Space and innovation: the next frontier

Claire Jolly, Head of the OECD Space Forum is the co-author of today’s post

Space-based technologies are now as much a part of everyday life as electricity or running water. Satnavs are among the most obvious examples, but a range of other activities from paying with a smart card to playing Pokémon Go use satellite networks to transmit data or get a positioning signal. Even a, literally, down-to-earth business like farming is adopting space technology, as John Boelts, Vice President of the Yuma County Farm Bureau, in Arizona explains: “By using GPS on the tractors, the entire process from leveling the field to planting the seed to irrigating the crop has been much more efficient than in the past”.

There are also many indirect, sometimes surprising, uses spinoffs from space programmes. The scanning technologies developed to find a safe landing spot on the Moon were adapted and contributed to give us ultrasound, MRI and CAT scanners, while the impedance cardiography-based devices designed for astronauts evolved into some of the cardiac monitors used today in hospitals and in wearable devices.

However, despite the numerous innovations generated by space programmes, the need for systems to be reliable and durable sector means that the space sector has been risk averse in some respects. The basic technology for sending payloads into space using liquid propellant rockets was first proposed by Russian schoolteacher Konstantin Tsiolkovsky in 1903, and Robert H. Goddard successfully launched a liquid-fuelled rocket in 1926.

These two pioneers were Russian and American and their two countries still dominate the world’s spending on space. According to Space and Innovation, a new OECD publication, US and Russian government budgets dedicated to space were over 0.2% of GDP, well ahead of the next biggest spenders France, at 0.1% and Japan at 0.06%. Governments are still the major funders of space programmes, particularly for public good-related activities such as environmental monitoring, weather forecasting, and major scientific missions. National agencies, research centres, universities and publically-funded laboratories still perform fundamental research, applied research, and experimental development in the space sector, but in some countries their mission is evolving to include co-ordinating and enabling broad knowledge diffusion as well as developing start-ups.

space-budgets_2

Industry in OECD economies also play an important role, while new entrants, several from the Internet economy, are bringing innovative ways of developing space business. The most famous of these is Elon Musk’s SpaceX project, but there are many smaller scale examples of new entrants, including students using crowdfunding for satellite projects. The University of Alberta’s Ex-Alta-1 satellite for instance is part of the QB50 consortium mission that will study space weather along with 49 other cube satellites. CubeSats are tiny satellites weighing no more than 1.33 kg in a 10cm cube.   Cubesats show up in a new set of indicators developed by the OECD to measure innovation based on patent applications and bibliometric analysis of science and technology publications. Other sources of innovation include nanosatellites, electric satellite propulsion, reusable technologies for launchers, and satellite navigation applications.

space-literature

The increasing importance in scientific publications of satellite navigation systems and the many location-based and timing services derived from them can also be traced to recent patenting activities by businesses, demonstrating that much innovation occurs today in downstream space activities. National security and science objectives do however remain the main drivers of innovation, with human space exploration important too.

The indicators quoted by Space and Innovation suggest that the space sector may be on the verge of a fifth cycle of development, following  previous cycles that started with the space race and Sputnik in 1958 and go through to the present cycle, number 4, starting in 2003 and lasting until around 2018. Cycle 4 sees ubiquitous use of space applications in various fields thanks to digitalisation and a new generation of space systems (small satellites) prompted by integration of breakthroughs in micro-electronics, computers and material sciences; and globalisation of space activities (large and very small national space programmes coexist, development of global value chains).

The next cycle, projected to last about 15 years, will be characterised by growing uses of satellite infrastructure outputs (signals, data) to meet societal challenges such as helping bridge the digital divide by supplying Internet access to remote areas without the need to build expensive infrastructures, or contributing to mitigate climate change with global satellite monitoring. In parallel, innovative mass-market products could be on the horizon, plus a more extensive mapping of our solar system and beyond thanks to new telescopes and robotic missions. Cycle 5 is also expected to see new generations of smart satellites and orbital space stations, while a number of commercial space activities could be coming of age, including new human-rated space launchers and in-orbit servicing.

If the promises of Cycle 5 are to be fulfilled, policymakers will have to play a role. They can do this in three broad areas. First, look at the specifics of the space sector and see if national policy instruments that support space innovation are effective, paying particular attention to knowledge diffusion networks. Second participate in and encourage downstream activities, for example through policies that enable start-ups and innovative firms to find or retain niches where they can make the most of their capabilities. Third, space agencies should systematically examine and track the spin-offs and technology transfers to other sectors that are derived from space investments.

