Battle of the Economists 2013 - Key Insights

AARHUS SYMPOSIUM WARM-UP

BATTLE OF THE

ECONOMISTS 2013

KEY INSIGHTS

WHY SHOULD I GO? To experience three top economists debate the current challenges of Denmark and their solutions from an economic perspective

HOW DO I SIGN UP? Please, be aware that seats are limited. In order to participate in Battle of the Economists you need to secure yourself a seat through the official Aarhus Symposium sign-up on our website: www.aarhus-symposium.org/signup

WHERE SHOULD I GO? The S-building, Fuglesangs AllĂŠ 4, Aarhus University

WHEN SHOULD I BE THERE? Date: October 28, 2013 Time: 15.45 to 20.00

2

CONTENTS Battle of the Economists: Information and Agenda

4

Philipp Schrรถder: Creation versus Adoption of Innovations

6

Martin ร gerup: Reforms Leading to Innovation and Growth

9

Peter Mogensen: Future Challenges for the Danish Economy - and Society

12

Expert Insights from Copenhagen Economics: A somewhat Idiosyncratic Perspective on Innovation

16

THE STORY OF BATTLE OF THE ECONOMISTS Every year the members of the organising team of Aarhus Symposium work hard to improve the event. This results in a variety of exciting ideas. In 2012, one of these ideas was Battle of the Economists.

Battle of the Economists is an event that is not only inspiring and enlightening in itself, but also an event that prepares the participants to get the best experience at Aarhus Symposium.

3

BATTLE OF THE

ECONOMISTS What are the most urgent challenges that Denmark is facing when it comes to this year’s overall topic, Leadership and Innovation? And more importantly – how do we handle these challenges in the best way?

At Aarhus Symposium 2013, we once again invite you to Battle of the Economists – an inspiring and enlightening warm-up event for Aarhus Symposium.

The overall topic of this year’s symposium is Leadership and Innovation. At the main event on Friday, November 1, the invited speakers of Aarhus Symposium 2013 will focus on the challenges they face in their respective global arenas. At Battle of the Economists, we will focus on Denmark and the challenges that Denmark is facing from an economic perspective.

Three top economists have been invited to share their thoughts on what they think is the most important and urgent challenge Denmark faces regarding Leadership and Innovation. Each speaker has written an article on what he sees as the greatest challenges for Denmark concerning leadership and innovation. You will find these articles on the following pages. On October 28, the economists will give a short presentation of their choice, before engaging in a debate with the audience and the other economists.

4

DENMARK’S CHALLENGES – LEADERSHIP AND INNOVATION Benefits of globalisation are commonly recognised, but in a globalised world, there is also an increased pressure on each country, when it comes to securing competitiveness and growth. Every week, we get several updates with new statistics and rankings concerning the state of the Danish economy, and we are left with numerous questions: What are Denmark’s greatest challenges right now? Which leadership challenges are we facing? Are we lacking behind when it comes to entrepreneurship and innovation - and, if so, what can we do to change this?

We highly encourage all participants to take part in the debate and to consider these challenges from their own perspective – what do you see as the most important challenge for Denmark concerning leadership and innovation?

AGENDA 15.45 – 16.30

ARRIVAL

16.30 – 16.45

17.15 – 17.30

WELCOME TO BATTLE OF THE ECONOMISTS PRESENTATION BY PHILIPP SCHRÖDER PRESENTATION BY PETER MOGENSEN PRESENTATION BY MARTIN ÅGERUP

17.30 – 17.45

BREAK WITH SNACKS AND DRINKS

17.45 – 18.45

DEBATE BETWEEN THE THREE SPEAKERS

18.45 – 20.00

INFORMAL DINNER, NETWORKING, AND CLOSURE

16.45 – 17.00 17.00 – 17.15

Thomas Bernt Henriksen Economics Editor, Dagbladet Børsen A/S Thomas Bernt Henriksen will be the mediator at Battle of the Economists 2013. Thomas Bernt Henriksen is Economics Editor at Dagbladet Børsen, and here, the emphasis of his work lies in linking new research to the current economic and political agenda, thereby, combining his education in economics and research experience with his interest in the communication of complex issues.

