Opening remarks by Angel Gurría
19 November 2018 - OECD, France
(As prepared for delivery)
Dear Deputy Ministers, Ambassadors, Ladies and gentlemen,
Welcome to our 2018 Global Strategy Group. I would like to thank Ms. Marie-Gabrielle Ineichen-Fleisch, chairing this meeting for the first time, for her excellent work to date.
Technology never stands still. Changing circumstances and human ingenuity ensure that we constantly find new and better ways to do things. Innovation and technological progress are essential for improving well-being and making our economic systems more sustainable and inclusive.
But policy-makers cannot just sit back and admire the waves of technological progress rolling through our societies. We need both to nurture innovation and to ensure that it benefits all our citizens. Over the course of today and tomorrow we have the opportunity to ask ourselves how we are doing in that respect, and how we can do better.
There is probably more innovation under way now than ever. Innovation goes far beyond R&D, and can refer to new products, processes, marketing and organisational structures. However, it is worth focusing on R&D to get a glimpse of the leading edge innovation taking place in economies.
Between 2000 and 2016, the OECD’s gross expenditure on R&D rose from 2.1% to more than 2.3% of GDP. In current PPP terms, that’s nearly 1.3 trillion US dollars spent on research and development efforts in the OECD area in 2016 alone.
And the growth of R&D outside the OECD has been even faster, with new actors joining the global innovation scene. China’s R&D expenditure rose from 0.9% of GDP in 2000 to 2.1% in 2016 – making China the second-largest locus of R&D. Another up-and-comer is India, which, in the decade to 2016, went from a standing start to having the 4th largest number of top-cited scientific publications related to machine learning – a key technology driving artificial intelligence.
The benefits of these worldwide innovation efforts are great and all around us, even if we are not always aware of them. For instance, in the oil industry camera-carrying robots check the inside of pipelines for cracks, which are then analysed by AI – helping to avert environmental and human damage. Advances in remote sensing technologies are enabling farmers to tap precise data about soil, weather and environmental conditions, helping them to optimise use of fertilisers and pesticides. Drone technology allows doctors in remote villages in Africa to receive blood at the click of a mouse. And there are countless other examples.
But despite all this innovation, our economies have experienced a slowdown in productivity growth, a decline in business dynamism, and widening divides between leaders and laggards among both firms and regions. Moreover, in many of our economies median wage growth has been negligible at best, and people report greater feelings of insecurity about income and employment. It’s a paradox.
Part of the answer is that innovation has advanced on too narrow a front. Many firms do not innovate, and most of them conduct no R&D at all. Indeed, a relatively small number of firms are responsible for a very large proportion of total business R&D, with the top 200 companies globally accounting for nearly half of R&D expenditure and of key patents in 2014.
We see a similar picture as regards the use of digital technology. For example, almost three-quarters of enterprises in the OECD with 10 or more employees were not using cloud computing in 2017.
OECD work has pointed to this productivity-inclusiveness nexus work showed, productivity divergence among firms helps to explain the observed increase in wage inequality. But newer work is also finding that leading firms, sometimes referred to as superstar companies, are much more profitable than others and have low labour income shares. Their greater ability to conduct and profit from innovation may therefore also be a factor in rising capital shares in income in many OECD economies. And since the ownership of capital is very skewed, this is another way in which inequality may be aggravated by the “winner take most” dynamics that we are increasingly seeing.
There is, then, no shortage of policy challenges relating to innovation, to ensure that it delivers on its promise of growth and well-being. But to make good policy, we must understand innovation today.
Our new Science, Technology and Innovation Outlook, launched today, underscores how the nature of innovation is changing, becoming more digital and more global, involving more stakeholders, and moving beyond traditional science and technology fields to encompass social and organisational innovations.
Some familiar policy prescriptions remain valid, such as framework conditions that foster investment in innovation and favour openness to trade, robust competition and collaboration between firms, universities and research institutions.
Some policy choices, however, must be reframed for this new innovation reality. We must address the greater firm concentration due to winner-take-most dynamics, the growing importance of data for innovation and the new business models it creates, which raise privacy and ethical issues. We must work out how to spread the benefits of innovation wider, unblocking diffusion channels and maintaining effective competition, within and across borders. And we must discuss how policies on tax and investment can strengthen the benefits of the digital transformation that is underway, building on our work with the G20.
Ladies and gentlemen,
100 years ago, many of the countries represented here today were emerging from the horrors of war. But that sombre moment was also the start of the second industrial revolution, and with it a new era of governance, both domestically and internationally. It took until the end of the Second World War for the pieces to be put in place, but the subsequent few decades managed to harness all that innovation for widespread prosperity, combining rapid economic growth with falling inequality.
We stand at a similar threshold today as AI, the Internet of Things and cloud computing reshape economies and societies, in turn forcing a rethink of our institutions, our policies and the ways we work together across countries. As Keynes, one of the architects of the successful post-War order, observed, the difficulty lies not so much in developing new ideas as in escaping from the old ones.
This is the difficulty that we must overcome to ensure that today’s technological revolution benefits our societies. The next two days offer a forum for dialogue on how best to do this. With initiatives like our Going Digital project and our work on Inclusive Growth, and drawing on insights from NAEC (New Approaches to Economic Challenges), the OECD is uniquely well positioned to support this endeavour. We stand ready to help you rise to this challenge of promoting innovation and its dissemination to shape the world of tomorrow, a world with better policies for better lives.