Remarks by Angel Gurría, Secretary-General
Camino Real Polanco, Mexico, 16 June 2009
Ambassador, Under-Secretary, Director of CONACYT, State Secretaries for Economic Development, Ladies and Gentlemen:
It gives me great pleasure to come to Mexico to present the “OECD Review of Regional Innovation in 15 Mexican States”. Innovation is responsible for most of the rise in living standards in OECD countries during the last century; so it is no surprise that this is a priority issue for the Organisation. The OECD's Innovation Strategy, currently being implemented, is our response to the growing importance of this issue.
In difficult times of global economic and financial crisis such as these, governments are often tempted to reduce spending on innovation and to target fiscal stimulus efforts on shovel-ready projects only. This won’t get us very far. We very well know that investment in innovation — the people, the places, the knowledge, and the transfer of that knowledge — is a sine-qua-non condition for long-term economic growth.
Furthermore, all our recovery measures, like the financial reforms that are currently underway, for example, will also have an impact on innovation. And we must make sure that it is a positive impact. As I said a few days ago at a forum on innovation at the Montreal Conference, at OECD we see this crisis as a great opportunity to strengthen our innovation strategies and policies.
A few months ago, in the presence of President Calderon and 6 Secretaries of State, I presented some of the main findings of an OECD study on Mexico’s innovation policy at the national level. Today, we are sharing with you the results of the next phase of that undertaking, this OECD Review of Regional Innovation.
The study aroused tremendous interest, attracting 15 participant states, and involved meetings with hundreds of policy makers, universities, research centres, and firms across the country. This was an unprecedented mobilization around an OECD project in any country.
Let's build on this momentum to move forward. But let's move forward on a solid base of objective facts. The facts reported in this Review pose a major challenge and show that there is a long way to go.
1. From “made in Mexico” to “created in Mexico”: A quantum leap!
Although Mexico is one of the leading exporters of Information and Communication Technology equipment in the OECD, it ranks at the bottom of most indicators used to measure science, technology and innovation performance.
For example, it has the smallest number of researchers per thousand people employed and the lowest number of Triadic Patent Families among OECD countries. In the knowledge economy, this bottom-of-the-list ranking on innovation performance is a serious problem for the country’s long-term competitiveness.
We need to work together to bring about a paradigm shift in our mindset, from “made in Mexico” to “created in Mexico”. In other words, instead of seeing Mexico as a strategic location merely for assembling goods with parts and specifications made elsewhere, the policy approach and cultural thinking needs to be oriented towards innovation in the form of new products and services.
This is all the more urgent, because other emerging economies are already moving in this direction. In the Shanghai region, for example, the intensity of R&D spending in its economy has already overtaken that of the vast majority of OECD regions.
But how do we make that shift? It requires strategy, time, commitment, resources, broad political will and a cultural change to visualize Mexico as a world leader in science and technology — and this won’t happen without mobilizing the public, private and civil society sectors in all states across Mexico.
2. The transition from passive to active to regionally adapted innovation policies
Mexico has already taken key steps to improve its innovation policy; and we have seen a change in its innovation support policy mix over the past year, following the recommendations made in the OECD's national study.
Whereas in the past, for example, a large share of resources for innovation took the form of R&D tax credits granted to a limited number of firms and regions, today some of those credits have been transformed into new programmes. This shift from passive to active programmes to support innovation is vital to promote innovation in Mexico, especially during these times of crisis.
The Review we are presenting today calls for yet another shift — one that adapts policies better to regional differences in terms of innovation. This is still a new field in the OECD, as national innovation policy makers often don’t consider the regional implications of their work. With this study, produced with your valuable support, we are equipping Mexico with a cutting-edge policy tool to address a major structural challenge at a key moment in time.
The gap between the best and worst performing states is wider in Mexico than in other OECD countries. The country has the largest regional disparities in tertiary education rates in the OECD; and it also has one of the greatest productivity differentials (GDP per worker) across regions.
There is also a high degree of regional concentration in innovation indicators; for example, over 40% of top-level researchers are in the Federal District. Such factors aggravate income concentration and weaken national competitiveness and development efforts. We would be talking about a different Mexico if that 40% were in the Mexican southeast.
Some of the traditionally successful states may fulfil the necessary conditions for powerful regional innovation systems, but these are not sufficient. For example, many Mexican states have displayed increasing specialization since the start of NAFTA, and specialization helps. But specialization does not automatically create economic linkages in the same place — these need to be cultivated.
Although FDI flows have shifted from the centre of Mexico towards the northern border states, they remain concentrated in a handful of regions. Moreover, FDI does not necessarily generate greater science and technology (S&T) spillovers, since it is the large local firms that invest most in S&T, not foreign-owned enterprises.
As we know, for innovation the place matters, people matter, investments matter, and the way they work together matters — so we can’t ignore these inter-regional gaps. The nature of innovation has changed and requires greater collaboration between firms, research institutions and other stakeholders. Mexico can do a lot more to ensure that innovation is a tool for competitiveness in the regions; and its innovation geography is crucial.
