DAY 1

Welcome

Gert G. Wagner
Chairman, Executive Board
German Institute for Economic Research (DIW Berlin)

Dr. Wagner opened the symposium by welcoming participants on behalf of the German Institute for Economic Research (DIW Berlin). He noted that this was the third symposium organized by DIW and the U.S. National Academies to discuss issues of mutual interest in innovation and technology.

He said that both U.S. President Barack Obama and German Chancellor Angela Merkel had noted the importance of innovation as a tool for economic development. President Obama in his 2011 State of the Union Message said that innovation drives the United States’ free enterprise system and creates tomorrow’s jobs. In Germany, the Angela Merkel government had committed to spending 10 percent of GDP on research and education by 2015.

“That commitment,” Dr. Wagner said “has been moved further into the 21st century in order to create sustainable economic growth, for which innovation policies play a critical role. Through clusters of creation by entrepreneurs and the development of creative ideas, innovation encourages the identification of solutions to current social and environment challenges.”

INNOVATION AS MULTIDIMENSIONAL

Dr. Wagner said that innovation policy is by its nature multidimensional, reaching into education, finance, and employment, as well as science and technology. Effective innovation policy must take all these sectors into account, understand their consequences, and be based on knowledge and reliable data. However, he added, it is too simple to say that the innovation economy arises solely from areas of knowledge and policy. An innovation culture depends also on the wealth of people, their openness to new ideas, and their willingness to take risks. Only an open-minded and tolerant society can support sufficient innovative talent to allow the economy to grow rapidly.

He described DIW Berlin as “one of the leading economic research organizations,” playing a vital role in developing Germany’s innovation culture



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DAY 1 Welcome Gert G. Wagner Chairman, Executive Board German Institute for Economic Research (DIW Berlin) Dr. Wagner opened the symposium by welcoming participants on behalf of the German Institute for Economic Research (DIW Berlin). He noted that this was the third symposium organized by DIW and the U.S. National Academies to discuss issues of mutual interest in innovation and technology. He said that both U.S. President Barack Obama and German Chancellor Angela Merkel had noted the importance of innovation as a tool for economic development. President Obama in his 2011 State of the Union Message said that innovation drives the United States’ free enterprise system and creates tomorrow’s jobs. In Germany, the Angela Merkel government had committed to spending 10 percent of GDP on research and education by 2015. “That commitment,” Dr. Wagner said “has been moved further into the 21st century in order to create sustainable economic growth, for which innovation policies play a critical role. Through clusters of creation by entrepreneurs and the development of creative ideas, innovation encourages the identification of solutions to current social and environment challenges.” INNOVATION AS MULTIDIMENSIONAL Dr. Wagner said that innovation policy is by its nature multidimensional, reaching into education, finance, and employment, as well as science and technology. Effective innovation policy must take all these sectors into account, understand their consequences, and be based on knowledge and reliable data. However, he added, it is too simple to say that the innovation economy arises solely from areas of knowledge and policy. An innovation culture depends also on the wealth of people, their openness to new ideas, and their willingness to take risks. Only an open-minded and tolerant society can support sufficient innovative talent to allow the economy to grow rapidly. He described DIW Berlin as “one of the leading economic research organizations,” playing a vital role in developing Germany’s innovation culture 33

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34 MEETING GLOBAL CHALLENGES through policy recommendations, regular reports, and evaluation exercises. A major focus of the institute is the socio-economic study of individual openness, risk aversion, and entrepreneurial behavior. Such studies, he said, provide insights that strengthen its recommendations to policy makers. He highlighted the recent finding of Alexander Kritikos, DIW’s research director, that the most successful entrepreneurs are those with a moderate level of risk aversion.1 Entrepreneurs who are too risk averse, Dr. Kritikos found, have a higher likelihood of failure; those who are “too risk-loving” likewise show a high incidence of failure. Achieving a “moderate level” of risk, he concluded, should be a key goal of policy makers as they shape innovation policy and subsidies. Based on the “impressive line-up of speakers both from Germany and the United States,” Dr. Wagner predicted that the symposium would help identify best practices in stimulating innovation in key industries, as well as in suggesting areas where the two nations can cooperate in the future. The first day would include topics of general interest, he said, followed by the second day’s discussion of specific sectors, such as finance, CO2 reduction, electric vehicles, the biomedical industry, and solar energy. He thanked the major sponsors of the symposium, including the German Federal Ministry of Education and Research, GMBR and UFS Universal and Management Services, and the organizers of the symposium, including the staffs of DIW Berlin and the U.S. National Academies. He thanks also the German Embassy of the United States and Engelbert Beyer of the Federal Ministry of Education and Research (BMBF); Alan Wolff, the chair of the National Academies’ Committee on Comparative National Innovation Policies, and Charles Wessner, program director of the National Academies’ Board on Science, Technology, and Economic Policy (STEP) and his staff; and David Audretsch of Indiana University, a symposium speaker and head of CGRW’s advisory board. Alan Wm. Wolff Dewey & LeBoeuf LLP and Chair, U.S. National Academies Committee on Comparative National Innovation Policies Ambassador Wolff joined Dr. Wagner in welcoming the participants to the symposium, noting in particular the presence of their Excellencies State Secretary Georg Schütte, Minister of State Werner Hoyer, and U.S. Ambassador to Germany Philip Murphy. He commented that the DIW Berlin and the U.S. 1 Marco Caliendo and Alexander Kritikos, “Searching for the entrepreneurial personality: New evidence and avenues for further research,” Journal of Economic Psychology, 33(2):319-324, April 2012.

