Towards an innovation strategy

Secretary-General of the OECD

©OECD Observer

The history of human progress is also a history of innovation, and OECD countries have been rediscovering what this means for the global economy. Consider the US. For two decades the world’s largest and most advanced economy has been driving forward the frontiers of technical progress. Yet whether in information technology, pharmaceuticals or biotechnology, the US knows it must innovate to stay in front.

So too must all OECD economies, large and small, which have been transformed thanks to the role they play in the global innovation chain.

Or consider China, whose recent space ventures are a reminder not only of China’s re-emergence as a global power, but of its history of technological advancement. China invented the humble wheelbarrow, the powerful printing press and much more. Today, it has communications firms to rival the best, and researches into nanotechnology and biotechnology.

Innovation is about improving communications, curing diseases and solving energy, food and environmental problems. But it is also about wealth creation. Today’s companies create value-added by investing in “intellectual assets”, rather than in machinery and equipment per se. That means more patent activity, more branding, more international law, and so on.

Developed countries see innovation as an ingredient to help raise them up the value chain and give them an edge in the expanding global marketplace–what Harvard business guru Michael Porter calls a “competitive advantage”. An attractive policy idea, since unlike natural comparative advantages, innovation can be cultivated and improved. This characteristic also applies to developing countries, which can harness innovation as a springboard for faster progress. The question is how to foster innovation successfully.

Innovation transforms an idea into a new, improved product, process or service. New technology is the visible expression of this, but there are intangible, organisational innovations too. Amazon harnessed information and communications technology to sell goods online, but also to improve efficiency. “Old economy” firms, from fast-food outlets and financial services to automotive producers, have also transformed their businesses.

In short, progress depends on how human skills and technology interact to improve processes and raise performance. Innovation enhances this total factor productivity.

OECD governments have got the message and are doing more to boost innovation by providing fiscal incentives for R&D–spending on R&D has risen by around 3% per year since the mid-1990s!–encouraging more business research, opening up education, building international business parks, and so on.

But why has all the government effort not always led to more growth, particularly in Europe, despite its leading-edge firms? What is missing and how can governments move their economies forward?

A strategy is needed, and that is what the OECD has been asked to develop for our member governments. This cross-cutting package will provide mutually reinforcing policies and recommendations to boost innovation performance. The OECD Innovation Strategy will point to general and country-specific practices, and where appropriate, develop guidelines.

This work will culminate in a report to ministers in 2010, but some patterns are already clear. For instance, innovative, dynamic economies as diverse as Finland and the US display a cocktail of features, ranging from fiscal incentives and expanding public research to openness to foreign R&D. They produce plenty of top graduates in science and technology, in well-funded learning institutions. They also have good business environments and stable macroeconomic conditions.

Take public basic research. True, most innovations occur in business, but many key inventions, like the world wide web, have come from public basic research. Are governments doing enough to strengthen this bedrock of innovation?

Certainly, public research should support business research and not crowd it out. As Schumpeter argued, it is the wild spirits of entrepreneurs that must be harnessed. In 2005 four-fifths of researchers in the US were in the business sector, compared with two-thirds in Japan, but just half in the EU. Food for thought.

Governments should also ask if they are really doing enough to foster collaboration between universities and businesses, and not just within their borders. Cross-border co-operation on scientific publications and inventions is rising fast, making global interaction a paradigm of the innovation age.

A tough challenge for policymakers from Berkeley to Beijing concerns intellectual property rights. In today’s market, good ideas are a valuable though vulnerable commodity and the challenge is to develop rules and licensing practices that encourage both invention and diffusion, while enhancing growth.

Google and Nokia are global faces of deeper processes that other countries can set in motion. The cocktail may have to be mixed differently to suit country priorities, but the flavour must emphasise innovation. As an underlying condition though, policymakers must ensure sound economic management; innovation will not spur much growth if product and labour markets are inflexible or if trade and investment regimes are closed. Financial markets too must respond to fast changing competition.

In the end, innovation is about the political economy of reform, with a crucial ingredient being leadership. The US, China and a few others are blazing a trail, and other countries must forge ahead too. The OECD Innovation Strategy can help plot the way forward.

©OECD Observer No. 263, October 2007

Further reading

OECD (2007), Innovation and Growth: Rationale for an Innovation Strategy, available online: please click here.

See also the 2007 OECD ministerial meeting communiqué at

For more articles by Mr Gurría, see


Economic data

GDP growth: +0.7% Q2 2017 year-on-year
Consumer price inflation: 2.3% Sept 2017 annual
Trade: +1.4% exp, +1.7% imp, Q2 2017
Unemployment: 5.7% Sept 2017
Last update: 14 Nov 2017


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • The annual OECD Eurasia Week takes place in Almaty, Kazakhstan 23-25 October. Writing in The Astana Times, OECD Secretary-General Angel Gurría urges Eurasia countries to stay the course on openness and international integration, which has brought prosperity but also disillusionment, notably regarding inequality. The OECD is working with this key region, and Mr Gurría urges Eurasia to focus on human capital and innovation to enhance productivity and people’s well-being. Read more.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017