Innovation and Economic Infrastructures

1. Innovation and Economic Infrastructures DIMETICS Pecs July 12 2007 Keith Smith Australian Innovation Research Centre

2. Innovation and infrastructures: a preliminary observation • Its striking how many major innovations have emerged from what we loosely call ‘infrastructures’ (that is, universities, government labs, public programmes, state-owned institutions, the military) • Computing, aircraft, biotech, NC machine tools, internet, www, etc • Why? What exactly are the ‘infrastructures’ and why are they important to innovation?

3. Background • Funding issues since the end of the Cold War; decline of defence spending and related research infrastructures • Privatisation of infrastructure • Concerns in EU about impact of FRAMEWORK programmes • Long-term implications of moves towards applicability, private funding, 'user-directed research' etc

4. Basic issue • There is no developed concept of 'infrastructure' in economic or other social theory. • The word 'infrastructure' is used in ad hoc ways, often very different from each other.

5. Three aspects of infrastructure • Frameworks of law, regulation, institutions etc which shape and guide behaviour. Contract law, health and safety standards, intellectual property rights, employment law and regulation etc. Developed via legislative decision and enforcement. • Cultural values and norms Developed via the evolution of co-operation • Capital goods that are collectively used Utilities (electricity, water etc) Health systems, hospitals etc Universities, research labs, etc Developed via large-scale investment decisions and programmes

6. Research on infrastructure • Econometric studies of the role of utilities investment. Shows correlation between infrastructure investment and productivity growth • Innovation-oriented studies of 'technological infrastructures'. Emphasizes importance of background institutions.

7. Three basic questions • In what ways are 'infrastructures' different from capital goods in general? From an economic perspective, is a road different from a car factory? • Why is it that infrastructures have often been provided by the public sector, or closely regulated by the public sector? • What are the economic effects of infrastructures?

8. A definition • THE ECONOMIC INFRASTRUCTURE CONSISTS OF LARGE-SCALE INDIVISIBLE CAPITAL GOODS, PRODUCING GOODS OR SERVICES WHICH ENTER ON A MULTI-USER BASIS AS INPUTS INTO MOST OR ALL ECONOMIC ACTIVITIES

9. Characteristics of infrastructures TECHNOLOGICAL: • - SCALE • - INDIVISIBILITY • - MULTI-USER • - LONGEVITY ECONOMIC: • - NETWORK EXTERNALITIES • - "QUASI" PUBLIC GOODS • - TIME HORIZONS IN INVESTMENT APPRAISAL • - ECONOMIES OF SCALE • - NATURAL MONOPOLY

10. The science and technology infrastructure PRIVATE: • INDUSTRY ASSOCIATIONS • CONFERENCES • TRADE PUBLICATIONS • CLASSIFICATION AND STANDARDS • BRANCH RESEARCH INSTITUTES PUBLIC: • RESEARCH COUNCILS • R&D PROGRAMMES • PATENT OFFICES • RESEARCH INSTITUTES • EDUCATIONAL INSTITUTIONS • PUBLIC PROCUREMENT • STATE OWNED ENTERPRISES

11. Effect of infrastructures PRODUCTION AND DIFFUSION OF SCIENTIFIC KNOWLEDGE EDUCATION, TRAINING AND SKILLS STANDARDS, REGULATION AND PROTECTION CREATION OF FIRMS ACCESS AND DISSEMINATION FUNCTIONS MAINTAINING KNOWLEDGE BASES NEW PRODUCT CREATION

12. Policies for infrastructure GOVERNMENT ROLE LEVEL OF PROVISION COMPOSITION, BALANCE OF ACTIVITIES (LINKS TO ECONOMIC SYSTEM) MANAGEMENT AND ORGANISATION; WHO MAKES DECISIONS? COORDINATION ROLE IN THE CONTEXT OF GLOBALIZATION