Finance, innovation and growth: a joint academic, EU Report whose recommendations are precisely targeted – virtually ignored
Astonishingly, the recently published Finnov Report – about finance, innovation and economic growth in Europe – has been virtually ignored by the UK press, and given only a modest formal welcome by politicians. It needs to be given a much wider airing and be much more deeply discussed. Above all else it sets a value on ‘business experimentation’.
It opines that “the long-term economic performance of Europe depends not only on its ability to generate new knowledge and inventions, but crucially in translating invention into innovation and innovation into economic growth. Business experimentation is central to these processes, and fostering this ability must be a central plank of industrial policy in an enlarged European Union. It is in relation to their role in the exploration, manufacturing and commercial-isation of novelty that the analysis of credit and financial markets is of the first importance.”
FINNOV (http://www.finnov-fp7.eu) is an EU funded research collaboration between seven European institutions, among which are the Open University, Cambridge University and Sussex University; and its work is aimed at understanding the relationship between changing financial markets, innovation dynamics, and economic performance.
Many of its recommendations (below) though they sound dry, are fundamental and quite specific:
· Companies’ investments in human capital, productivity enhancing technologies, and innovation commitments should be [a priority of] private-sector banks – through incentives for and indicators about lending of these kinds.
· Government support for SMEs should be sector specific and directed to the small percentage (6-7%) of high growth firms which have an impact on the economy in terms of jobs and/or new products.
· Ban or limit share buy-backs: they are a manipulation of the market, boosting companies’ share prices (and executives’ options and other ‘performance pay’) at the expense of R&D.
· Change tax rules towards innovators who create lasting value, and away from those extracting short-term value and speculative capital gains.
· Remove emphasis on privatising all publicly-funded research. Increase investment in research and lessen the emphasis on university spin-outs.
· Adopt credit scoring criteria so that they take account of ‘industrial’ indicators such as productivity and investment in R&D, helping credit markets to create value tools that reward the most efficient firms.
· Lift vision beyond incremental innovations: we need more investment in radical new products at an early stage, with regulatory interventions to facilitate access to credit for high-potential firms.
· Public financing of innovation should be reformed (to function as venture capital) so that the public benefits from successful publicly-funded innovation.
· We need an entrepreneurial state able to identify areas for growth and invest strategically in early stage innovation. Government input should be recognised as investment – generating assets with a return, and not just debt.