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PROCEEDINGS 35 National Academies were well-matched partners for this review of national innovation policies, and recalled a successful preliminary U.S.-German meeting in Washington the preceding November.2 He greeted the many distinguished guests and speakers on innovation policy, and noted that the current study had already held similar gatherings in India, Finland, Belgium, Taiwan, Japan, Poland, and China. “In fact, there is not a country disinterested in innovation policy,” he said. “They are all working hard to capture value in the 21st century.” He began by agreeing with Dr. Wagner that innovation policy is a top priority for both the United States and Germany, noting that much of President Obama’s State of the Union message in January 2011 was devoted to innovation policy, and included the assertion that innovation is a key to the future for U.S. competitiveness and growth. “That view marked a departure from every president’s statements in the past,” he said. He also agree with Chancellor Merkel’s observation that with technology and innovation come opportunities that help “shore up the world’s economy and address pressing global challenges in health and the environment.” Mr. Wolff briefly explained the role of the U.S. National Academy of Sciences in addressing the topic of innovation policy. The Academy’s mandate is to provide the most objective scientific advice available to the U.S. Congress and to the executive branch of government on pressing issues in science-related areas, such as health, education, climate change, the environment, security, and, more recently, innovation. The STEP Board had undertaken “ground-breaking work” on innovation policy beginning more than a decade ago under the leadership of Gordon Moore, co-founder and past chairman of Intel Corporation. “This work,” he said, “has helped make the STEP Board a center of global excellence on innovation policy.” The STEP Board in recent years has been led by Lawrence Summers, subsequently head of President Obama’s National Economic Council, and Prof. Dale Jorgenson of Harvard University. Prof. Jorgenson’s own research had demonstrated that information technology and other semiconductor-based technologies have stepped up the rate of economic growth in the United States by 0.5 percent, following a point of inflection in the 1990s.3 Giving further support to this result was the conclusion of the World Bank that ICT contributes some 2 to 3 percent of GDP in the developing countries. 4 “So what we’re 2 The National Academies STEP Board and the German Institute for Economic Research (DIW) in Cooperation with the Embassy of the Federal Republic of Germany convened on November 1, 2010, a symposium in Washington, DC, entitled, “Meeting Global Challenges: U.S.-German Innovation Policy.” 3 Dale Jorgenson et al., Productivity: Information Technology and the American Growth Resurgence, Cambridge MA: MIT Press, 2005. 4 Christine Zhen-Wei Qiang, Contribution of Information and Communication Technologies to Growth, Washington, DC: The World Bank, 2004.