Since 2008, Thomas Bernt Henriksen has been the Council Director for The European Council of Economists. Thomas Bernt Henriksen joined Børsen in 2002 from a position as First Vice President in Danske Markets at The Danske Bank Group. He holds a Master of Economics from Copenhagen University.

With his background as an economist and his journalistic experience, Thomas Bernt Henriksen will make sure that we are guided through the presentations and the debate in an interesting and enlightening way.

We look forward to seeing you on October 28, 2013.

5

THE SPEAKERS OF BATTLE OF THE ECONOMISTS 2013: PHILIPP SCHRÖDER

PHILIPP SCHRÖDER

PROFESSOR IN ECONOMICS, AARHUS UNIVERSITY Philipp Schröder holds a position as Professor at the Department of Economics and Business at Aarhus University. His primary research interests cover international economics and globalisation. He is the director at the Tuborg Research Centre for Globalisation and Firms, and he is a member of the Danish Productivity Commission.

Philipp Schröder has previously worked as a consultant at McKinsey & Company and as a Senior Economist at the Research Institute DIW Berlin. He received his PhD from Aarhus University in 1999, and he holds a Master’s degree in Economics from University of Warwick, UK. In 2010, he won the Danish research communication competition ForskerFight, and in 2008, he was awarded Lecturer of the Year at Aarhus School of Business. Philipp recently received the 2013 Aarhus University Anniversary Foundation Research Communication Prize.

6

PHILIPP SCHRĂ–DER: CREATION VERSUS ADOPTION OF INNOVATIONS

CREATION VERSUS

ADOPTION OF INNOVATIONS HOW WOULD YOU VISUALISE A PERSON PRODUCING INNOVATION? MOST LIKELY YOU ARE THINKING OF A SCIENTIST IN A WHITE LABORATORY COAT. THIS CAN BE A DANGEROUS SHORT CIRCUIT. A large part of the public debate on innovation is guided by economic concepts and perception. This is a good thing, because modern social sciences know a thing or two about the importance and mechanisms surrounding innovation. Hence, per se the current debate on innovation in Denmark and much of the industrialised world sponsors sober and sound arguments and institutions.

However, by putting one strong spotlight on the complex of innovation, other aspects will be cast in shadow. We risk overlooking the low-hanging fruits or how the interaction between innovation, businesses, and the economy at large can be boosted.

Innovation - growth in the stock of knowledge - is an intriguing theme in Economics. Firstly, knowledge is a strange product, contrary to consuming a chocolate bar, the amount of knowledge available to others is not reduced if someone else consumes a piece of knowledge (non-rivalry in con-

sumption). Secondly, and dating back to Schumpeter, the rate of knowledge depreciation is not driven by usage, but rather by new knowledge displacing old knowledge (creative destruction). Thirdly, innovation is uncertain business. A certain research route must be pursued at full costs in order to establish that it does not bear fruit. Important discoveries might be by-products or sheer coincident of some other research agenda.

Finally, spillovers make the cost benefit calculus of innovation investments a non-trivial task. Spillovers can reach competitors that imitate the innovations of others, say through the mobility of employees, or advances in one sector promote growth in another sector that uses the first as an input.

Thus, there are four central forces surrounding our thinking on innovation: non-rivalry, creative destruction, uncertainty, and spillovers. In sum these forces, and the resulting strategic interaction between firms and sectors, constitute various market failures and ample room for institutions and governments to rectify these shortcomings. The central key benefit of successful innovation is that it enters the production function. Innovation and knowledge link directly into

7

PHILIPP SCHRÖDER: CREATION VERSUS ADOPTION OF INNOVATIONS

firms and the economies production potential, in other words our productivity. Thus, in essence innovation means that it allows us to create more with less. How we want that “more”, be it more leisure time, more food, more quality, is up to society and the individuals it is composed of.

from other places – this is in fact the secret of the past decades of miracle economies.

