Competitività ed innovazione: Alcune riflessioni

Ricevo e volentieri pubblico il contributo dell'amico Sergio Vecchi che mi scrive da Bruxelles. Sergio ha lavorato alla Commissione per motissimi anni occupandosi anche di questi temi.

Competitiveness & Co.

Institutional aspects
Competitiveness is the key factor in the global economy and is a very trendy expression, but its real meaning is not yet clear to everybody, especially as political aspects sometimes play a conspicuous part in it. Also, competitiveness is surprisingly connected with some concepts which do not seem obviously related to it.
Competitiveness requires a proper institutional, legal and regulatory framework which has as a principal objective the creation of a sound structural basis in order to give the different actors involved (investors, consumers, managers, etc.) a reasonable level of certainty about the prospects of their activities, or at least to reduce as much as possible risks associated with uncertainty , so as to build confidence. The legal aspect concerns the set of laws which are generally applied and respected in a country. Healthy institutions can stabilise a business relationship by offering a reliable framework and a set of rules for settling disputes if contracts are not honoured, government behaviour is unpredictable, or unforeseeable changes happen over time (e.g. due to technical or regulatory developments), etc. The regulatory framework implies the establishment of one or more independent authorities, which are in charge of supervising the market.
Lack of regulation or even poor regulation causes a low level of competitiveness. It dissuades people from abiding by certain rules and reveals to them the miraculous prospects of devoting time, resources and money to evading these rules. Hence the need for lawyers, advisors and accountants to teach people, among other things, how to elude certain rules. The increasing numbers of people achieving an expertise in evading laws and regulations proportionally reduces the attraction of sectors which could profit from a sound regulatory context. This weakness of the legal and regulatory system, that is of the public sector, discourages innovative spirit and causes a drop in investment in R&D and consequently in the relevant number of graduates. This situation reveals a surprising connection between the number of lawyers and that of researchers. As the first category thrives with the increasing complexity of regulations, which makes a go-between indispensable, the second one suffers from it, so the relative density of the two categories is significant.
The lower level of R&D investments reduces high-technology exchanges, increases costs and time to launch start-ups and gives rise to less innovative enterprises. The end result is a strong development of low-technology economic activities producing a loss of competitiveness: we have come full-circle!
On top of this, the shrinking of public regulation, or at least the existence of obstacles to its correct application, encourages the development of a black economy and this in turn fosters corruption. The role played by corruption in the black economy is often underestimated, when one of the main goals of information policies should really be to raise awareness of it. The lack of awareness due to poor information hides the opacity of public procedures and shows the existence of a direct link with obscure information delivered by the public administration and by the controlled mass media. Since both administration and mass-media are now ICT-dependent, we should realise that global transparency is deeply affected by the digital divide between more and less developed countries.

Regulation
The best way to balance the interests of all parties is to vest regulatory power in a separate institution that governs price setting and controls the performance of service providers. This institution must be independent from political interference (both from central state ministries and from local governments and other authorities), endowed with the legal power necessary to implement its instructions in the market and bound to render its decisions in a clear and transparent manner, so that they can be accepted as fair and legitimate.
With this kind of solid foundation, the central regulator can balance the interests of consumers and service providers by guaranteeing economically justified cost-covering tariff levels, while providing sufficient incentives to improve efficiency through appropriate regulatory schemes. The independence of such a body from direct political interference is a means of building confidence among investors, particularly in a newly liberalized sector.
Regulators also need to possess the proper authority and power to intervene in the operation of the market, such as licensing operators and services, enforcing laws and decisions, and resolving disputes among licensees. In addition, enforcing compliance with regulatory decisions is crucial for effective regulation, because without it, a regulatory regime is meaningless. As markets mature, many regulators are encouraging industry self-regulation, such as self-reporting, for enforcement purposes and reliance on alternative to resolve conflicts.
Independent regulation is very effective in all infrastructure sectors worldwide. The main characteristic of independent regulation is that it is performed not by state administrations, but by independent regulatory bodies. An independent regulatory body is created to ensure fair competition among different service providers. In international practice, regulatory bodies (sometimes called boards) consist of representatives of all interested parties: local authorities, service providers, consumers and labour unions. Six criteria are required for an effective regulatory system: coherence, predictability, capacity, independence, accountability and transparency.
In theory, for each industry that requires regulation there can be a separate, specific regulator. Alternatively, there could be a general regulator which monitors all industries. The trade-off is that branch-specific regulators have deeper knowledge about their respective industries, while a general regulator is easier (and cheaper) to set up, and less vulnerable to vested branch-specific interests. It can act either prescriptively, i.e. by fixing certain "acceptable" profit levels, or indirectly, i.e. by providing incentives for increasing productivity or reducing costs.
However, since the specific tasks facing a regulator can vary greatly depending on the circumstances under which the relevant industry is operating, there is no general blueprint for a successful regulatory policy under all possible conditions. Instead, the choice of an appropriately customized design of regulation is crucial for its success in different specific situations and countries.
In practical terms, some key network industries are regulated at least partially. The telecommunications sector has very significant levels of regulation, and railroads, electricity, air and ground transportation are also heavily regulated. Financial exchanges are under "light" regulation and to a significant extent under self-regulation. In contrast, credit cards and banking networks, as well as computers and their virtual networks are almost completely deregulated.

