As the economy emerges from the financial crisis and the lingering period of slow growth, four trends in science, technology and innovation are emerging. First, a slowdown in innovation due to heightened risk aversion and a paucity of risk capital; second, widespread structural change as the information revolution goes mobile and e-commerce reaches a level where it is the dominant force in retailing, enabled in part by the power to mine vast quantities of data; third, developments in information technology and other forces are leading to greater specialisation and the growth of complex global value chains; and fourth, the growing recognition that the key to sustained competitive advantage lies in the exploitation of knowledge-based capital, such as research and development (R&D), skills, brands and organisational structure. It’s about largely tacit knowledge that is hard to replicate and tends to be “sticky”, or rooted in a particular locale.
These four trends are interconnected and self re-enforcing. Combined, they will require us to redefine and update our thinking about the economy and about appropriate policies in a wide range of areas that themselves are changing, such as global taxation, competition, finance, skills, trade, technology, and types of structural policies. They also offer new opportunities, provided that these tech trends can be harnessed.
While scientific and R&D activity has been reduced by the crush of the crisis, there are exceptions in specific sectors like information and communication technology (ICT), and in Asia, where innovative activity remains strong. In fact, they were barely affected by the downturn Information society: Which way now? of the last five years. The increased use of the Internet has forced business models to change, causing significant restructuring in a number of sectors, including news and publishing, advertising, travel, banking and the retail sector.
The combination of smartphones and wireless broadband connections with “cloud” computing promises to unleash even more structural changes. The advent of the ability to draw on vast amounts of data to optimise logistics, customer relations and make real-time decisions could have a significant impact, particularly on jobs of a “transactional” nature.
ICTs have helped drive the rise of global value chains, which surpass old notions of national borders, and will change what economies produce and how they are steered and managed. With global value chains, stages and interconnections matter more than places or sectors. Competitiveness can no longer be solely assessed in terms of gross export performance: imports count too. The GVC concept will affect a wide range of other policy domains, including industrial policy, skills, access to markets, the role of capital and the use and protection of intellectual property.
In a world where stages and tasks matter more than the final products being produced, global value chains also challenge our orthodox notions of where economies find themselves on the valueadded curve. Whether in smartphones or airplanes, most of the value of goods is typically created upstream where product design, R&D or production of core components occur, or in the tail-end of downstream activities where marketing, branding and distribution occurs. The same applies to services, such as insurance claims, clinical trials for drugs and air travel. A policy priority in most economies is to jockey for position in higher valueadded activities and market segments. Knowledge-based capital, such as software, R&D, branding and intellectual property are keys to competitiveness and employment. In many countries, investment in such capital may well exceed traditional investments in machinery, equipment and structures, although corporate reporting and national accounts do not yet fully consider these assets.
Like any deep structural shift, building a knowledge-based strategy and finding a foothold in global value chains will require effort, and it may initially exacerbate employment and inequality problems. But the prize will be the opening up of huge opportunities that not only boost productivity, but also address many social and environmental challenges of our time, from ageing to climate change to development.
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©OECD Observer No 293, Q4 2012