To be quite clear, if a piece of innovation or its descendants do not make it to the market, it can still be worthwhile the effort. Similarly, it is unlikely, that economists, scientists, politicians or bureaucrats have any chance of anAgainst this backdrop we can motivate much ticipating good or bad areas for successful of the innovation policy and surrounding research a priori. On the contrary, what is at institutional choices found in modern instake is something different. Even the clevdustrialised countries. Policy areas ranging erest of ideas has no impact if not some infrom free schooling, over dividual or company adopts “...in essence innovation state-sponsored base reit. Thus, while much of the search, patent protection, means that it allows us to existing innovation structure create more with less. How focuses on boosting innomobility of people and firms, we want that “more”, be to competition policy and it more leisure time, more vation and hence the stock beyond, all have an innova- food, more quality, is up to of knowledge, fairly little is tion dimension linking back society and the individuals understood and aiming at to these four central forces. boosting adoption of innoit is composed of.“ vation. And as long as firms, However, there is a fifth, and undoubtedly individuals and society at large do not abas important force, that receives much less sorb the full potential of the knowledge that attention in the public debate – maybe bewe already have, we might be sub-optimiscause it is so obvious, but maybe because it ing. Thus, there are two margins to pay atis so little understood. When it really comes tention to, one being the actual creation of to fostering innovation, and thereby to seknowledge, i.e. innovation, and the second curing the future of the Danish model, one the actual implementation, i.e. the adoption should worry not only about the available of new innovations. The market is one way of stock of knowledge, but rather about techensuring the latter. So, next time we think of nology adoption, i.e. implementing innovaan innovator in a white laboratory coat, we tions and bringing them to the market. After should picture the entrepreneur next to him. all, to a large extent a country can secure its prosperity by adopting existing innovations

8

THE SPEAKERS OF BATTLE OF THE ECONOMISTS 2013: MARTIN ÅGERUP

MARTIN ÅGERUP PRESIDENT, CEPOS

Martin Ågerup is President of CEPOS – Center for Political Studies, a Copenhagen based think tank, which seeks to promote liberal ideas and reforms. He started his career at the Copenhagen Institute for Futures Studies, and then became a management consultant before joining CEPOS as its founding President in December 2004.

Martin Ågerup has a bi-weekly column in the Danish national newspaper, Jyllandsposten, and has written three books; Dommedag er Aflyst (Gyldendal, 1998), Enerne (Borgen, 2001), and Den Retfærdige Ulighed (CEPOS, 2007).

Martin Ågerup holds a Bachelor’s degree in Economics and Economic History from University of Bristol and a Master’s degree in Economics from University of Exeter.

9

MARTIN Ă…GERUP: REFORMS LEADING TO INNOVATION AND GROWTH

REFORMS LEADING TO

INNOVATION AND GROWTH Entrepreneurship links the concepts of leadership, innovation, and economic growth.

Growth is generated through increasing labour input, capital input or optimising the ways in which a given amount of labour and capital is utilised, thus increasing total factor productivity (TFP). TFP increases when entrepreneurship gives us innovation - new products and services, new processes or new ways of organising.

We tend to think of entrepreneurship as a process linked to start-up companies, but in fact much entrepreneurial innovation takes place within established firms.

Owners of corporations exercise leadership when setting up company structures and appointing top management. Managers exercise leadership running the company. The knowledge required to make decisions is local, situational, and comes with experience, but is also imperfect and limited by uncertainty. Thus, many mistakes are made, but a market economy ensures that mistakes are corrected. Companies that leave mistakes uncorrected go out of business. This market process is generally preferable to political regulation, except in (rare) occasions when market failure imposes costs larger than the costs of regulation, which is often less than optimal owing to government failure.

