquist
Charles Edquist has been the Holder of the Ruben Rausing Chair in Innovation Research at CIRCLE, Lund University, Sweden, since February 2003 and before that he had held a Chair at the University of Linkping. His publications include numerous books and articles on innovation processes, innovation systems and innovation policy. Of these, the edited volumes Systems of Innovation: Technologies, Institutions and Organizations (1997) and Small Country Innovation Systems: Globalization, Change and Policy in Asia and Europe (2008) constitute major contributions to the development of the so-called Systems of Innovation (SI) Approach. So does the chapter Systems of Innovation: Perspectives and Challenges (2005), in the Oxford Handbook of Innovation. He has made many contributions to the field of innovation policy and governance of innovation systems, the latest being the articles in Industrial and Corporate Change (2011) and Research Policy (2012). He is among the 50 (or so) most cited innovation researchers (out of 6-7 000) in the world.
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He was one of the founders of CIRCLE (Centre for Innovation, Research and Competence in the Learning Economy) at Lund University in 2004. At present, he is working mainly as a researcher and as an advisor to governments and firms on issues related to innovation policy and strategy in a wide sense.
Peter Drll
Peter Drll is Head of Unit DG RTD C1 Innovation Policy. In 2003 he worked in the Cabinet of Commissioner Gnter Verheugen. In 2004, he was appointed as Head of Cabinet of the Science and Research Commissioner Janez Potonik (Science and Research). In May 2008, he became Head of the Innovation Policy Development Unit in the Commissions Enterprise and Industry Department. In 1991 Peter Drll began his career for the European Commission working in a variety of Directorates-General, including DG Financial Control, DG Environment and DG Enlargement. Peter Drll is a lawyer by training with a PhD in German constitutional law and European law. After two years as lawyer in a regional law firm specialised on the law of contracts, he joined the European Commission.
3. The Innovation Divide: What Policy forCohesionCountries?

Lena J. Tsipouri
Prof. Dr Lena J. Tsipouri is a professor in the Department of Economic Sciences at the University of Athens and a senior researcher in the Centre of Financial Studies of this University.
Gerhard Stahl
Gerhard Stahl has been Secretary-General of the Committee of the Regions (CoR) since 1 April 2004, currently in the course of his second five-year term of office (2009-14). In September 2002, he was appointed Director for Consultative Work at the CoR. He also worked in the European Parliament and on the regional level in Schleswig-Holstein at the Ministry for Economics, Transport and Research and later on as Director-General for European and International Affairs at the Ministry for European and Federal Affairs. In this role, he specialised in EU policy preparation for the Bundesrat, the German legislative second chamber, and inter-regional cooperation projects. From 1995-99, Gerhard Stahl was a Member of the Cabinet of European Commissioner for Regional Policy Dr Monika Wulf-Mathies. From 1999-2002, he was Deputy Head of Cabinet for Pedro Solbes, the European Commissioner for Economic and Monetary Affairs. He was educated in his home city and went on to graduate in economics at the Technical University in Berlin, where he had his first professional post as an assistant to the chair of public finance. He then spent three years working as an economist at the Federal Ministry of Finance in Bonn.
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6. Annexes
Mikel Landabaso
Mikel Landabaso is DG REGIO Head of Unit of thematic cooR&Ination and innovation at the European Commission. He has worked in DG REGIO since 1990, both in Horizontal Units on policy conception and in Geographical Units on policy implementation, including working as the Assistant to the Director General. Previously he was Head of the Research Department at the Basque regional development agency SPRI. He was given the 2004 annual Christiane Bom Award by the European Regional Development Agencies Association EURADA for his contribution to innovation in European regional policy. He has a PhD in Economics (University of the Basque Country), Diploma in Advanced European Studies (College of Europe), and MA in Development Economics (University of East Anglia). He has been a Visiting Scholar at the University of North Carolina at Chapel Hill and he was part-time professor of regional development at the Free University of Brussels and the University of Deusto.
Dimitri Corpakis
Dr Dimitri Corpakis is currently Head of Unit on Regional Dimension of Innovation. Previously, he had the same function in Horizontal Aspects and Coordination at the Directorate Science, Economy and Society of DG RTD. Throughout his period of work at the Commission, Dimitri Corpakis has followed closely the key issues surrounding regional aspects, employment and the Internet. An engineer by training, Dimitri Corpakis has to date more than 26 years of experience in European Affairs. Before joining the European Commission in 1990, he worked as an EU expert with the Greek Ministry of Education. His Brussels career started in 1990 (Education and Training) before moving in 1992 to the area of R&D. After an assignment with the ESPRIT Programme (European Strategic Programme for Research in Information Technologies), he moved to the R&D policy area, with personal contributions to several initiatives (moving towards e-Science, setting-up the European Research Advisory Board EURAB, and Regions of Knowledge).