The closing session of a symposium on “Space and innovation” being organised today by the OECD Space Forum will discuss whether space is becoming a daily commodity. It is, but as Stephen Hawking says, it is far more than that: “Raise your sights. Be courageous and kind. Remember to look up at the stars and not at your feet.”

Useful links

The Space Economy at a Glance with summaries available in 24 languages.

Innovation and complexity

NAECAndrew Wyckoff, Director, OECD Directorate for Science, Technology and Innovation

Since its creation in 1961, the OECD has influenced how governments approach science, technology and innovation, and how economics as a discipline tries to understand these phenomena. The OECD Working Party of National Experts on Science and Technology Indicators (NESTI) was created in 1962, and in 1963, Science, economic growth and government policy convinced governments that science policy should be linked to economic policy. In 1971 Science, growth and society anticipated (also called the “Brook Report” after  the Chair, Harvey Brooks) many of today’s concerns by emphasising the need to involve citizens in assessing the consequences of developing and using new technologies.

For many experts though, the major contribution was the concept of national innovation systems, presented in 1992 in a landmark publication, Technology and the Economy: The Key Relationships. The origins of the concept go back to the 1970s crisis, which had provoked an in-depth re-examination of previous economic thinking on how growth came about and why growth in productivity was slowing. A 1980 OECD report, Technical Change and Economic Policy, is now widely recognised as the first major policy document to challenge the macroeconomic interpretations of the 1970s crisis, and to emphasise the role of technological factors in finding solutions, arguing for instance that innovation can be more powerful than wage competitiveness in stimulating an economy.

Economists working at the OECD were pioneers of a new approach that saw innovation not as something linear but as an ecosystem involving interactions among existing knowledge, research, and invention; potential markets; and the production process. In national innovation strategies, one of the key issues is the interactions among the different actors: companies, public research institutions, intermediary organisations, and so on. And contrary to the dominant thinking in policy circles in the 1980s and early 1990s, the OECD also saw it as something that governments should play a central role in – hence the term national innovation strategy.

Today, services are becoming the focus of innovation, with some companies even blurring the distinction between the value-added of products and services, smartphones being a good example. This is a logical outcome of the increasing digitalisation of the economy. Digital technologies are now so ubiquitous that it is easy to forget how recent they are. The World Wide Web we know today for example was created in the 1990s, and Microsoft thought it was possible to launch a rival to Internet (called MSN) as late as 1995.  Google was only founded in 1998 and it would be 6 years before it went public.

With the digital economy and society coming so far in such a short time, it is hard to predict what they will look like in the future. We can however identify some of the drivers of change. Big Data will be among the most important. In The phenomenon of data-driven innovation, the OECD quotes figures suggesting that more than 2.5 exabytes (EB, a billion gigabytes) of data are generated every single day, the equivalent of 167 000 times the information contained in all the books in the US Library of Congress. The world’s largest retail company, Walmart, already handles more than 1 million customer transactions every hour. Because so many new data are available, it will be possible to develop new models exploiting the power of a complexity approach to improve understanding in the social sciences, including economics. Also, the policy making process may benefit from new ways of collecting data on policies themselves and vastly improving our evaluation capabilities.

The analysis of data (often in real time), increasingly from smart devices embedded in the Internet of Things opens new opportunities for value creation through optimisation of production processes and the creation of new services. This “industrial Internet” is creating its own complex systems, empowering autonomous machines and networks that can learn and make decisions independently of human involvement. This can generate new products and markets, but it can also create chaos in existing markets, as various financial flash crashes have shown.

Two sets of challenges, or tensions, need to be addressed by policy makers to maximise the benefits of digitally-driven innovation, and mitigate the associated economic and societal risks. The first is to promote “openness” in the global data ecosystem and thus the free flow of data across nations, sectors, and organisations while at the same time addressing individuals’ and organisations’ opposing interests (in particular protecting their privacy and their intellectual property). The second set of tensions requires finding policies to activate the enablers of digital-driven innovation, and at the same time addressing the effects of the “creative destruction” induced by this innovation. Moreover, there is a question concerning the efficacy of  national policies  as digital-driven innovation is global by definition. As a policy maker you can promote something in your country, but the spillovers in terms of employment or markets can be somewhere else.

