مشکل سرمایه گذاری خصوصی در نوآوری: یک نقشه ذهنی سیاست

This paper reviews the major finance-related causes of private under-investment in innovation and the consequent alternative choices for public policy. The focus is on (i) incentive-based arguments that address the problem of limited appropriability of new knowledge, and (ii) the lacking access to external sources of finance caused by imperfections in the capital market. Drawing a policy mind map, which aims to enhance the mutual awareness and coordination of policy makers at the crossroads of technology and corporate finance, the paper is organised along the following chain of thought: (i) causes and rationales, (ii) aims and targets, (iii) critical constraints, and (iv) the main finance-related instruments of innovation policy.

Innovation requires the commitment of resources, which in turn need to be financed. The decision to invest in innovation therefore depends on two critical factors, namely the initial incentive to allocate resources for innovation and the capacity to raise the necessary financial means. Policy attempts to intervene in the investment decisions of firms, because two deficiencies in the pure market-based allocation of resources may cause suboptimal private expenditures on innovation: • First, the limited appropriability of new knowledge frequently causes private returns to fall short of the social returns and thus leads to under-investment in innovation ( Nelson, 1959; Arrow, 1962). Since this kind of market failure stems from distorted incentives, it occurs irrespective of the actual financing capacity of the firm. • Second, under-investment can result from capital market imperfections, which undermine a firm's capacity to raise the external funds required for financing an investment, even when incentives are not distorted. The latest data from the European Community Innovation Survey (European Commission, 2004) put these problems in rough, quantitative proportions. When asked to name the factors that hampered innovation most, 21% of all firms in the sample argued that ‘innovation costs are too high’ (for a meaningful interpretation one wishes to add: ‘relative to the expected returns’), while 15% complained about ‘excessive economic risks’ and the ‘lack of appropriate sources of finance’ (Table 1). Among industrial sectors, business services face the biggest finance-related barriers to innovation—probably due to their stronger dependence on intangible assets. Interestingly, a breakdown according to firm size reveals relatively few differences with respect to the first two variables. Small, as well as large firms perceive the ‘high cost of innovation’ and ‘excessive economic risks’ as hampering factors of almost equal proportion. However, access to appropriate sources of finance is a much greater problem among small enterprises as compared to medium-sized enterprises, while large firms are least affected.In response to the perceived needs, public policy provides financial support at various levels of governance. Focusing on enterprises active in innovation during the period 1998–2000 (Table 2), the overall share of European firms that received financial support is 29%, whereby industry (35%) was clearly favoured in comparison to services (19%). This observation applies in similar proportions to regional authorities, national governments and the EU (except for its RTD Framework Programmes).Economic theory provides good reasons for public intervention, and economic policy has applied these arguments to a growing number of initiatives. But the plethora of various rationales and new programmes, which has expanded rapidly over the past decades, increasingly becomes a source of confusion among policy makers, think tanks and (academic) consulting bodies alike. To give an example, it is sometimes argued that venture capital should become a private sector alternative to the public subsidisation of R&D, while other persons think of venture capital as a mere policy ‘hype’, which serves a very small fraction of firms and therefore has little impact on the economy at large. One function of the proposed ‘mind map’ will be to help reject the first idea, showing that the two instruments address two distinct causes of under-investment. At the same time, it will point out that in the case of venture capital we should generally endorse a narrow target more than a broad one. Overall, the mind map aims to provide a coherent general perspective on the various policy channels and endorses the importance of coordination among the various administrative units involved. In short, this paper seeks to compile a selective summary of the major arguments in the debate, providing a brief and concise review for students of innovation research as well as for policy makers at the crossroads of technology and corporate finance. The paper is organised along the chain of thoughts, which is displayed in the proposed mind map of Fig. 1. To begin with, the next section identifies finance-related causes of under-investment and the corresponding rationales for public intervention. Section 3 then addresses the specific targets and objectives at which policy should be aimed. Section 4 discusses critical constraints on the selection of policy tools. Section 5 elaborates the particular instruments, while Section 6 summarises and concludes.