Convergence
Our new world is global and multidisciplinary. New configurations and relationships are developing between and among nations, peoples, cultures, philosophies, values, governments. Convergence speaks of the way various elements play off on each other, inform each other, change each other, and ultimately form a synergy creating something new. Convergence is occurring among peoples and among cultures, and is becoming a force that is beginning to affect and underpin most human endeavour. Convergence is shaping the global market place.
The three main constituent forms of convergence are: convergence of society, convergence of education and convergence of technology. It is, therefore, a phenomenon which can affect communications and information. New technologies could influence society by being invasive or intruding into the way people live, while society could affect technology by putting fresh problems to it. However, convergence goes beyond mere technologies.

Societal impact
The general importance of convergence policies lies in the growing societal importance of ICT and media industries in terms of the size of the sectors themselves and their broader social implications. ICT devices are part of products in many sectors and information and communication systems constitute infrastructures for many functions in society. These infrastructures are, for instance, crucial for many service activities which play an increasing role in social developments. Most countries have, therefore, devised networking visions of society and plans to take advantage of the potential offered by new information and communication technologies and services. They strive to establish the best possible economic and regulatory framework for the development of dynamic information and communication industries and innovative use of ICTs.
As we have already said, regulation must be independent from any form of political interference whatsoever, including autonomy from state/government control, especially where this can be too strict. The impact of convergence on regulation is such that it encourages public participation, arouses consumers' interest and can therefore lead to democratic involvement. Ideas can be tried out directly on consumers, who can contribute with ideas of their own with immediate market feedback. Regulation must also be able to diversify from country to country, taking into consideration local political, economic, social and other conditions. Such a framework is essential for the sector, particularly as countries move from state control to market competition, in order to attract new entrants as well as private investment. Actually, even investment decisions can be affected by the socio-economic and geographical environment of the country concerned. Regulatory intervention is then necessary to safeguard consumer interests and to maintain a competitive marketplace.
Regulators have responded to convergence by adopting more streamlined legislation and procedures, which allow for greater flexibility in dealing with new technologies and services. One of the main benchmarks for assessing the effectiveness of a regulator is the degree of actual and perceived autonomy not only from government control but also from industry influence. Effective regulation also requires transparency and public participation in the decision-making process, so that the regulator is accountable not only to the government but also to the public.