With so many new technologies being introduced, more firms and countries being integrated into global value chains, and workers becoming more highly educated everywhere, you would expect productivity growth to be surging. In fact it is slowing. But that average trend hides the true picture according to an OECD study on The Future of Productivity . Labour productivity in the globally most productive firms (“global frontier” firms) grew at an average annual rate of 3.5 per cent in the manufacturing sector over the 2000s, compared to 0.5% for non-frontier firms.

Diffusion of the know-how from the pioneering frontier firms to the bulk of the economy hasn’t occurred – either because channels are blocked or because we are in a transformative period and the expertise for how best to exploit the technologies is still in the heads of a few.  Most likely, it is a combination of the two.  We therefore have to help the global frontier firms to continue innovating and facilitate the diffusion of new technologies and innovations from the global frontier firms to firms at the national frontier. We can try to create a market environment where the most productive firms are allowed to thrive, thereby facilitating the more widespread penetration of available technologies and innovations. And we have to improve the matching of skills to jobs to better use the pool of available talent in the economy, and allow skilled people to change jobs, spreading the know-how as they move.

In a complex system, you can’t forecast outcomes with any great degree of certainty, but many of the unintended outcomes of interactions in the innovation system are beneficial. The policies mentioned above would each be useful in themselves and would hopefully reinforce each other beneficially.

Useful links

The OECD organised a Workshop on Complexity and Policy, 29-30 September, OECD HQ, Paris, along with the European Commission and INET. Watch the webcast: 29/09 morning; 29/09 afternoon; 30/09 morning

OECD work on innovation

The Innovation Policy Platform (IPP), developed by the Organisation for Economic Co-operation and Development (OECD) and the World Bank is a web-based interactive space that provides easy access to knowledge, learning resources, indicators and communities of practice on the design, implementation, and evaluation of innovation policies.

Disruptive innovation in legal services – promising for consumers and challenging for regulators

Concept illustration with mobile phone and law icons.
Click to find out more about the meeting

James Mancini, Competition Division, OECD Directorate for Financial and Enterprise Affairs

Legal professionals[i] are present during some of the most important events in our lives, such as setting up a business, buying a house, writing a will or navigating a divorce. Recent developments in legal services markets suggest that this may not be the case forever. Consumers have increasingly turned to online platforms and automated technologies to obtain services that were delivered by legal professionals in the past. In the process, traditional business models and regulatory frameworks are being called into question. What should policymakers, regulators and competition authorities know about changes in legal services markets?

The scope of current and potential innovation in legal services is substantial

Legal services that have changed little over generations are now being transformed thanks to several enabling factors. Communications technology permits lawyers to interact with clients, outsource work and share documents with colleagues seamlessly. The “democratisation of knowledge” via the internet is allowing consumers to better understand their legal needs, and the nature of the services that legal professionals provide. Further, concerns about fee levels generally, and the financial accessibility of legal services for low income individuals in particular, is putting pressure on legal professionals to justify or reduce their charges.

These factors are giving rise to the entry of new competitors into legal services markets (where permitted by regulation) and, in fewer cases, the adaptation of legal professionals to current realities.  In particular:

  • Online service delivery is allowing both legal professionals and unlicensed providers to serve clients remotely while taking advantage of the scalability of digital platforms.
  • Ranking and review information regarding legal professionals is becoming increasingly accessible, and is allowing clients to assess the quality of professionals before retaining them – a previously difficult proposition
  • The unbundling of services, partially driven by increasing client awareness and fee pressure, is transforming the distribution of tasks in legal services and ending traditional “black box” models of service delivery. As a result, standardised activities are being outsourced to low-cost providers (including unlicensed ones), and new billing models are being introduced.
  • Automation is changing the nature, and volume, of tasks that legal professionals perform. Although the extent to which the work of legal professions can be automated is subject to debate, automated systems have been introduced which offer new capabilities and even, in at least some instances, improved performance compared to legal professionals.

So innovations are not simply minor process improvements that increase legal professional efficiency. Rather, they have the potential to fundamentally redefine the practice of law, as well as the other professions associated with it, such as notaries.

The regulatory frameworks of legal professions should be assessed in light of recent innovation

Legal professions are heavily regulated across the OECD, with a range of restrictions on who can provide legal services, the fees they can charge, and other aspects of their behaviour (including restrictions on advertising, ownership restrictions and requirements to provide legal aid). These restrictions are an effort to correct market failures implicit in the traditional provision of legal services, which stem from information asymmetries and externalities. Other measures reflect broader policy objectives.