10

Government policies that favour certain firms, industries or technologies (industrial policy) are unlikely to promote overall growth. The Porter Hypothesis states that environmental legislation can strengthen competitiveness under certain conditions through positively influencing the pace of innovation and thus more than offsetting the costs of the legislation. This hypothesis has not been supported by empirical evidence.

For instance, according to the Danish Economic Council, government support for the windmill industry has been a net loss to the Danish economy.

Political leadership should create a macroeconomic environment conducive to private entrepreneurial innovation. Entrepreneurs (and the people investing in them) prefer a stable, transparent legal system to protect their investments and add as little regulatory and political risk as possible to the commercial risk of entrepreneurship. Secondly, an open economy, with few regulatory barriers to entry, results in entrepreneurial ideas spreading faster than in more regulated economies. Incumbent firms that face new, more productive competitors will either have to adapt quickly or lose market share and eventually go out of business. Much productivity growth happens through this process.

The (monopolistic) public sector is insulated

MARTIN ÅGERUP: REFORMS LEADING TO INNOVATION AND GROWTH

from this process and should therefore be as small as possible. Thirdly, a high tax burden (caused by a large public sector and a high number of people on government transfer payments) distorts incentives to work and invest. Conversely, low taxes on the return to investment and risk-taking leads to more investment and risk-taking and thus to more innovation and productivity growth.

rather than through legislation or industry wide collective bargaining, resulting in an efficient use of human capital, which increases entrepreneurial innovation, productivity, and growth. However, the Danish economy also has structural weaknesses. The fifth index area of EFW, size of government (and tax burden), constitutes a striking example. On this index area Denmark is rated 140th (out of 144).

“We tend to think of Denmark has an economy entrepreneurship as a that is relatively “entrepreReforms can increase innovaprocess linked to startneur friendly” on several up companies, but in fact tion, entrepreneurship, and parameters, but quite “engrowth. Among reform oppormuch entrepreneurial trepreneur hostile” on othtunities are: Increasing cominnovation takes place ers. We can use the 2012 within established firms.” petition in highly regulated Economic Freedom of the sectors, for instance lowering World Index (EFW) to illustrate this. In terms zoning restrictions in the retail sector and of total economic freedom, Denmark is ratderegulating pharmacies, taxi markets, and ed 16th, just behind UK (12th) and Estonia public transportation (trains and busses); (14th), but ahead of the USA (18th) and Gerincreasing competition and through pubmany (31st). Denmark’s relatively high score lic private partnerships creating markets in can be attributed to high scores on four of the large welfare sector (health, education, the five index areas. Thus, Denmark has low care for children and the elderly) dominattrade barriers, few regulations, a good legal ed by public (quasi-) monopolies; lowering system with security of property rights, and taxes on profits, capital gains, and marginal low inflation. A concrete example of how income thus increasing incentives to invest, economic freedom benefits innovation and take risk, and work hard. entrepreneurship is Denmark’s flexible labour market. It is easy for companies to hire and fire employees, and work time and wages are decided in the individual company

11

THE SPEAKERS OF BATTLE OF THE ECONOMISTS 2013: PETER MOGENSEN

PETER MOGENSEN CEO, KRAKA

Peter Mogensen is CEO of Kraka – a Danish think tank that “works to future-proof the Danish welfare society”. He is also well known from the political news and debate programs Mogensen og Kristiansen and Tirsdagsanalysen on TV2 News.

Peter Mogensen has previously been Political Editor and Commentator on the Danish newspaper, Politiken. From 1997 to 2000, he was political advisor for the prime minister, Poul Nyrup Rasmussen. Furthermore, he has been Personal Assistant for the Minister in the Ministry of Finance and a partner at Accenture.

Peter Mogensen holds a Master’s degree in Economics from Aarhus University, 1991.