Standards
Standardization, in the context related to technologies and industries, is the process of establishing a technical standard among competing entities in a market, where this will bring benefits without harming competition. One of the earliest, and surely the most well-known, is DIN 476, the standard that in 1922 introduced the A4, etc. paper sizes. (This was adopted as an international standard ISO 216 in 1975).
The three levels of standardization in ascending order are: compatibility, interchangeability and commonality (For example, the commonality between the Boeing 757 and Boeing 767 aircraft allowed the September 11 hijackers to operate both planes with experience of only a single cockpit type). The common use of the word standard implies that it is a universally agreed upon set of guidelines for interoperability. However, the plurality of standards-issuing organizations means that a document purporting to be a standard does not necessarily have the support of many parties: the wonderful thing about standards is that there are so many of them to choose from!
International standards are developed by international standards organizations and are suitable for universal, worldwide use. They may be used either by direct application or through adoption, i.e. the process of modifying an international standard to suit local conditions. International standards are also one way of overcoming technical barriers in international commerce caused by divergence in technical regulations and standards developed independently and separately by a nation, national (standards) organization, or company. The main international organizations are the ISO (International Organization for Standardization), the IEC (International Electrotechnical Commission) and the ITU (International Telecommunication Union). Among the regional standards bodies in Europe, we have CEN (Comité Européen de Normalisation), CENELEC (Comité Européen de Normalisation Électrotechnique), ETSI (European Telecommunications Standards Institute), and the IRMM (Institute for Reference Materials and Measurements). For example, the whole of Europe now measures lengths in metres and uses GSM cell phones.
Following certain standards can also be a prerequisite for doing business on certain markets, with certain companies, or within certain consortia. In the context of business information exchanges, standardization refers to the process of developing data exchange standards for specific business processes. These standards are usually developed in voluntary consensus standards bodies such as the United Nations Center for Trade Facilitation and Electronic Business (UN/CEFACT), the World Wide Web Consortium W3C, and the Organization for the Advancement of Structured Information Standards (OASIS).
Standards can be de facto, which means they are followed for convenience, or de jure, which means they are used because of (more or less) legally binding contracts and documents. A standard can be open or proprietary. For instance, the rights to a piece of proprietary software are owned exclusively by an individual or group, usually a company. But open standards promote competition by setting up a technical playing field that is level to all market players. This means lower costs for enterprises and, ultimately, the consumer. In particular, e-business standards can cross all international boundaries and help lower transaction costs (so that ICT could become virtually free if production costs keep diminishing), simplify data flow and reduce bureaucracy.

IPR
Intellectual Property (IP) is a bundle of rights that protects applications of ideas and information which have commercial value. IP serves three principal functions: to stimulate knowledge (and hence wealth) creation; to embed knowledge in a culture; and to protect a distinctive identity. The very essence of IP rights entails a trade-off. On the one hand, IP rights provide economic incentives to innovate, but on the other, the exclusive rights that they confer, allow monopoly prices and associated welfare losses, and prevent access by other innovators. However, a non-exclusive license system can be used, where anyone can access a certain technology, the only catch being that you have to pay the licensee a modest fee to use it.
Different forms of IP rights have evolved to protect different applications of knowledge. The four most common are patents, copyright, trademarks and designs. A patent is a set of exclusive rights granted by the state to a person for a fixed period of time in exchange for the regulated, public disclosure of certain details of an invention: a device, method or process which is new, inventive or non-obvious, and industrially applicable. (Patent applications are disclosed only 18 months after filing). Copyright law covers the way in which the work is expressed, rather than the idea behind the work. A trademark is a badge of origin for goods or services; it can be a word, name, logo, colour, sound or shape. A registered design protects the appearance of the whole or part of a product, including its shape, configuration and ornamentation. Increasingly, firms are using overlapping IP rights to protect their products.
The main mechanism used as an alternative to formal IP is the trade secret. For commercial and industrial applications, IP has grown to eclipse all but the trade secret as a wealth creation mechanism. The condition of disclosure means that IP brings in a greater amount of information that might enable future innovation into the public domain than the trade secret would. If IP rights are balanced, coherent and flexible, the system will support greater investment in R&D and will allow the access to knowledge that will stimulate future innovation. In fact, the number of patented inventions measures a product's innovation level. However, the link is valid not for the innovation in itself, but for knowledge with a high innovation potential. A recent approach to knowledge accumulation rejects its propertization. This open source approach is intended to allow creators open access to products, ideas and inventions, enabling information to be freely shared and developed. This keeps transaction costs low and allows user-driven innovation to flourish.
The monopolies that IP rights grant allow rights holders to charge high prices, but those rights also provide firms with the incentive to supply what consumers demand. On the other hand, the monopoly power thus created can generate monopoly income via excess profits, exactly those profits which are supposed to provide the incentives for engaging in research. This "enclosure of the intellectual commons" produces a loss in efficiency and could also result in reduced innovation. Since the gap separating developed from developing countries is not just in resources, but also in knowledge, IPR are significant in giving developing countries more access to knowledge.
The EPO (European Patent Organisation), the WIPO (World Intellectual Property Organisation), which unfortunately lacks an enforcement mechanism, and the WTO deal with IPR respectively in Europe, the world and for trade. The WTO is involved in IP through the TRIPS (Trade-Related Aspects of Intellectual Property Rights Agreement). However, TRIPS seems mainly concerned with restricting the movement of knowledge across borders rather than with supporting developing countries.