However, there are indications that some of these measures are becoming unnecessary or, worse, harmful to competition and innovation in legal services markets. Increased commoditisation of legal services and improved consumer information could eliminate the need for certain regulations altogether, by addressing the concerns that underpin these regulations. At the same time, the precise scope and enforceability of the exclusivity granted to legal professionals in their activities is under pressure. Limits on the number of legal professionals in a jurisdiction and advertising restrictions  hinder innovation and put professionals at a disadvantage compared to disruptive firms. The reliance on self-regulation in legal services may result in conflicts of interest when new disruptive entrants begin to challenge incumbents.

As a result, the regulatory status quo may be difficult to maintain, and policymakers should not attempt to do so by blocking innovation. Rather, careful consideration must be given to how the scope and specific provisions of legal professional regulations should be modified. Should a supervisory body oversee the activities of self-regulators, as is the case in the UK with the Legal Services Board? Should the reserved activities of legal professionals be narrowed and clarified? Should different levels of professional certification, and greater reliance on para-professionals, be promoted? These questions must all be tackled during the process of modernising legal services regulation. Further, new concerns regarding innovative service offerings and delivery models may arise, potentially requiring regulatory measures in areas such as data protection, privacy, consumer awareness and lawyer-client confidentiality.

Policymakers would therefore be well-advised to assess current regulatory frameworks in light of current and future innovations. The OECD Competition Assessment Toolkit can help.

Competition authorities are well-positioned to promote pro-competitive regulatory outcomes

Competition authorities are likely to have little experience in legal services markets given that enforcement issues in these markets have been rare. There is a role for them, however, in helping to respond to the challenges described above. They can promote competition assessments of existing regulations to enable a better understanding of the trade-offs implicit in current regulatory frameworks. Authorities can also help facilitate productive interactions between disruptive innovators and policymakers as well as regulators. These efforts could avoid enduring conflicts between regulators and established disruptive firms, which can engender great controversy and leave everyone worse-off.

Useful links

This post is based on a background paper for a session on disruptive innovations in legal services discussed in Working Party No. 2 of the OECD Competition Committee on June 13, 2016. More details on the session are available here.

Ministers, the business community, civil society, labour and the Internet technical community will gather in Cancún, Mexico on 21-23 June for an OECD Ministerial Meeting on the Digital Economy: Innovation, Growth and Social Prosperity.

Disruptive innovation and competition in Latin America and the Caribbean James Mancini on OECD Insights

[i] The composition of legal professions vary significantly between different countries, legal disciplines and regulatory frameworks. The core of the legal professions considered here consists of lawyers and notaries as well as other licensed, regulated professionals in some jurisdictions that provide services with respect to court proceedings and other legal processes (e.g. bailiffs, commercial court clerks and judicial commissioners in France).

Disruptive innovation and competition in Latin America and the Caribbean

forumIn the run-up to the Latin American and Caribbean Competition Forum in Mexico-City on 12-13 April 2016, James Mancini, OECD Directorate for Financial and Enterprise Affairs looks at the competition enforcement challenges and advocacy opportunities around disruptive innovations in Latin America and the Caribbean

”Disruptive innovation” is a popular term among researchers, businesses, consultancies and journalists discussing market change. While there is some debate about the precise application of the term, the phenomenon it describes is redefining markets around the world and the Latin American and Caribbean region is no exception. Disruptive innovations in the region are fundamentally challenging traditional business models and regulatory frameworks.

Several recent examples originate from mobile technologies introduced by both large players from outside the region and locally-developed businesses. With respect to mobile taxi-hailing applications, for instance, Uber competes with local companies such as Tappsi and Easy Taxi. Financial services innovations in the region also use web and mobile technologies to target segments of the population that are cut out of traditional markets. These innovations include the development of alternative credit scores using social media and transaction data (e.g. mobile telephone top-ups), allowing low-income individuals without borrowing history to access loans that would otherwise be unavailable. Other innovations include low-cost remittance services that offer payment via utilities companies and gift cards, and mobile telephone-based electronic payment services that may evolve into a wider range of financial services. In both the financial and taxi sectors, disruptors face incumbents with established business models and extensive regulation.

In this environment, competition authorities have an opportunity to ensure that disrupted markets remain competitive ones, and therefore that consumers will benefit from innovation. This will require both conventional and novel approaches.

