The world economic crisis has already begun to affect innovation and research in the better-off countries, but this may not be all bad news says the OECD, the association of the world's 30 leading economies.

One way of looking at the downturn is to see it as a "creative destruction" that could witness the birth of new hi-tech giants and offer greatly increased potential for today's technological leaders, says the OECD. The key is R&D spending.

In a new document, Policy Responses to the Economic Crisis: Investing in innovation for long-term growth, the OECD notes that business R&D expenditure and patent filings historically move in parallel with GDP, slowing markedly during the economic downturns of the early 1990s and of the early 2000s.

"Evidence for the current crisis confirms these findings," it says. In the fourth quarter of 2008, there was already a decline or slower growth in R&D spending and forecasts for 2009 confirm the trend. The OECD says a recent McKinsey survey of almost 500 large businesses indicated that "34% expect to spend less on a R&D in 2009 while 21% forecast an increase".

R&D was declining because it was mainly financed from cash flow which fell in economic downturns while small innovative firms were particularly hard hit because in many cases their primary asset was intangible, such as an idea or a patent and difficult to value, making it hard to borrow against, or sell, to stay afloat.

By contrast, the crisis could magnify the competitive advantage of research-intense firms that seized the opportunity to reinforce market leadership through increased spending on innovation and R&D.

The OECD states that many of today's leading firms such as Microsoft or Nokia were born or transformed in the "creative destruction" of economic downturns. And several of today's leading technology firms, such as Samsung Electronics or Google, strongly increased their R&D expenditures during and after the "new economy" bust of 2001.

By the same token, the crisis also presents an opportunity to raise investment in human capital. The OECD says support for education and training can accelerate the healthy transition to new jobs and emerging opportunities and is essential for innovation, which requires a broad set of skills.

Among policy initiatives, the OECD lists investment in educational infrastructure and reform of education and training policies. Some countries, such as Spain and Portugal, are using the crisis as an opportunity to reinvigorate reforms to higher education institutions. Such reforms are needed to adapt to the post-crisis world where new sectors would appear, old ones would fade away and new work organisations would be introduced.

"Entrepreneurial skills and attitudes, risk-taking behaviour, creativity, etc, will be crucial competencies in the economy of the future that need to be nurtured by more adaptive and innovative education and training systems," the OECD report says.

The publication lists the measures taken so far by its member countries, noting the importance of international coordination and regretting that most stimulus packages "have been elaborated with a national view". But these are relatively early days and it says more work will be needed to monitor the implementation and assess the impact of these economic recovery measures.

alan.osborn@uw-news.com

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