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The following OECD assessment and recommendations summarise chapter 4 of the Economic survey of Austria published on 13 July 2007.
The priority for innovation policy is welcome but the institutional setup should be streamlined and backed by additional reforms
Austria has buttressed its science, technology and innovation policies in the 2000s as a matter of economic policy priority. It has succeeded in raising total R&D expenditures by around one percentage point of GDP over the past ten years to around 2½ per cent in 2006, mainly due to more business R&D, and the government has recently reiterated its objective to raise R&D expenditures to 3% of GDP by 2010. While the soundness of targeting R&D spending is debatable, the policy priority as such is welcome, although considerable scope seems to exist to make spending more effective. Innovation activity as measured by output indicators increased in a number of fields although less than what might have been expected from the increase in spending. Returns from R&D spending can be increased by strengthening framework conditions, in particular, increasing the scope for competition in domestic services sectors, encouraging financial markets to finance more innovation projects, improving the education system, and streamlining the current institutional setup for R&D and innovation policy.
Strengthening competition and the breadth of financial markets
OECD work on growth suggests that competition in product markets (see above) and efficient capital markets are crucial for growth, because both provide inter alia incentives to engage in innovation activities. Broadening the scope for competition across Austria’s hitherto sheltered service sectors (as argued above) would provide a boost to productivity and generate opportunities for employment and income. Furthermore, within the financial market, more needs to be done to develop venture capital. Government-sponsored innovation finance institutions play a useful pioneering role but should not cream-skim the market and crowd out private venture capital investors. New structures for venture capital funds, which conform to international best practice and are compatible with the European Union’s State Aid rules, should be created.
Further improving human capital
An appropriately skilled labour force is key for innovation and productivity growth. In the past, a good part of Austria’s productivity growth was achieved by capital deepening and adaptation of existing technologies, notably in manufacturing, During that time the education system, with its emphasis on primary/secondary and vocational education and a relatively low share of tertiary graduates, was obviously sufficient. Looking forward, with more firms adopting highly advanced technologies, including in services, more workers with higher education are likely to be needed. Currently Austria is drawing much less on tertiary education than its peers. More efforts should be made to make the transition from vocational training to tertiary studies easier. Austria’s recent university reform to increase universities’ autonomy and gradually introduce a small student fee was an important first step, but met with significant opposition; as a possible alternative to the payment obligation of tuition fees the new government has established a tutor and mentor system at universities/schools with the intention to reduce the drop-out rate at the universities. Those students who actively participate in the new system will get their tuition fee refunded. This programme should be evaluated with respect to participation and outcome. Higher private spending is essential for improving the quality, efficiency and labour market relevance of university education. Universities should be allowed to set their own tuition fees. Avoiding the exclusion of cash constrained students could be achieved with a system of loans with income contingent repayments. Allowing universities to select students would also contribute to improving the quality of education and would reduce both drop-outs and study duration. First evaluations of the impact of the recently introduced small student fees do not reveal any increasing bias of the social background of students.
Further improving innovation policies
The institutional framework for innovation policies was reformed in 2004 but some rationalisation should be considered. Governance structures for designing and implementing policies are rather complex with at least four Ministries involved, advised by two independent councils (the Science Council and the Council for Research and Technology), and three key R&D promoting agencies, which implement numerous and partly overlapping programmes. Effectiveness of R&D policies is likely to suffer from such fragmentation. The number of responsible ministries should be reduced, preferably to only one ministry in charge of specific innovation policies (knowledge diffusion and application) and the other one being in charge of science (knowledge creation). Task sharing between agencies and ministries should be better clarified, and overlapping programmes of various agencies should be pooled. The effectiveness of individual support programmes and tax incentives should be assessed regularly by independent experts. The reports of the two existing Councils should be given more weight as independent advice in order to increase spending efficiency.
Austria's R&D spending in international comparison (1)
1. Ranked by the total expenditure on R&D in the 2000s (average 2000-05 or latest available data).
Source: OECD, OECD Science and Technology Indicators.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English.
The complete edition of the Economic survey of Austria 2007 is available from:
For further information please contact the Austria Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Rauf Gonenc and Rina Bhattacharya under the supervision of Andreas Wörgötter.