12

PETER MOGENSEN: FUTURE CHALLENGES FOR THE DANISH ECONOMY - AND SOCIETY

FUTURE CHALLENGES FOR THE DANISH ECONOMY

- AND SOCIETY Along with the rest of the developed world, the Danish welfare state will be put to the test over the coming decades. Most experts would agree that financial pressures on public finances and welfare services will rise, despite significant labour market and budgetary reforms. No one truly knows how sustainable the current model will prove to be as the population ages, demand for health care and social services increases, and the process of globalisation continues its steady advance.

Add to this the immense challenges posed by global climate issues – a problem, which has been largely ignored, by the international key players – and the impending issues appear even more daunting. Global warming must be confronted decisively if we are to hope for a positive outcome.

I will concentrate on four challenges that I consider to be among the most pressing issues of our time: 1. Creating a sufficient framework for efficient private production.

2. Stepping up efficiency and productivity in the public sector, thereby achieving more value for taxpayers’ money.

3. Deciding on future tax-reforms to ensure a fair sharing of the burden, and financing a sufficient level of long-term welfare in an efficient manner.

4. Fighting global warming.

CREATING A SUFFICIENT FRAMEWORK FOR EFFICIENT PRIVATE PRODUCTION Fundamentally, there are two ways to improve economic growth: Work harder or work smarter. I will return to the “work harder”-part later on, and concentrate on the work smarter issue for now.

We have become a lot smarter during most of the 20th century – productivity and living standards have improved a lot – but the process has slowed markedly in recent decades.

The rise in labour productivity has levelled off. We have to reverse this trend, if we wish to increase growth more permanently.

There is no simple way to do this. The Productivity Commission finds that it is crucial to improve productivity and innovation in particular in our service sectors. The Commission points out three ways of doing this: More internationalisation, improved regulation and stronger competition.

We stand to benefit greatly from international trade and globalisation if we continue to improve our framework conditions. These include high-quality education, a flexible labour market, a competitive tax system, better access to capital for innovative firms and efforts in many other areas.

Our ability to take up technological progress and stimulate innovation, while preserving

13

PETER MOGENSEN: FUTURE CHALLENGES FOR THE DANISH ECONOMY - AND SOCIETY

high employment, is paramount going forward. Gradual reform targeting the challenges that we face has been a successful strategy so far, and will continue to be so in the future.

Compared to other countries, we have many small and medium-sized firms and only few global players. Maybe we are a bit short of a so called “growth layer” of innovative medium-sized companies that are willing to continue operating in Denmark while they expand their businesses. This could be a problem. You need a certain “critical mass” to start investing in R&D activities and to invest in world markets.

STEPPING UP EFFICIENCY AND PRODUCTIVITY IN THE PUBLIC SECTOR

We must implement new technology, and be a leader in finding new ways to reduce red tape and bureaucracy. We need to improve leadership in the public sector. We need to focus on results and value for money instead of work processes. We should embrace competition and benchmarking, if these help to improve efficiency and the quality of public services. And we should take steps to create a more innovative and inspiring environment for public employees, based on trust and a targeted delegation of tasks. To achieve all of this may seem like putting a square peg in a round hole, but we must rise to the challenge.

DECIDING ON FUTURE TAX-REFORMS TO ENSURE A FAIR SHARING OF THE BURDEN

There is little doubt that efficiency in providFor decades, employment has been high in ing public services is a key challenge, if we Denmark compared to most other countries. want to maintain our welfare model.

Since the 1950s when “our women” started Public consumption and transfers require fito join the labour market and demand ednancing mainly through taxes. But taxes can ucation – finally being acknowledged as distort private production and eventually, a individuals – the public sector has grown tipping point might be reached. I cannot say significantly in size, partly to incorporate for sure, but we may be approaching this tipthe responsibility for childcare, care for the ping point. There is virtually elderly, etc. Today, Denno political support for high- “I think we have done well mark holds two records. We er taxes. On the contrary, the so far, in this country. But have more employees in the political agenda points topublic sector than any other to sit back and relax, to wards lower taxes. rest on your laurels, is a OECD-country, and we pay At the same time, we are fac- dangerous tactic. The world higher taxes than any other ing demographic headwinds is changing faster than ever OECD-country. right in front of our eyes, – the number of elderly peoand if we do not step up ple will increase dramatically And as always, incentives to the challenge, we will over the next 20 years. Dematter. The much-repeated regret it in a not-so-distant mand for health services and mantra of ‘making work pay’, future.” certain other labour intenis unlikely to fade away soon. sive services may continue When taxes are high, it beto increase more than our tax base. To help comes even more important that the tax-syscontain this pressure, we need to produce tem is efficient. We need to achieve our dismore for less. tributional goals in the most cost-effective way. For some time this has generated pres-

