Economic survey of Norway 2007: Encouraging innovation

 

Contents | Executive Summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise Chapter 5 of the Economic survey of Norway published on 30 January 2007.

Contents                                                                                                                           

Is there a puzzle about innovation in Norway?

Future economic prosperity will depend not only on greater labour utilisation, but also on innovation driven productivity growth. Innovative activity seems low by international standards, however, as suggested by below average R&D intensity. The low level of R&D spending may in part reflect the incompleteness of measurements, which do not cover the oil sector very well, but weak patenting shows that there is less technological innovation activity than elsewhere. By contrast, there are clear signs of intense non technical innovation    such as process innovation, adoption of new technologies, engineering based improvement    which goes a long way towards explaining why productivity growth has been satisfactorily high. The traditionally competitive product markets and high wage levels have meant that firms have been forced to adopt new technologies in order to beat rivals and survive. Although Norwegian firms only produce a small share of their technological innovation needs, they are very apt at taking advantage of existing technological opportunities and translating them into greater efficiency.

R&D intensity in the business-sector adjusted for variations in industry structure
Percentage of business sector value added, average over 1999-2002

1.      All countries are assumed to have the same industry structure. Calculated on the basis of R&D intensity per industry with the weights of each industry corresponding to their share of total business-sector value added on average across G7 countries.
Source: OECD ANBERD and STAN databases.

The government has set ambitious goals to promote innovation, hoping to raise the rate of R&D spending, especially in the private sector. It should however be careful as to how it spends public money. So far, the existing schemes to allocate public support to innovation through research grants and tax credits generally seem well designed and regularly evaluated. There have been benefits stemming not only from new technological developments, but also from improvements in traditional activities (such as engineering related to marine services and oil activities or aquaculture). But making an efficient use of additional fiscal support will be challenging. Because the private sector has been so far reluctant to allocate large resources to innovation, it is unlikely that increasing budgetary support alone will make a large difference. More public money may only end up raising the costs of producing research, without correspondingly larger benefits. Consequently, measures should be carefully designed to increase the extent to which they generate additional R&D that would not have taken place in their absence. Furthermore, a higher degree of specialisation in technologically innovative sectors will not necessarily be rewarded; international prices of some of these products have fallen recently as shown by computer prices thus leading to deteriorating terms of trade for countries producing such equipment.

How to promote innovation and entrepreneurship?

If the authorities want to ensure that the benefits of innovation spread further, they should continue to improve framework conditions. Most importantly, competition policy and its implementation should be strengthened and product market regulations relaxed, together with a continuing reduction of state ownership in market based production. In this respect, the independence of the competition authority should be upheld. In the final analysis, firms must be subjected to more intensive competition to encourage them to look to innovation as an obvious way of staying in business profitably. As well, the spread of technological innovation requires adequately educated workers and the present limited interest for tertiary studies in maths, science and technology is a concern in this respect. Efforts need to start at the level of secondary education, where PISA test scores in sciences are low by international standards. To raise the quality of teaching in maths and science, salary differentials in favour of teachers of such subjects will need to widen in order to attract the qualified personnel.

Venture capital
As a percentage of GDP
 

1. The asset class of VC or PE (or Buyout) funds dedicated to invest from funds raised by 3rd parties into growth or restructuring cases.
2. 2000-2002 for Iceland; 1998-2001 for Australia, Japan, Korea and New Zealand.
Source: European Venture capital associations, World Bank Financial Development and Structure Database and OECD venture capital database.

More public money will not achieve much in the absence of a greater innovation culture; in particular, businesses do need to perceive opportunities in boosting innovation. Several steps could improve the situation. The public research sector has long had a mission in knowledge transfers, but private public research links should be strengthened further, which could require additional mechanisms facilitating the commercialisation of university innovations, such as allowing public sector employees to be seconded to the private sector without exposing them to financial risks, including erosion of pension rights. The R&D funding programmes should also be clearly de linked from the regional policy. The tax credits scheme (Skattefunn) seems to be sufficiently generous for SMEs. Raising the ceiling for larger firms could be considered if the evaluation exercise shows that additionality is significant. There are other steps that would facilitate the financing of innovative firms. Financing of small innovative firms should be encouraged by lifting restrictions on classes of assets that can be invested by insurance companies and pension funds. At the same time, there should be a relaxation of borrowing conditionality for the extension of seed capital while allocating more public funds to a variety of institutions currently channelling venture capital funds to private start ups.

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.

The complete edition of the Economic survey of Norway 2007 is available from:

Additional information                                                                                                  

For further information please contact the Norway Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Alexandra Bibbee and Benoît Bellone under the supervision of Patrick Lenain.

 

 

 

 

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