Reinhilde Veugelers
Prof. Dr Reinhilde Veugelers is a full professor at KULeuven, Belgium at the Faculty of Economics and Business, where she teaches international business economics and game theory. She is a Senior Fellow at Bruegel and a CEPR Research Fellow. She was in the Chair for the first year of i4g.
Andrea Bonaccorsi
Prof. Dr Andrea Bonaccorsi is professor of Economics and Management at the University of Pisa, Italy. Heis member of two High Level Expert Groups at DG RTD.
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Mariana Mazzucato
Prof. Dr Mariana Mazzucato is a professor in Economics at the University of Sussex, UK, where she holds the RM Phillips Chair in Science and Technology Policy.
Marc Schublin
Marc Schublin is Director of Strategic Development and EU Policies of the European Investment Fund EIF. Since 2005, Marc Schublin was Head of the JEREMIE Programme (Joint European Resources for Micro to Medium Enterprises), a joint initiative of the European Commission, the European Investment Bank (EIB) and the European Investment Fund (EIF) to improve SME access to finance in the framework of European regions. Marc Schublin has longstanding professional experience within the EIB. He was previously Senior Loan Officer, Deputy Head of the EIB Brussels Office and Senior Coordination Officer. From 2000 to 2005, he worked as Head of Coordination and Advisory Services for the EIF where he was in charge of relations with the Commission and the EIB, the EIF Business Plan, as well as institutional issues.
Jean-David Malo
Jean-David Malo is Head of Unit RTD-C03 Financial engineering and the Commissions Designated Service Manager for RSFF implementation. He graduated from the Institut National Suprieur des Sciences Economiques et Commerciales (Paris) and the University of California (Berkeley), USA. He started his career as Head of Internal Control Management in the Comit Professionnel de la Distribution de Carburants in France, before joining ARMINES, a body managing contractual research and innovation for French engineering schools (Ecoles des Mines, Ecole Polytechnique, ENSTA), where he created, developed and managed the European Affairs Directorate. Jean-David Malo joined the European Commission in January 2001.
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6. Annexes
High Level Economic Expert Group

Innovation for Growth i4g Relation of research & innovation with smart, sustainableandinclusive growth
1. Mission
The mandate and the mission of the High Level Economic Policy Expert Group i4g is related to the policy implementation of the Innovation Union. The experts shall provide the best possible advice on policy impacts of research and innovation to the Commission. i4g will assess the socio-economic impact and the potential of research and innovation actions to deliver welfare to European citizens, and review best research and innovation cases and practices and forward suggestions for R&I policies. Tasks in detail are the following: >> Advice to the Commission on policies for research and innovation and how to turn them into growth, based on evidence and analysis from the academic literature. Assessment of the impact and the innovation potential of actions in the context of the Innovation Union Flagship Initiatives. Explore new avenues for R&I policies. Recommendations and suggestions on how to make the Innovation Union work at European, national and regional levels within a global context. Support to the Commissioner on communication and dialogue on research and innovation policies with stakeholders at European, national and regional levels.
>>
>> >>
>>
The group will work in close interaction with the Commission services and take into account the evolving discussions at political level.
2. Involvement
Socio-economic benefits of ERA
Invitation by DG RTD to run the ERA Benefits Panel initiated by RTD B1 as a sub-group of i4g. Participation of i4g Panel members (A. Bonaccorsi, L. Tsipouri, M. Mazzucato to give presentations to the ERA Stakeholder Conference, held 20 January 2012 in Brussels. Report: Socio-economic benefits of the European Research Area.
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AGS Annual Growth Survey of the Commission