14

PETER MOGENSEN: FUTURE CHALLENGES FOR THE DANISH ECONOMY - AND SOCIETY

sure to reduce certain taxes and to limit the size of the public sector.

Surely, we can expect tax competition from other countries to continue - a downward push to attract the best and brightest, and investments too. If we lose this battle for talent and productive investments, then we will be forced to accept the consequences in terms of lower living standards. In this respect, we are between a rock and a hard place, attempting a tricky balancing act between distributional concerns and competitiveness.

FIGHT GLOBAL WARMING The conclusions are very clear in the most recent report from IPCC. Humans have caused the current climate changes, the consequences may be dramatic, and large reductions of greenhouse gas emissions are necessary to limit climate changes: IPCC: “Human influence on the climate system is clear. This is evident from the increasing greenhouse gas concentrations in the atmosphere, positive radiative forcing, observed warming, and understanding of the climate system.”

“Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions.”

IPCC projects the global sea level to increase between ¼ and ¾ meter by 2100. One could fear that we are close to kick starting an irreversible ‘run away process’ of global warming. In this respect, we face two major challenges:

First, it may already be too late to stop the process. When the world’s key players - USA, China, etc. – finally wake up and perceive the problem, it may be too late to create sufficient political momentum for comprehensive action. The second problem is even more fundamental. Climate change is a problem that crosses borders, which means that the ability to free ride is substantial. I fear that international diplomacy is too slow to negotiate binding agreements in time.

Most people around the world would prefer to leave an unspoiled earth for their children.

But the well being of future generations is not high on the agenda for those who must slave all day merely to afford the next bowl of rice. This is easy to understand. But for wealthy nations this is not a viable excuse.

Fighting global warming appears costly because the available green technologies cannot compete with fossil fuels. But we might reduce the costs in all countries if we can speed up the development of competitive green technologies and ensure that these technologies are spread around the world.

It would also make a difference if we could persuade a large number of countries to stop subsidizing fossil fuels. My view is that Denmark – as a rich country - should take responsibility and lead in the process of developing new technologies. Our aim should be to prove that we can make a significant contribution to reduce global warming, and still maintain a position among the top ten countries in terms of GDP per capita.

I would note in conclusion that I think we have done well so far, in this country. But to sit back and relax, to rest on your laurels, is a dangerous tactic. The world is changing faster than ever right in front of our eyes, and if we do not step up to the challenge, we will regret it in a not-so-distant future.

15

EXPERT INSIGHTS FROM COPENHAGEN ECONOMICS

A SOMEWHAT IDIOSYNCRATIC PERSPECTIVE ON

INNOVATION HELGE SIGURD NÆSS-SCHMIDT PARTNER, DIRECTOR OF ECONOMICS, COPENHAGEN ECONOMICS If progress in living standards continues to be a key success criterion for economic policy making, then promotion of innovation is the key. A quick review of the economic development in Denmark over the last 500 years illustrates this. Today, GDP is 305 times higher than in year 1500, driven essentially by an output per citizen that is 33 times higher. This is what innovation is all about: better and cheaper products with fewer man-hours consumed in production.

A higher level of consumption can also be attained by working more hours. If Danes raised the number of hours worked per employee to US levels, we could probably raise real yearly wages by perhaps 15-20 per cent.