Not every region in Mexico, or the OECD for that matter, can or should become a Silicon Valley. We need to be realistic. However, all regions need to find opportunities to make innovation relevant to their economic realities. They need the tools to adapt knowledge, wherever it is created, to marketable products and services.
3. Making this regional shift work
How do most OECD countries make this regional approach to innovation work?
National policies can be developed with greater input from the different regions, so that their potential consequences can be understood. There are also national polices with explicit spatial focuses; for example those that promote the development of enterprise clusters and regional innovation systems.
As the regional government level is often closer to the actual agents of innovation, it is better able to support collaboration between them. It is also better placed to identify the right kinds of public investments to support regional efforts and overcome bottlenecks.
When I presented Mexico's national innovation review, we discussed policy recommendations to set up a stronger national innovation system. In this context, regional disparities were seen as a threat to the national system.
This study analyses policy performance and actions to reduce these gaps; and it also considers how the national political framework affects their performance. Based on the investments, linkages and achievements of innovation, Mexico's states were compared with other OECD regions using the OECD innovation database. But, as subnational data are not available for many of the most important indicators — a problem that the Review recommends correcting — it is difficult not only to compare Mexican states with other OECD regions, but also to measure the country's progress through time.
In terms of the national policy framework, this study highlights four key issues for providing greater support to regional competitiveness by strengthening innovation systems:
Firstly, regional competitiveness is not the preserve of any one ministry, but requires coordination throughout the federal government. Many components are involved in making regional innovation systems successful, such as S&T infrastructure, education institutions, strong and innovative firms — not only large firms, but also strong SMEs. Many OECD countries have an entity with national responsibility for this. It might be the Ministry of Economic Affairs or some other organization — but regional competitiveness requires greater attention at the federal level.
Secondly, the states need financial incentives to shift from "made in Mexico" to "created in Mexico". The corresponding federal fund does not necessarily require extra money; but it needs to retarget expenditure on existing programs when the objectives are similar. And it requires flexibility for different types of regions and clusters that are not always available in existing programs. Active policies in the states could be promoted through more balanced cofinancing by the regional, local and private sectors.
Thirdly, these financial incentives require performance appraisal and monitoring. The states will have different starting points in terms of industrial and scientific capacity and degree of linkage between actors in the regional innovation system. They need to be judged not only relative to other states, but also in relation to progress made in achieving realistic targets. Carrot and stick mechanisms need to accompany these initiatives.
Lastly, these incentives should help to build capacity for strategic thinking and to align strategic projects. A fund that includes financing to develop regional innovation strategies fills a gap left by project-based financing — countries such as the United Kingdom and France have done this. Subnational capacity is an ongoing area which the OECD is supporting, including work on regulatory reform with the Ministry of Economic Affairs and IMCO to build tools to improve subnational regulatory capacity.
The study we are presenting today gives examples of how other OECD countries operate these funds in practice at the national level. And there are examples of promising programs right here in Mexico. To complement the existing support for the states, for example, the National Science and Technology Council (CONACYT) has just set up the Regional Institutional Fund for Scientific, Technological and Innovation Development (FORDECYT). The program offers a flexible approach to support regional development, taking account of both geographic regions (neighbouring municipalities or states) and thematic regions (groups of municipalities or states that share a given problem).
This Review also makes specific recommendations at the state level: and here I should first of all note that many innovative approaches are emerging in the states, which can be considered as best practices and offer lessons for other OECD regions. These local initiatives should be recognized and applauded.
Naturally, there are areas that need improvement. In their competitiveness strategies, many states are striving do "business as usual", but better. But they could be doing business differently, in an innovative way. And usually these competitiveness strategies are targeted more on competing with other Mexican states than identifying true competitive advantages or market niches in the global economy. State S&T councils, for example, could play a major role in competitiveness efforts to enhance the prestige of innovation.
And given the lack of a critical mass in many clusters, the states need to jointly finance cluster programs with their neighbours. Policies can remain on state lines, but trading relations cannot. National policies could also promote such interstate collaboration more effectively.
To achieve this, the national and regional levels need to work together towards the common goal of improving the performance of innovation in Mexico and promoting economic growth in all regions. In Mexico, approaches to continuity, cooperation, and innovation between sectors all require promotion at both the federal and state levels.
Just 10% of Mexico’s regions produce 41% of its GDP. This concentration of economic activity is closely related to each region's innovation capacity; but also to the regional sensitivity of innovation policies. The current crisis, and the decisive measures that the Mexican Government is taking to address it, offer a great opportunity to develop a co-ordinated regional development policy approach based on innovation.
The OECD will certainly support this effort, in line with the mandate of our last Ministerial Meeting on Regional Development which took place in Paris last March, with the aim of helping all types of region to become more innovative. The OECD's ongoing work in regional innovation, to which Mexico has contributed, will continue to generate lessons for national and regional governments across the OECD.
Fifteen states took part in this study; but the number fifteen has another special meaning today. It is also the number of years that Mexico has been a member of the OECD. During that time Mexico has participated in numerous studies; and this one is symbolic of the work we have done, are doing and will continue to do with Mexico.
Thank you very much.