Competition authorities should first ensure that competition laws are enforced in disrupted markets as they are in any other market, despite the challenges that may arise. This requires an understanding of the economics underlying enforcement tools rather than the rigid application of rules of thumb. For instance, when defining a market (the prerequisite for analysing competitive effects), competition authorities are challenged by rapidly-changing markets whose boundaries may not be clear. Both overly broad and overly narrow approaches to this exercise carry significant risks of which authorities must be aware. Two-sided markets (e.g. markets for platforms that allow buyers and sellers to transact[1], such as Airbnb and eBay) must be recognised and analysed using methodologies that do not simply treat each side as a separate market. Authorities also need to be alert to more typical issues, such as disruptors abusing a dominant position in a market and incumbents engaging in anticompetitive conduct to prevent disruptor market entry. Anticompetitive acquisitions of disruptive innovators by incumbents need to be prevented. While new approaches may be required to identify these acquisitions, they should be dealt with using established approaches.

Authorities should also advocate in favour of competition when disruptive innovations affect regulated markets, which they often do by operating outside of existing regulatory frameworks. The avoidance of regulation is core to the business model of some disruptive entrants who seek to innovate in markets where regulation favours the status quo. As disruptors begin to capture segments of existing markets, incumbents call for regulations to be applied equally. This can have significant implications for the ability of disruptive innovations to produce consumer benefits. Sector regulators therefore face the challenge of balancing fairness, consumer protection, the promotion of competition and any other goals their regulation seeks to achieve.

Often, however, regulators are unwilling or unable (without legislative change) to unilaterally adapt to, or choose to ignore, innovative new entrants to their respective markets. As a result, the default response is often to attempt to prevent the operation of disruptive innovations, as has generally been the case with Uber. This approach probably has the greatest impact on smaller disruptive entrants without the resources to pay fines and undertake legal action to gain market access. In this context, competition authorities can consider being a part of, or triggering, an evaluation of existing regulatory frameworks, making use of their advocacy toolbox in order to ensure that competition and innovation are kept at the forefront.

There are many potential tools available to authorities to undertake competition advocacy in regulated markets, depending on the powers granted to them by legislation. Market studies can play a role in the early identification of competition issues and in enhancing knowledge of a market. To this end, the OECD is working with Chile, Colombia, Costa Rica, Mexico, Panama and Peru to help these jurisdictions develop their market study methodologies. In some cases, however, the identification of markets on the verge of, or undergoing early-stage, disruption can be challenging. Holding preliminary open hearings with interested stakeholders and tasking authority staff with monitoring markets for potential disruption are potential solutions, although authorities may wish to ensure that such efforts do not detract from traditional enforcement resources. Authorities can also engage in regulatory advocacy, commenting on proposed regulation and participating in the design of regulatory frameworks in response to market disruption, including the reduction of competition-limiting regulation and the development of new pro-competitive measures.

Competition authorities can also play a role in fostering collaborative links between disruptors and regulators. This encourages transparency over conscious non-compliance with regulations and can enable regulators to consider adapting their approaches to disruptors in a proactive way, rather than responding to violations in an atmosphere of controversy. As a result, outright bans on disruptor activities could be avoided in favour of regulatory adjustments. Adopting a facilitative advocacy approach could be advantageous for competition authorities in terms of encouraging the resolution of regulator/disruptor conflicts, avoiding the stifling of competitive innovations through regulation, and facilitating a broader assessment of the need for certain sector regulations given their competitive impact. Such efforts can benefit regulators, market participants and, ultimately, consumers. The OECD’s Competition Committee has identified “digital economy and innovation” and “market studies” as strategic priorities for its work over the coming years in order to help promote this outcome.

Useful links

This post is based on a background paper for a session on disruptive innovations in the Latin America and Caribbean Competition Forum (12-13 April 2016)

OECD work on market studies in Latin America

[1] For further information regarding two-sided markets, please see, for instance, Rysman, Marc (2009), “The Economics of Two-Sided Markets”, Journal of Economic Perspectives, 23(3), https://www.aeaweb.org/articles.php?doi=10.1257/jep.23.3.125.

Benefiting from the Next Production Revolution

NAECAlistair Nolan and Dirk Pilat, OECD Directorate for Science, Technology and Innovation

The production of goods and services has been transformed in many ways over recent years. First, production increasingly takes place across borders, in global value chains. Second, production is increasingly knowledge-based and involves a mix of goods and services, a phenomenon also known as the “servitisation of manufacturing”. Third and closely related, a growing part of production, in particular in the services sector, is affected by digitalisation and can sometimes be delivered through digital means. And finally, a new wave of technological change is now fundamentally altering the nature of production, heralding what has been referred to as a next production revolution. Ensuring that these transformations support overall growth and wellbeing requires sound policies in many areas and is a current focus of OECD work.

