OECD Science, Technology, and Industry Outlook 2004

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With prospects for economic growth improving across the Organisation for Economic Co-operation and Development (OECD) region, renewed attention is being directed to ways of tapping into science, technology, and innovation to achieve economic and societal objectives. As OECD economies become more knowledge-based and competition from emerging countries such as China and India increases, OECD countries will become more reliant on the creation, diffusion, and exploitation of scientific and technological knowledge to enhance growth and productivity.

Weak economic conditions limited science and technology (S & T) investments at the turn of the century: Global R & D investments, for example, grew at a rate of less than 1 percent between 2001 and 2002, compared to 4.6 percent annually between 1994 and 2001. As a result, R & D spending slipped from 2.28 percent to 2.26 percent of gross domestic product (GDP) across the OECD. Nevertheless, many OECD countries have introduced new or revised national plans for science, technology, and innovation policy, and a growing number of countries have established targets for increased R & D spending.

Virtually all countries are seeking ways to enhance the quality and efficiency of public research, stimulate business investment in R & D, and strengthen linkages between the public and private sectors. Most OECD governments have successfully shielded public R & D investments from spending cutbacks and, in many cases, have been able to increase them modestly. Although they remain far below the levels of the early 1990s, OECD-wide government R & D expenditures rose from 0.63 percent to 0.68 percent of GDP between 2000 and 2002 as budget appropriations grew, most notably in the United States. In many countries, a growing share of funding is linked to public-private partnerships.

To enhance innovation capabilities, OECD governments will have to shape policy to respond to challenges related to supplies of S & T workers, service sector innovation, and globalization. Although demand for scientists and engineers continues to grow, many countries foresee declining enrollments in related academic fields. Services account for a growing share of R & D in OECD countries--23 percent of total business R & D in 2000 compared to 15 percent in 1991--and the ability of service firms to innovate will greatly influence overall growth, productivity, and employment patterns. In addition, science, technology, and innovation are becoming increasingly global. The combined R & D expenditures of China, Israel, and Russia were 15 percent of OECD country R & D spending in 2001, up from 6.4 percent in 1995, and in many OECD countries, the share of R & D performed by foreign affiliates of multinational enterprises (MNEs) has increased. Policymakers need to ensure that OECD economies remain strong in the face of growing competition and benefit from the expansion of MNE networks.

The source of this information as well as much more data and analysis of the policy environment is the OECD Science, Technology and Industry Outlook 2004, available at www.oecd.org/sti/sti-outlook.

Business R & D spending declines

Even though industry-funded R & D has increased sharply in Japan and modestly in the European Union (EU) in recent years, OECD-wide R & D has declined because of steep cutbacks in the U.S. business sector. In addition, venture capital investments plummeted from $106 billion to $18 billion in the United States between 2000 and 2003, and from 19.6 billion to 9.8 billion euros between 2000 and 2002 in the EU. …