>> >> >> >> Invitation to brainstorming AGS outline in Cabinet with i4g chair. Presentation of first draft of opinion of AGS 2012 to Cabinet. Informal presentation to President of the Council (Van Rompuy). Main contribution to workshop Innovating out of the Crisis.
3. Overview on activities
>> Summing up the first years results at workshop Innovating out of the Crisis held 28 November with Cabinet and selected participation of other concerned Commission services at the Berlaymont building. Enlargement of i4g to 15 members for second year of existence.
>>
4. Policy Briefs
1. Innovating Out of the Crisis: Designing a New European Annual Growth Strategy? (L. Soete). 2. Public Procurement of Innovation (L. Tsipouri). 3. i4g comments on the Socio-economic Benefits of the European Research Area report. 4. Financing for Innovation: Addressing Europes Early Stage Venture Gap. 5. The Public Role in Financing Innovative Companies: Shifting from Venture Capital to Seed Investment (A. Bonaccorsi). 6. Innovation in Cohesion Countries: The Case of Greece (L. Tsipouri). 7. Seizing the Opportunities of Service Innovation (M. Stare). 8. Smart Specialisation and the New Industrial Policy Agenda (D. Foray). 9. Smart and Inclusive Growth: Reforming the Risk-reward Nexus in Innovation (M. Mazzucato). 10. Research Excellence in European Universities draft (A. Bonaccorsi). 11. Public Research Systems and Innovation in Europe draft (J. Allmendinger).
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6. Annexes
5. Support studies for i4g policy papers

Service innovation
>> Programmes to Support Research and Innovation in Services, Walter Ganz, Jens Neuhttler, Fraunhofer Institute, IAO Stuttgart. Services: Innovation, Performance and Public Policy, Faz Gallouj, University Lille 1. Frugal and Inclusive Innovation in India and the New Global Agenda, R.A.Mashelkar, National Laboratory, Pune, India (in preparation).
>> >>
Governance of high-tech innovation

>> >> Public Procurement of Innovation in the US, David C. Mowery, University of California, Berkeley. Knowledge Flows in High-tech Industry Clusters Dissemination Mechanisms and Innovation Regimes, Bo Carlsson, Case Western Reserve University, Cleveland, Ohio (in preparation).
Globalisation of RTD and its impact for R&I policies

>> Changing Global Value Chains of Production and its Implications for Research and Innovation Policies, Garry Herrigel, University of Chicago (in preparation).
6. Areas of study for 2013-14 (planning)

>> >> Globalisation of R&I, impact and European policy responses. Regional aspects of innovation, Cohesion Countries and strategies (How to overcome theinnovationgap?). Inclusive Growth. Performance issue of the public research system. Service Innovation Public sector innovation. Finance for Innovation and Growth.
>> >> >> >>
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List of participants
Name Jutta Allmendinger Manuela Arata John Bell Andrea Bonaccorsi Jean-Claude Burgelman Dimitri Corpakis Anna Czlonkowska Marion Dewar Peter Droell Charles Edquist Dominique Forey Mark Nicklas Jocelyn Gaudin Sjoerd Hardeman Jonathan Haskel Fernando Hervas Johannes Klumpers Jaroslav Kracun Waldemar Kuett Mikel Landabaso Martin Larch Georges Lemonidis Patrick Llerena Sylvia Luber Toivo Maimets Jean-David Malo Mariana Mazzucato Maureen McKelvey Pierre Mohnen Pietro Moncada David Mowery Peter Piot Abel Polese Michel Praet Institution Innovation for Growth i4g European Research and Innovation Area Advisory Board (ERIAB) Head of Cabinet Research & Innovation Innovation for Growth i4g DG Research & Innovation, Head of Unit C.2 DG Research & Innovation, Head of Unit C.5 European Research and Innovation Area Advisory Board (ERIAB) Cabinet Research & Innovation DG Research & Innovation, Head of Unit C.1 Lund University, Sweden Innovation for Growth i4g DG Enterprise & Industry, Dep. HoU B.3 Joint Research Center (JRC) ISPRA Innovation for Growth i4g IPTS DG Research & Innovation, Head of Unit C.7 DG Internal Market and Services, C.3 (Public Procurement Legislation) Cabinet Research & Innovation DG Regional Policy, G 1, Competence centre smart and sustainable growth and Southern Europe DG Economic and Financial Affairs DG Enterprise & Industry, D.3 Innovation for Growth i4g DG Research & Innovation, C.2 European Research and Innovation Area Advisory Board (ERIAB) DG Research & Innovation, Head of Unit C.3 Innovation for Growth i4g Innovation for Growth i4g Innovation for Growth i4g IPTS University of California at Berkeley Chair, European Forum on Forward Looking Activities (EFFLA) DG Research & Innovation, C.2 European Council
86
6. Annexes
Name Mathias Rauch Bernd Reichert Andrs Rodriguez-Pose Frdrique Sachwald Marc Schublin Keith Sequeira George Siotis Luc Soete Gianluca Spinaci Metka Stare Johan Stierna Clara de la Torre Lena Tsipouri Reinhilde Veugelers Pierre Vigier Cornelis Mario Vis Marzenna Weresa Werner Wobbe
Institution DG Research & Innovation, C.2 DG Research & Innovation, Head of Unit C.4 Innovation for Growth i4g Innovation for Growth i4g European Investment Bank (EIB) Cabinet Research & Innovation European Commission, Task Force for Greece Chair, European Research and Innovation Area Advisory Board (ERIAB) Committee of the Regions (CoR) Innovation for Growth i4g DG Research & Innovation, C.6 DG Research & Innovation, Director C Innovation for Growth i4g (Chair) Innovation for Growth i4g DG Research & Innovation, Head of Unit C.6 Bureau of European Policy Advisors (BEPA) Innovation for Growth i4g DG Research & Innovation, C.2
European Commission i4g Research & Innovation Policy Workshop Innovating out ofthe Crisis Workshop Report 2013 86 pp. 17.6 x25 cm

