Innovation in the crisis and beyond

Abstract

Innovation in the crisis and beyond This chapter provides an overview of the impact of the global financial and public debt crises on innovation. The global financial crisis negatively affected business innovation and R&D. Enterprise creation seems not to have recovered and business bankruptcies have increased significantly. The chapter shows substantial differences in performance across countries, sectors, businesses and types of innovation. Future trends in innovation in most developed countries are uncertain. In particular, long-term damages to innovation systems occur when long-term skilled unemployment rises and public support of innovation is weakened. Finally, many countries have implemented policies to respond to the crisis that include innovation, although budgetary constraints have put pressure on governmental support of innovation.The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. 2. Emerging countries in Asia, including Korea and China, have used the opportunity to demonstrate their strengths in innovation. They continue to outperform developed countries, relying on structural strengths that helped them face the crisis. The crisis has also rewarded large high-technology innovating firms; markets for these innovations will continue to be strong.3. The crisis revealed the pre-crisis weaknesses of some countries (e.g. Greece and some southern and eastern European countries), sectors (e.g. the automobile sector) and types of innovations (e.g. financial innovations). Future prospects for innovation in these countries and industries will greatly depend on broader economic restructuring, which does not place innovation at the top of the immediate policy agenda although innovation will have to play a role in driving growth in the future. Many OECD countries (northern Europe, Japan and the United States) have recoveredsomewhat. Their future innovation performance remains uncertain; it will depend on macroeconomic conditions but also on their ability to maintain innovation as a policy priority.5. To date there is no evidence of a reallocation of resources towards more innovative businesses. While there have been more bankruptcies than before the crisis, new business entry has also been significantly depressed. Venture capital investment, which can help support entry of innovative firms, has yet to recover to its pre-crisis level.6. Uncertainties over market conditions in the currently unstable global macroeconomic situation have inhibited investment in innovation. Large companies and banks are engaged in a process of deleveraging and hoarding that is detrimental to all types of investment, including innovation. Financing constraints have also increased but are not the main explanation to date for the weakening of innovation activities. Experimenting further with these...