Global value chains. Over recent decades, the world has witnessed a growing movement of capital, intermediate inputs, final goods and people. Technological progress and innovation, notably in transport and communication, alongside trade liberalisation, have led to the fragmentation of production across borders and across tasks. Goods and services, and their components, are produced and assembled in different locations, often geographically clustered at the local and regional level, before reaching their target markets. This partitioning of production in global value chains (GVCs) has drawn attention to the role of different stages in a GVC to overall value creation. Indicators derived from the OECD-WTO Trade in Value Added (TiVA) database point to the growing importance of global value chains for international trade and production, and point the heterogeneity and complexity of trade flows in these GVCs. Whether for domestic or international consumption, the increasing reliance of production on intermediate inputs produced elsewhere stresses the need for countries to act so as to exploit their comparative advantages and fully benefit from GVCs.

Knowledge-based capital (KBC). At the same time, sustained competitive advantage in production is increasingly based on innovation, which in turn is driven by investments in R&D and design, software and data, as well as organisational capital, firm-specific skills, branding and marketing, and other knowledge-based assets. Generating higher value-added largely hinges on the (continuous) development of superior and often firm-specific capabilities and resources. These are frequently intangible, tacit, non-tradable and difficult to replicate. Investment in KBC has become an important driver of success in GVCs. Much value creation occurs in upstream activities, such as R&D, design, and the manufacturing of key parts and components, as well as in downstream activities, such as marketing, branding and customer service. OECD countries increasingly specialise in developing ideas, concepts and services that are related to the production of physical goods, and less on the production of physical goods as such. As physical production has increasingly relocated to emerging economies, manufacturers in OECD countries rely more on complementary non-production functions to create value, using KBC to develop sophisticated and hard-to-imitate products and services.

The digitalisation of the economy and society. Important as they are, KBC and GVCs would not have provided the opportunities they have without the rise of digital technologies. These have triggered deep changes in economy and society and enable strong productivity gains. It is not just the digital sector which makes a difference, the Internet and other digital technologies are now ubiquitous and underpin economic activities in all sectors. The innovations spurred by digital technologies hold huge potential for boosting growth and driving societal improvements, including in such areas as public administration, health, education and research. For example, the creation of large volumes of data and the ability to extract knowledge and information from them (“big data”) is initiating a new wave of (data-driven) innovation and productivity gains. The analysis of these data (often in real time), increasingly from smart devices embedded in the Internet of Things, opens new opportunities for value creation through optimisation of production processes and the creation of new services. This is what some dub the “industrial Internet” as empowering autonomous machines and systems that can learn and make decisions independently of human involvement generate new products and markets.

The Next Production Revolution. As the global economy continues to transform, new technologies mix and amplify each other’s possibilities in combinatorial ways. Many potentially disruptive production technologies are on the horizon and some are already starting to have an impact, e.g.:

  • Data analytics and big data increasingly permit machine functionalities that rival human performance.
  • Robots are set to become more intelligent, autonomous and agile.
  • Synthetic biology, still in its infancy, could become transformative, for instance allowing petroleum-based products to be manufactured from sugar-based microbes, thereby greening production processes.
  • 3D printers are becoming cheaper and more sophisticated. Objects can now be printed (such as an electric battery) that embody multiple structures made from different materials.
  • Bottom-up intelligent construction and self-assembly of devices might become routine, based in part on greater understanding of the principles of biological self-construction.
  • Nanotechnology – which uses the properties of materials and systems below the 100 nanometre scale – could make materials stronger, lighter and more electrically conductive, among other properties.
  • Cloud technology is enabling the rapid growth of Internet-based services.

The precise economic implications of these and other near-term technologies are unknown. But they are likely to be large. These new production technologies will be able to significantly boost productivity, particularly if they can be diffused across less productive firms and support an inclusive growth process. New technologies could also make production safer, as robots replace humans in the most dangerous manufacturing tasks. New production technologies also hold the promise of cleaner production and the creation of an array of products that could help meet global challenges. For instance, facilities producing bio-based chemicals or plastics could help to address environmental and waste issues and generate new jobs.

