OECD Science, Technology, and Industry Outlook 2004
With prospects for economic growth improving across the Organisation for Economic Co-operation and Development (OECD) region, renewed attention is being directed to ways of tapping into science, technology, and innovation to achieve economic and societal objectives. As OECD economies become more knowledge-based and competition from emerging countries such as China and India increases, OECD countries will become more reliant on the creation, diffusion, and exploitation of scientific and technological knowledge to enhance growth and productivity.
Weak economic conditions limited science and technology (S&T) investments at the turn of the century: Global R&D investments, for example, grew at a rate of less than 1 percent between 2001 and 2002, compared to 4.6 percent annually between 1994 and 2001. As a result, R&D spending slipped from 2.28 percent to 2.26 percent of gross domestic product (GDP) across the OECD. Nevertheless, many OECD countries have introduced new or revised national plans for science, technology, and innovation policy, and a growing number of countries have established targets for increased R&D spending.
Virtually all countries are seeking ways to enhance the quality and efficiency of public research, stimulate business investment in R&D, and strengthen linkages between the public and private sectors. Most OECD governments have successfully shielded public R&D investments from spending cutbacks and, in many cases, have been able to increase them modestly. Although they remain far below the levels of the early 1990s, OECD-wide government R&D expenditures rose from 0.63 percent to 0.68 percent of GDP between 2000 and 2002 as budget appropriations grew, most notably in the United States. In many countries, a growing share of funding is linked to public-private partnerships.
To enhance innovation capabilities, OECD governments will have to shape policy to respond to challenges related to supplies of S&T workers, service sector innovation, and globalization. Although demand for scientists and engineers continues to grow, many countries foresee declining enrollments in related academic fields. Services account for a growing share of R&D in OECD countries—23 percent of total business R&D in 2000 compared to 15 percent in 1991—and the ability of service firms to innovate will greatly influence overall growth, productivity, and employment patterns. In addition, science, technology, and innovation are becoming increasingly global. The combined R&D expenditures of China, Israel, and Russia were 15 percent of OECD country R&D spending in 2001, up from 6.4 percent in 1995, and in many OECD countries, the share of R&D performed by foreign affiliates of multinational enterprises (MNEs) has increased. Policymakers need to ensure that OECD economies remain strong in the face of growing competition and benefit from the expansion of MNE networks.
The source of this information as well as much more data and analysis of the policy environment is the OECD Science, Technology and Industry Outlook 2004, available at www.oecd.org/sti/sti-outlook.
Business R&D spending declines
Even though industry-funded R&D has increased sharply in Japan and modestly in the European Union (EU) in recent years, OECD-wide R&D has declined because of steep cutbacks in the U.S. business sector. In addition, venture capital investments plummeted from $106 billion to $18 billion in the United States between 2000 and 2003, and from 19.6 billion to 9.8 billion euros between 2000 and 2002 in the EU.
Is the patent boom slowing?
Driven by the information technology and biotechnology sectors, applications filed at the U.S., European, and Japanese patent offices surged to 850,000 in 2002, up from 600,000 in 1992. Yet for reasons that are not yet clear, the surge in patent applications slowed dramatically in the late 1990s, despite increased business R&D spending. In the United States, the growth rate of patent applications fell from 10 percent per year during the late 1990s to below 3 percent in 2001–2002. Measures of patent families—patents filed to protect the same invention—also slowed dramatically in the late 1990s.
Ensuring supplies of scientists and engineers
Employment in highly skilled occupations grew about twice as fast as overall employment between 1995 and 2002, and the number of researchers across the OECD grew, from 2.3 million in 1990 to 3.4 million in 2000, or from 5.6 to 6.5 researchers per 10,000 employees. But the share of university-level graduates with degrees in science and technology dipped slightly between 1998 and 2001. The number of foreign first-time Ph.D. students enrolled in U.S. universities appears to have declined in 2003–2004, whereas the United Kingdom and Australia posted increases in foreign enrollments. In addition, more Chinese students are receiving their university educations at home.
Services account for more innovation
In 2000, services accounted for 70 percent of total value added in the OECD. In addition, two-thirds of the increase in value added between 1990 and 2001 came from services, as did most employment growth. In a recent survey of European firms, more than 60 percent and 50 percent, respectively, of respondents from the business and financial services sectors reported that they had introduced a new product or service in the previous three-year period—higher than the average share among manufacturing firms. Services accounted for only about 20 percent of OECD-wide R&D spending in 2000, but growth rates have been considerably higher than in manufacturing.
Non–OECD country capabilities grow
China’s R&D investments climbed from $21 billion to $70 billion between 1996 and 2002, behind only those of the United States and Japan in absolute terms. The number of university graduates in China in 2000 (739,000) was equivalent to 13 percent of the OECD total, and half received science and engineering degrees. Graduates from Indian and Russian universities were equal to 12 percent and 11 percent, respectively, of OECD totals. Meanwhile, foreign R&D investments in emerging economies have grown rapidly as those nations’ technological capabilities have increased and markets have become more open.
Foreign affiliates play a larger role
The activities of foreign affiliates of multinational enterprises are fueling the globalization of R&D. R&D performed abroad by foreign affiliates increased by more than 50 percent in nominal terms between 1991 and 2001 and represented well over 12 percent of total expenditures on industrial R&D in the OECD in 2001. Policymakers must increasingly aim to both attract foreign investment in R&D and to extract economic benefits from foreign and domestic R&D.
Jerry Sheehan (email@example.com) is a senior economist in the OECD’s Science and Technology Policy Division in Paris.