I4g Report - Workshop November 2012

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I4g Report - Workshop November 2012

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i4g Research & Innovation Policy Workshop Innovating out of the Crisis

Directorate-General for Research and Innovation

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

1. Innovating out ofthe crisis

2. Innovative Public Procurement

(4) I4g Policy Brief N 2, Public Procurement ofInnovation (PPI).

3.  The Innovation Divide: What Policies forCohesion Countries?

4. Finance for Innovation & Growth

2. Opening Session & key note: Innovating out of the crisis

2. Opening Session & Key Note: Innovating out ofthe crisis

Welcome & Opening Speech

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

Innovating out ofthe crisis: somepersonal reflections

2. Opening Session & Key Note: Innovating out ofthe crisis

1. Achieving harmonised growth?

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

European research and innovation policy and competitiveness

On Europes rate oftechnical change

2. Opening Session & Key Note: Innovating out ofthe crisis

3% public knowledge investment vs. 3% fiscal consolidation

The alternative 3% target for 2020

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

Education expenditures as % of GDP

2. Achieving sustainable-friendly fiscal consolidation

2. Opening Session & Key Note: Innovating out ofthe crisis

Human welfare and ecological footprints compared

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

3.  Social cohesion and European public sectorintegration

Public investments as % of GDP

Source: European Commission, AMECO databank

2. Opening Session & Key Note: Innovating out ofthe crisis

functional expenditures in % of total government expenditures 2009

SOCIAL PROTECTIOn ExPEndITURES AS % OF GdP

HEALTH ExPEndITURES AS % OF GdP

North Europe Central Europe United Kingdom South Europe

2. Opening Session & Key Note: Innovating out ofthe crisis

Conclusions: Reaping policy synergies

3. Innovative Public Procurement

3. Innovative Public Procurement

Public Procurement ofInnovation (PPI)

The economic rationale

>> >> >>

(1) i4g, University ofAthens, Greece, Department ofEconomic Studies.

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

Experiences ofPPI (Who does what?)

>> >> >> >> >>

Three important questions

Problems and barriers (Why does itnot work fast enough?)

Suggested interventions (What todo next?)

3. Innovative Public Procurement

US Government Procurement Policy and Technical Change: ASelective Survey

Federal procurement spending, FY2010

(2) Haas School ofBusiness, University ofCalifornia, Berkeley, US.

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

Federal procurement spending by agency, FY2010

3. Innovative Public Procurement

defense and nondefense procurement spending, fy2010

Federal spending by nondefense agency, fy2010

i 4 g R esearch & I n n ovatio n P olic y W or k shop I n n o vati n g o u t o f t h e C risis

These procurement data exclude DARPA and SBIR

3. Innovative Public Procurement

3. The Innovation Divide: What Policies forCohesion Countries?

3. Social cohesion and European public sectorintegration