Innovation and growth
In general, there is an inverted-U relationship between innovation and competition: firms have little incentive to innovate if they are not stimulated by competition, but too much competition discourages innovation as firms are not able to reap the benefits of their efforts. It is essential, therefore, to seek an optimal degree of competition. For instance, by the late 1980s the advanced European countries had largely caught up with the most competitive countries and were reaching the world technology frontier. Therefore the EU had to turn to an alternative source, innovation; i.e. the ability for firms and workers to improve production processes or to move rapidly into new activities. This experience could be of material importance to developing countries.
Innovation happens at different, progressively more significant and more far-reaching levels: incremental, radical and fundamental. Incremental innovation entails step-by-step improvements of existing products and tends to strengthen market positions of established companies. Radical innovation drastically changes existing products or processes. The risks and required investments are usually considerably greater than those needed for incremental innovation, but they offer more opportunity for new entrants to the market. Fundamental innovation depends on new scientific knowledge and opens up new industries, causing a shift of pattern. In its early stage, the contributions of science and technology are therefore important.
The best way to foster innovation is to invest more in R&D in order to increase its intensity, but R&D investments alone will not do the job. (Actually, R&D intensity increases in all industries when an economy gets closer to the technological frontier, because the survival and growth of all industries in a high-cost, high-productivity economy depends on their ability to innovate). But they are more R&D intensive in a developed economy than in a catching-up economy! Therefore, as innovation is not a panacea for all countries, we must go beyond the obvious recommendation of increasing state spending on, or subsidies to, R&D, and protecting intellectual property rights, and also consider indirect channels which can be used to encourage it.
As a matter of fact, innovation-based growth requires complementary policies, aimed at correcting the inequalities caused by this process, as structural policies are not all-inclusive. For instance, liberalising market entry boosts innovation in sectors closer to the technological frontier, but less so in sectors far below it. Therefore, those policies should be aimed at helping workers shift from lagging to more advanced sectors, in order to speed up the implementation of those reforms.
It is worth stressing that the time factor plays a fundamental role in achieving success. In fact, the time between the emergence of new ideas, their assessment and the global marketing of goods and services represents a process rewarding those companies, organisations and institutional systems capable of foreseeing or seizing the changes in customers' expectations at the right moment.
Another key-factor for innovation is improving educational levels, but this is another process which is not homogenous. In fact, higher education investment increases a country's ability to come up with cutting-edge innovations, whereas primary and secondary education are crucial for a country's ability to implement existing technologies. The closer a country is to the productivity or technology frontier, the more growth-enhancing it is to invest in higher (in particular post-graduate) education. In countries further below the frontier, growth is primarily enhanced by investments in the lower tiers of education.