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36 MEETING GLOBAL CHALLENGES discussing today,” said Mr. Wolff, “is of global significance. It’s not just for Germany or the United States.” INSIGHTS INTO BEST PRACTICES AROUND THE WORLD One distinguishing feature of the work of STEP, Mr. Wolff continued, is that “we pay attention to what the rest of the world is doing.” This, he said, is because the policies of others “shape the environment in which we cooperate and compete, and because we firmly believe that we have things to learn from others.” indeed, he said, the premise of the meeting was that the participating countries “can help each other with insights into what works and doesn’t, and what are best practices.” The STEP Board is unusual in its long-term commitment to understand how U.S. trading partners and competitors encourage the development and retention of new industries. The Academies also review the conditions that have brought success domestically, such as the support of science and research parks and the intelligent funding of small, high-technology businesses. A particular focus has been the role of how innovative small companies can contribute to economic growth if they are adequately funded. Mr. Wolff suggested that some people might question why U.S. experts and officials would be interested in German innovation policy. He said that the answer should be clear from a glance at Germany’s impressive economic growth, its ability to sustain a high level of exports, and its high level and quality of employment—all despite high wages and a complex regulatory environment. He added that the German economy continues to export successfully around the world, not the least to China, which whom its trade is almost balanced. At this stage of the STEP inquiry, he said, the Board had gained insights into the value of federally supported, basic research and the necessity for timely seed funding, whether provided by federal, state, or private programs. Increasingly, the board has focused on the interactions between government, the private sector, and universities; it had also discussed the incentives and new institutions needed to transform the results of research into products of value to the commercial market. While it had gained an understanding of the importance of venture capital in the U.S. innovation system, the group had also come to understand some of its limitations, which had become more evident during the current time of economic stress. THE IMPORTANCE OF LOCAL VALUES FOR ENTREPRENEURISM What was often left out of discussions, Mr. Wolff said, was the importance of customs, values, and laws that either encourage or dampen the entrepreneurial spirit. For example, bankruptcy laws in the U.S. enable entrepreneurs to take risks. When entrepreneurs fail, as some must inevitably do,

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PROCEEDINGS 37 these laws permit prompt recovery and reallocation of human capital. Because of this and similar advantages of the United States’ open and competitive market, the United States is rightly known for its entrepreneurial spirit, “perhaps the most unfettered of any on the planet.” As an example, he noted the case of Bethlehem, Pennsylvania, part of the “rust belt” that had long represented the “old economy” of steel manufacture. When the steel industry collapsed, Bethlehem collapsed with it— until it began to renew itself as a manufacturer of advanced medical equipment. Similarly, the state of Maine once relied on large textile centers in Lewiston, Augusta, Brunswick and elsewhere; when textiles moved south in the mid-20th century, textile workers lost their jobs—until they were retrained to work for the semiconductor firms that became the state’s largest employer several decades later. Mr. Wolff noted that many of the nation’s broader deficiencies are familiar, such as secondary education in science and mathematics and the nation’s physical infrastructure. “When we see places like Berlin, we see that we could do a little more,” he said. “And when we go to Beijing and Shanghai, we know we have to do a lot more.” The nation has also identified key priority areas for progress: curing disease; providing clean energy, for the sake of both the environment and national security; transportation; harnessing further advances in ICT; accelerated research on new materials; sustained investments in nanotechnology. “And we understand that we need to have supportive international and investment policies, including especially better protection of intellectual property, which is a major challenge in some areas.” TRANSFORMING INNOVATION INTO JOBS Beyond these particulars, however, he emphasized a single major gap in knowledge for both the United States and Germany: “the right formula for transforming the benefits of innovation into high-quality jobs in large quantities.” This, he said, was the “key concern of the U.S. government.” He added, “It is not spinning straw into gold that’s the challenge; our inputs are better than straw. The challenge is to rediscover the alchemy of moving from innovation to strong domestic employment in an era of globalization.” Mr. Wolff reiterated that Germany and the United States had much to learn from one another, and he proposed that “a regular exchange of information other going forward would be extraordinarily valuable.” He said that the United States would be interested in learning more about German ideas on fostering innovation, “from the first spark of invention through to the challenges of commercialization, manufacture, and export. We also look forward to exploring prospects of future collaboration among U.S. and German research institutions, universities, businesses, and government agencies.” He emphasized the potential value of cooperation—even when progress seems hopeless. He said he had spent much of his career working with the semiconductor industry, and recalled “the challenge of Japan” in the 1980s.

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38 MEETING GLOBAL CHALLENGES Japan was then totally closed to competition, he said, and today “it is fully open. There is actually collaboration.” The United States created the industry- government partnership SEMATECH at that time, at first confined to U.S. membership, and today the group is international; it had evolved from joint government-industry support to almost entirely private support, and membership today is open to firms worldwide, including its Japanese, Korean, and Chinese members. “I have not entered a day of any of our symposiums with a stronger feeling of how much we can gain from an exchange,” Mr. Wolff concluded. He again thanked Gert Wagner, chair of DIW, and his colleagues for hosting the symposium, and also Klaus Zimmerman, David Audretsch, and other organizers “for their vision in encouraging this series of cooperative meetings.” He singled out for thanks Jens Schmidt-Ehmcke of the DIW “without whose efforts this symposium would not be taking place.” He closed by introducing the next two speakers, Georg Schütte, State Secretary for Education and Research, and Philip Murphy, U.S. Ambassador to Germany, and praised “their commitment to better understanding of U.S. and German innovation policy and enhanced cooperation between our two countries.”