Policy responses to the economic crisis: investing in innovation for long term growth

11 June 2009

This report warns that innovation risks being hit hard by the economic crisis as the capital to finance it grows scarce. It also includes a breakdown of government stimulus packages in the 30 OECD countries and the future-oriented measures taken relating to innovation, including broadband, science and innovation, and green technology.

Historically, business R&D spending and patent filings have moved in parallel with GDP, slowing markedly during the economic downturns of the early 1990s and early 2000s. Recent evidence, based on corporate reports from the first quarter of 2009, confirms this is already happening, with R&D spending declining in many cases. US venture capital investments plunged 60% in the first quarter of 2009 and the same is true in Europe and in China. Patent applications are down. Incentives to develop a greener economy have also been weakened by the crisis, it says.

The report urges governments and business to limit cutbacks in spending on R&D and innovation, and mitigate as far as possible the negative impact of the crisis on innovation. It points to the governments of Finland in the early 90s and Korea in the early 2000s which both increased investment in R&D during those downturns and the role this played in making their economies more competitive and innovative.

Economic crises are also historically times of industrial renewal and creative destruction. Supporting firms and industries that do not have a viable business model will thwart the restructuring required for more sustainable growth. The focus on innovation-related stimulus measures also showcases how economic recovery packages deployed today can help prepare future growth – including in the area of green technologies.

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