The new economy
In the last quarter of the 20th century knowledge management showed an evolutionary drift from technology transfer systems to technology exchange systems, to the exchange of knowledge and, finally, towards innovative systems of knowledge, which need to be developed to a universal scale. The application of new knowledge, high technologies and innovative solutions is of increasing importance in the contemporary new economic environment. The so-called “new economy” is based on the new knowledge embodied in new business processes.
The age of the “three Is”, inventions-innovations-investments, is currently taking shape. This chain involves the transformation of inventions into commercially applicable (marketable) innovations capable of attracting investments to improve productivity. Therefore, the evaluation of both innovation (i.e. innovative, innovation-oriented, innovation-based, innovation-driven) development and the effects of the emergent “new economy” should be regarded as the basic strategy factors.
Global competitive advantages can be obtained by assessing and evaluating intellectual property (inventions) and applying it to economic activity (innovations); by creating new markets for new goods and services and by attracting investment funds for technology transfer. Technology transfer (TOT) is the process of developing practical applications to identify research results which could be of potential commercial interest and of developing strategies to exploit them, possibly across international borders, generally from developed to developing countries. A research result may be of theoretical interest, but as patents are normally only issued for practical processes, it needs to be converted into a specific practical process to be of commercial value. In the evolutionary environment of the “new economy” the market value of worldwide competitive organizations is much higher than their book value.
It is also important to consider the impact of the knowledge economy on the developing world, where global knowledge sharing is critically important to public health and economic advancement, as in the case of the vital research on subsistence crops. Here the rapid escalation of public-sector exclusive patenting and licensing is threatening the future of plant research. As a result, the non-profit sector (universities, etc.) is hampered when trying to develop new crops with enabling technologies (the research tools necessary for further experimentation and innovation) it has itself invented. The incidents in South Africa concerning AIDS in 2001 and subsistence crops in 2003 were two cases in point. There is still a long way to go before bridging the gap between a knowledge economy and a knowledge ecology!
In the 21st century companies will have to adjust and get used to the changing environment by shaping efficient strategies for innovative development, and activating and accelerating the use of intellectual property in generating economic turnover. Economically well-founded management decisions call for choosing new, off-beat paths and approaches while taking into consideration novel and cutting-edge technology trends and the use of intellectual resources in economic activities.
To sum up, a comprehensive and coherent strategy is needed – one which involves more competition and more start-ups entering the product markets, more investment in education, R&D, S&T, more developed financial sectors and markets, more flexible labour markets, and a constructive relationship between the economy and the environment in order to achieve a sustainable development.

The Silicon Valley paradigm
In pre-war good old times the culture of science was likened to the pristine ideals of communism: intellectual property was commonly shared, discoveries were freely exchanged. The scientist's claim to "his/her" intellectual property was limited to that of recognition and esteem, and scientific knowledge was assumed to be a public good. Since then, our appreciation of communism and science have both changed…
Traditionally, the universities protected and defended the information commons, the pool of public knowledge that is freely available for researchers and creators to use and build upon. This enclosure of the scientific commons is basically different from imposing excessive proprietary restrictions on "upstream" research, i.e. early-stage, resulting in a dangerous anticommons forming around knowledge and thus stifling "downstream" research and innovation. For example, a user might need access to multiple patent inputs to create a single useful product, thus adding to the cost and slowing the pace of innovation.
Whilst universities can churn out lots of creative talent and technology, the benefits are likely to prove fleeting if the surrounding region does not have a rich, dynamic infrastructure capable of absorbing and nurturing these knowledge assets. Of course, they are only one of several components necessary for high-tech regional growth to be successful. Equally important is the vitality of the local infrastructure and the business support systems that surround them. Indeed, the larger regional knowledge system is of equal if not greater significance.
A case in point are the attempts to emulate the Silicon Valley experience without understanding the complex array of factors that accounted for its success. In Silicon Valley regional actors played an important role in building up the local infrastructure that this kind of economy needed. In fact, quite independently of the university, a unique infrastructure of interlocking support systems emerged that were critical to the region's success. These included professional management and business capabilities, venture-capital funding, legal and banking services, marketing and advertising talent, all of which served to nurture and sustain the high-tech businesses that were locating in the region. Growth was also highly dependent on the military, the region's biggest "angel investor". In fact, several companies relied on military procurement contracts to get off the ground before moving into more civilian-based production.
Moreover, any high-tech regional initiative should include the development of vibrant communities contributing to the revival of downtown business districts, support for culture and the arts, creation of public space and outdoor amenities. In fact, knowledge workers who drive the new economy tend to gravitate toward these kinds of places. Therefore, an ecology, especially a knowledge ecology, cannot be left to its own devices, as investments are needed in the human and cultural infrastructure surrounding the educational institutes, in order to capture its most highly prized asset of all: highly-skilled creative talent. In the end, you will have to choose between the Akademgorodok and the Silicon Valley paradigm!
On the other hand, one of the most critical factors in the success of university-led economic growth initiatives is for them not to be university driven. In fact, it might be better for all involved if local industry and the economic development community were the originators and managers of these programmes, rather than the universities. That said, knowledge should not end up as a commodity or a form of "venture capital" and a tech-transfer officer should not become sort of an "academic entrepreneur"!