That does not have to be accompanied by an equivalent cut in leisure, but rather reductions in less productive do-it-yourself and black economy activities. So, we should do more of the jobs we are trained to do, and reduce our literally unprofessional attempts at doing other peoples jobs. For this to succeed, we need to take a look at our tax system: despite numerous tax reforms, the total

16

marginal tax rate on the last earned krone is still the highest in the world and kicks in at levels only moderately above the earnings level of a skilled manufacturing worker.

Spending more time on the jobs, we are trained to do, will also promote innovation.

All experience shows that development of new products and process requires hard work, just as much as divine inspiration.

But apart from the tax-induced boost to innovation from promoting hard work, what else could be done in the Danish economy to raise future levels of productivity? My preference would be to stick to two relatively well-tested pillars, namely (1) use of market forces to drive competition, development of new products, and processes, and (2) targeted public funding to address clearly identified market failures in knowledge creation spill-over effects.

The efficacy of market forces in driving longterm growth, e.g. innovation, has been tested in numerous cross-country results, not

EXPERT INSIGHTS FROM COPENHAGEN ECONOMICS

least by IMF and World Bank. I will add an transport, financial services, and utilities anecdote from a policy seminar: decades (water, waste, district heating, and distribuago, a young economist from Poland was tion of electricity). I will mention two examengaged in a discussion with policy planples, based on work, which Copenhagen ners from the Communist regime at the time. He asked them: how could growth contributions from innovative entrepreneurs be attained in a state planning system with no private firms?

The answer came back: we simulate the effects of entrepreneurship and incorporate them into our planning (with no apparent irony present!). The young economist did not believe in that approach at the time, nor when he later became a Polish Minister of Finance and Central Bank Governor.

Market driven innovation and busi- Large Government owned/heavily regulated sectors account ness creation cannot be simulated – for nearly 40% of GPD Source: Danmarks Statistik, National Accounts you need the real thing.

So where does this leave Danish innovation policies? I suggest that at least two main policy areas are given serious attention: Firstly, a more market and innovation oriented approach toward firms and institutions, either owned by or subjected to substantial regulation by government. Their ability to innovate is highly dependent on governments putting in place governance structures and market regulation that favours, rather than impedes, productivity growth.

Such institutions account for a very large chunk of the total economy: think agriculture, education, health, construction sector,

Economics has most recently undertaken.

• Improved exploitation of private sector competences in infrastructure projects – from design phase to placement of final ownership of the assets (schools, hospitals, commercial real estate etc.).

• A more comprehensive approach to evaluating costs and benefits associated with alternative health care solutions.

Secondly, an improvement of the quality of public education and research policies. Denmark is at the very top in public spending per

17

EXPERT INSIGHTS FROM COPENHAGEN ECONOMICS

Denmark is at the top in spending per student Source: OECD, Education at a glance

High educational spendings lead only to mediocre results Source: OECD, PISA rankings

students from primary school to university level. But we do not have that much to show for it. The so-called PISA Tests, of a broad skill set, put Denmark in a position roughly in the middle among OECD countries, with Chinese students well above. Math and nat-

18

ural sciences – the building blocks of private sector innovation – is a particular sore spot. For viewers of a Danish television series, comparing test scores of Danish and Chinese children, this will not come as a surprise. Moreover, we also need to review our university system and its funding. A financing system that is highly dependent on students passing exams and designed and largely controlled by the institutions themselves, is not a priori very conducive to a focus on high quality and high minimum standards. It also skews research funding: the ability to employ researchers becomes a function not only of well identified needs for new knowledge creation in different research fields, but also of whether some studies are seen as attractive by prospective students.

So, if more people want to study social sciences and fewer natural sciences, there will be more funds for social scientist, and less for natural scientists.

The good news about the agenda raised above is that it is about getting more out of less. Now that would be innovation in innovation policies.

SEE YOU FRIDAY, NOVEMBER 1

AARHUS SYMPOSIUM 2013

LEADERSHIP and

INNOVATION