This paper has reviewed and arranged major ideas describing how policy can counter the finance-related causes of under-investment in innovation, further producing a tentative mind map for students of innovation studies and policy makers who operate at the crossroads of technology and corporate finance. The policy mind map not only illustrates the numerous instruments available but also concatenates them with different causes of market failure, their respective rationales for public intervention and the according aims and targets of innovation policies. This attempted systematisation and deliberate choice of a bird's eye view has been motivated by the large array of policy tools, where system failure, caused by a lack of coordination among the manifold agents and organisations involved, is a widespread and growing concern. In that respect, the mind map aims to raise the mutual awareness of the particular tasks and responsibilities as well as the critical constraints and complementarities under which different agents operate, thereby supporting a better coordination among them. Following the logical structure summarised in Fig. 1, the paper began with the identification of two separate causes of under-investment in innovation: first, the lack of incentives to invest due to the limited appropriability of returns on innovation, and second, the lack of means due to imperfections in the capital market. From there we derived the two standard economic rationales for policy intervention, one based on the existence of positive externalities (spillovers), the other on the problem of asymmetric information (together with transaction costs). As a consequence, we also realised that policy must simultaneously pursue two separate aims: first, to change the relative cost of innovation; and second, to bridge the gap in access to external sources of finance. This distinction also revealed important differences in setting the appropriate policy targets. While positive externalities provide a basic rationale for public support, which is awarded primarily on the merits of a particular project (or technology) and not of the firm, the lack of access to financing also calls for policies that specifically target a certain type of enterprise. We then discussed the critical constraints of policy intervention, such as differences in administrative costs, the influence of vested interest and the likely policy impact through leverage or displacement effects (‘additionality’). Finally, we presented a simple menu of available instruments, listed in the categories of fiscal incentives, direct funding, and measures to s(t)imulate capital markets. The specific design of innovation policies ultimately depends on the particular aim, context and constraints, which may differ significantly between countries and levels of governance (Peneder, 2001). The proposed mind map can therefore only be a tool to survey and organise our general arguments concerning the alleviation of under-investment in innovation. We must keep this in mind when finally turning to a summary of major conclusions. With respect to policies that address the lack of access to external sources of finance, we have argued that the central concern is to enable and foster the ‘deal flow’ from the early invention of novel ideas to saleable products on the market. At this point, we want to stress four general recommendations: • Bridging mechanisms: Beginning at the earliest stages, business angels are particularly important to the initial ‘deal flow’ of small investments. Commercial motives alone are unlikely to cover the full transaction costs of running ‘angel networks’ for the corresponding matching and mentoring activities. Hence, there is good reason for the public to share the costs of activities that serve to match nascent entrepreneurs, e.g., from academic research, with financial investors. As informal investors, business angel networks typically operate at the local level, while interlinkages with institutional investors of private equity and venture capital could be fostered through national or even European initiatives. • Equity schemes: If public resources displace funds from private investors, they not only waste the public resources but also inhibit the development of a mature and self-supporting venture capital market. Equity schemes financed by the public should therefore focus on the most persistent gaps in early stage investments, particularly in the seed phase, when private investors are extremely reluctant to enter. To avoid the frequent move of public initiatives towards the same segments of the market as private investors, a clear policy assignment and regular evaluations of compliance are necessary. • Guarantee schemes: Directly addressing the underlying risk of an investment as a principal cause of the ‘financing gap’, the potential leverage of public guarantee instruments is considerable. However, they may also cause perfunctory attitudes towards the causes of failure. Even in the case of a subsidy, beneficiaries should be obliged to carry part of the risk and thus remain exposed to some of its consequences. Also, public guarantees should require a risk premium that must be paid by the investor to help prevent the subsidisation of a project that is not truly in need of it. • Financial regulation: With respect to the regulatory environment, international standards for the regulation and taxation of private equity funds would help to foster tax transparency and ease cross border flows. National corporate and tax laws should adopt the best practices from the most developed markets (such as the USA and the UK), which would, for instance, stop the double taxation of returns at the level of funds and investors. Quantitative restrictions on institutional investors such as pension funds and insurance companies should reflect the ‘prudent’ investor's rule, whereby individual high-risk assets are acceptable within a sufficiently diverse portfolio. Once innovation is no longer hampered by the lack of access to financial resources, other instruments come in place, compensating for positive spillovers and thereby raising the incentives to invest: • Fiscal incentives: As a first priority, fiscal incentives should extend their reach into innovative businesses with a longer-term perspective on profits. One tool is the direct payment of an innovation premium to companies that make no profit. An alternative is the Dutch model of providing a rebate on the wage tax and social security contributions of R&D related personnel. Refined policy designs (such as the use of incremental R&D expenditures) may reduce windfall gains and increase the leverage of public funds through narrow rules of eligibility. However, one must critically assess their benefits in light of the additional costs of compliance and administration, as well as unintended consequences (such as the distorted timing of investments). • Direct funding: At the various levels of governance, emphasis should be placed upon the consolidation and streamlining of direct funding schemes, in order to increase the transparency and mutual co-ordination of major public players. While most tax incentives tend to be procyclical (i.e., most generous when companies earn high profits), direct subsidies could be used as a countercyclical instrument, with which governments raise funds during periods of macroeconomic distress and thus ease the required restructuring processes ( Ylä-Anttila and Palmberg, 2007). At the very least, the funds should be based on long-term commitments, which reduce their vulnerability to ad hoc restrictions imposed by short-term fluctuations in the public budgets. • Inclusion of ‘informal’ sources and non-technological innovation: Most financial support schemes target R&D and investments in technological innovation. The inclusion of informal sources (e.g., learning by doing or using) and non-technological innovations (such as new business practices, organisational models, etc.) would be equally desirable, as long as there exists a clear case of non-appropriability and positive spillovers. In practice, difficulties would arise with respect to the precise definition of such innovations and with the establishment of effective rules for governance and the selection of potential beneficiaries. A strategy worthy of recommendation is to test broader definitions of innovation first for direct subsidy schemes, since this would allow a more targeted selection and better monitoring. The lessons learned might then be useful for broadening the scope of fiscal incentives, although additional provisions would be required to maintain the targeted precision of public expenditures.