Challenges for policy. At the same time, various barriers might hinder the potential impact of the next production revolution on productivity, growth, jobs and wellbeing. For one, there is still a low level of digital technology adoption in most businesses, preventing realisation of their full potential. And enabling the next production revolution is not only about technological change: benefiting from new technology also rests on the ability of firms, workers and society to adjust to change, and on government policies that ensure that this transformation is inclusive and yields broad-based gains across the population. Organisational change, workplace innovation, management and skills are some of the areas where firms will need to invest to support rapid technological change, supported by complementary public investments in education, research and infrastructure. Enabling resources to flow to the most productive and innovative firms is also essential. Trust will also be critical to maximising the social and economic benefits of the digital economy. And, as our dependency on digital technologies increases, so too do our vulnerabilities, making on-line security, privacy, and consumer protection ever more essential.

The more governments and firms understand the implications of new technologies for production, the better placed they will be to prepare for the risks, shape appropriate policies, and reap the benefits. The OECD is therefore undertaking work on possible developments in production technologies, and their risks and opportunities, so as to help policy makers and business leaders realise the benefits and minimise the costs of the next production revolution.

Useful Links

OECD work on innovation in science, technology and industry

Redefining an industrial revolution: OECD 2015 Green Growth and Sustainable Development Forum (14-15 December 2015, Paris)

Ryan Parmenter, OECD Environment Directorate

Besides the sound of whistling steam, what comes into your head when you hear the term “industrial revolution”? Some might think of new innovative technologies and processes, or even economic growth. Others might think of environmental degradation. Just type “industrial revolution” into Google Images and you’ll quickly see both of these perspectives.

Karnavatka_station_06320px-Bridgewater_foundary

The images of the industrial revolution highlight the new steam-powered trains as well as the innovative factories that drove large-scale societal change. Yet, those same images also show blackened skies due to the increased use of coal. These images are similar to those landscapes described by F. Scott Fitzgerald’s The Great Gatsby (the “valley of ashes”) or even in Dr. Seuss’ The Lorax.

But, what if things were done differently? What if an industrial revolution occurred without negatively affecting the environment, and in fact helped to reach green goals cost effectively, faster and at scale needed to bring about meaningful change?

Complementarities

Environmental performance can be a founding principle rather than an afterthought. Innovative technologies to improve productivity and performance could be developed using a systems approach, rather than being pursued in sectoral or technological isolation. Exciting possibilities are emerging. One example is the pursuit of a biobased economy. This is about seeking to transition from a fossil-based to a bio-based economy by using biomass for non-food applications. This requires innovative applications in chemicals, materials, transport fuels, electricity and heat. Another example is smart grids. But even this approach is evolving to consider larger systematic opportunities available through smart cities. These are examples of where the innovation complementarities are considered in order to maximise the benefits across technologies and sectors.

Firm dynamics

Innovative businesses can also be encouraged by policy. As demonstrated in the past, incremental improvements in existing technologies as well as radical or disruptive technological change are necessary for an industrial revolution. Therefore, it is important to identify the right policy mix to support both types of innovation. Policies need to encourage new green businesses to enter the market and existing businesses to improve their productivity and environmental performance or else exit the market. This is a critical balance as environmental policies can at times benefit new entrants to the market, or favour existing firms (i.e., incumbents) through practices such as ‘grandfathering’ legislation. The nature and level of government policies will have a direct impact on the dynamics of firms entering and exiting the market – ultimately shaping the nature of innovation activities.

Big data sources

The increasing number of unconventional and “big” data sources could be used to drive greener growth. Evolving technologies for satellites and now even cellphones are rapidly expanding the number of opportunities available to collect information needed for air pollution monitoring or real-time resource use (e.g. energy and water). For example, drones can now be used to gather increasingly detailed information in order to green the agriculture sector. Other examples of exploiting new sources of data exist in the energy, transportation, water sectors as well as others. To be successful, the technical, regulatory and policy implications of these data sources must be considered, while addressing how the information is collected and ensuring its confidentiality.

Public engagement, International co-operation & Measurement

Public engagement should be considered fundamental to ensure that risks are managed and that trust is established in the process of pursuing innovative and green technologies. New forms of governance and adjustments to the regulatory system may be required to ensure that human health and safety is protected while allowing for emerging technologies to be used. International co-operation can also be used to develop innovative processes and technologies. Environmental impacts such as climate change do not respect international borders and neither do the benefits of green innovations. This requires the use of the appropriate mechanisms and incentives to encourage co-operation. The effective measurement of innovation is also an important consideration. Meaningful government support needs to be established based on credible information. Decisions need to be made on how and when government support is provided, both to encourage successful innovations and also to end support when initiatives are unsuccessful.

The Forum

So, for those interested in exploring any of these issues, or more broadly considering how to foster a green industrial revolution, it will be worthwhile to plan a trip to the OECD Green Growth and Sustainable Development Forum* in Paris this December.

Useful links

This year’s theme for the OECD Green Growth and Sustainable Development Forum is “Enabling the next industrial revolution: systems innovation for green growth”. Rather than a large trade fair style event, the Forum allows for in-depth discussions between those advising and lobbying governments. The objective is to share policy analysis and experience among countries and the community of green growth and sustainable development practitioners. Through these shared experiences and analysis, key knowledge gaps can be identified to inform future work in this important area. Given that the Forum will be taking place directly on the heels of the COP21 negotiations in Paris, the timing is perfect for considering the best ways of encouraging a green industrial revolution. Those interested can register for the Forum here.

The innovation imperative and the design of learning systems

Schooling redesignedDavid Istance, Senior Analyst, OECD Directorate for Education and Skills

Education has become increasingly important worldwide, including politically. Probably the key driver for this is economic – the fundamental role of knowledge and skills in underpinning and maintaining prosperity. No argument has more political purchase today regarding education’s value than that it enhances competitiveness. These developments create an appetite for reform and innovation, often manifest as favouring “learning” over “education”, and a readiness to disrupt accepted institutional arrangements as too slow to change, too inward-looking, and too detached from the economic shifts taking place globally and locally.

This represents a very different starting point for innovation compared with the longstanding educational ambition to realise more holistic opportunities and promote individual development. From this perspective, the problem is not that the institutions of education are too detached from the economy, but that they are too close, and are pulled to narrow their curricula and instil only superficial knowledge and not deep understanding. The charge is also that education systems are profoundly inequitable, too driven by sorting and selecting and not organised for the optimisation of learning.

There is another constituency with an interest in innovation. Innovating learning environments offer a far more promising route for enhancing the attractiveness of teaching than backward-looking definitions of professionalism seen as the right of the individual teacher to be left undisturbed in his or her own classroom.

The differences of the critiques and constituencies notwithstanding, they coalesce around the urgent need to innovate the fundamentals of schooling: to address the low visibility of teacher work and their isolation in highly fragmented classroom arrangements, the low engagement of too many of the main players (especially students), conformity and highly unequal learning outcomes.

Some 26 school systems (countries, regions, networks) participated in the final part of the OECD Innovative Learning Environments project by submitting their own initiatives for innovating learning beyond single schools or organisations. The synthesis report that emerged from this project, Schooling Redesigned: Towards Innovative Learning Systems, is published today.

The report summarises the strategies that lead to innovation as a series of Cs: culture change; clarifying focus; creating professional capacity; collaboration and co-operation; communication technologies and platforms; and change agents .

The book emphasises the importance of design, and for that read “leadership”. In complex school systems, leadership can include many more actors – such as community players, families and foundations – besides those usually involved in designing curricula and classrooms. Government leadership remains fundamental, however, because of its legitimacy, breadth and capacity to unlock resources. Governments have a privileged role in starting and sustaining change, and in regulating, incentivising and accelerating it. But this does not have to mean “micro-managing”.

For example, New Zealand’s “Learning and Change Networks” is a government-initiated strategy to establish a web of knowledge-sharing networks among schools, families, teachers, leaders, communities, professional providers and the Ministry of Education. Network participants work collaboratively to accelerate student achievement in grades 1 to 8 and address equity issues.

Austria’s “New Secondary School” reform was initiated by the government in 2008 and has since been mandated to be phased in completely by 2018. It is introduced in individual schools through school-based change agents (Lerndesigners) who themselves work collaboratively as networks. The recently established National Center for Learning Schools provides materials and organisation for these change agents.

The report elaborates what an innovative learning environment would look like, not just in individual schools but across a whole system. For example, schools and classrooms would be characterised by the “buzz” of collegial activity and have many students learning outside conventional classrooms; learner voice would be prominent, including in leadership, right across school systems; educators would discuss and practice learning strategies collaboratively, and personalise these strategies for individual learners; learners and educators would use digital resources and social media innovatively for teaching, learning and professional exchanges; there would be a dominant practice of self-review and use of evidence to inform design; and there would be dense networks of collaboration across districts, networks, chains and communities of practice.

How interesting it would be to be able to measure progress towards this vision, to supplement the more conventional education statistics and indicators!

Useful links

Critical Maths for Innovative Societies – The Role of Metacognitive Pedagogies