Battle of the Economists 2013 - Key Insights

AARHUS SYMPOSIUM WARM-UP

2013

BATTLE OF THE ECONOMISTS

KEY INSIGHTS

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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 Allé 4, Aarhus University

WHEN SHOULD I BE THERE?Date: October 28, 2013

Time: 15.45 to 20.00

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Battle of the Economists: Information and Agenda 4

Philipp Schröder: Creation versus Adoption of Innovations 6

Martin Ågerup: 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

CONTENTS

THE STORY OF BATTLE OF THE ECONOMISTSEvery year the members of the organising team of Aarhus Symposium work hard to im-prove 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 partici-pants to get the best experience at Aarhus Symposium.

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At Aarhus Symposium 2013, we once again invite you to Battle of the Economists – an in-spiring 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 Den-mark faces regarding Leadership and Inno-vation. Each speaker has written an article on what he sees as the greatest challenges for Denmark concerning leadership and in-novation. You will find these articles on the following pages. On October 28, the econ-omists will give a short presentation of their choice, before engaging in a debate with the audience and the other 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?

DENMARK’S CHALLENGES – LEADERSHIP AND INNOVATION

Benefits of globalisation are commonly rec-ognised, 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 up-dates with new statistics and rankings con-cerning 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 chal-lenges from their own perspective – what do you see as the most important challenge for Denmark concerning leadership and innova-tion?

BATTLE OF THE ECONOMISTS

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15.45 – 16.30 ARRIVAL

16.30 – 16.45 WELCOME TO BATTLE OF THE ECONOMISTS16.45 – 17.00 PRESENTATION BY PHILIPP SCHRÖDER17.00 – 17.15 PRESENTATION BY PETER MOGENSEN17.15 – 17.30 PRESENTATION BY MARTIN ÅGERUP17.30 – 17.45 BREAK WITH SNACKS AND DRINKS

17.45 – 18.45 DEBATE BETWEEN THE THREE SPEAKERS18.45 – 20.00 INFORMAL DINNER, NETWORKING, AND CLOSURE

AGENDA

Thomas Bernt Henriksen will be the mediator at Battle of the Economists 2013. Thomas Bernt Henriksen is Economics Ed-itor at Dagbladet Børsen, and here, the emphasis of his work lies in linking new research to the current economic and polit-ical agenda, thereby, combining his education in economics and research experience with his interest in the communica-tion of complex issues.

Since 2008, Thomas Bernt Henriksen has been the Council Di-rector 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 ex-perience, Thomas Bernt Henriksen will make sure that we are guided through the presentations and the debate in an inter-esting and enlightening way.

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

Thomas Bernt HenriksenEconomics Editor, Dagbladet Børsen A/S

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Philipp Schröder holds a position as Professor at the Department of Economics and Business at Aarhus University. His primary research inter-ests cover international economics and globali-sation. He is the director at the Tuborg Research Centre for Globalisation and Firms, and he is a member of the Danish Productivity Commis-sion.

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 Univer-sity in 1999, and he holds a Master’s degree in Economics from University of Warwick, UK.

In 2010, he won the Danish research commu-nication 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 Foun-dation Research Communication Prize.

PHILIPP SCHRÖDERPROFESSOR IN ECONOMICS, AARHUS UNIVERSITY

THE SPEAKERS OF BATTLE OF THE ECONOMISTS 2013: PHILIPP SCHRÖDER

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CREATION VERSUS ADOPTION OF INNOVATIONSHOW 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 inno-vation 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 sur-rounding innovation. Hence, per se the cur-rent 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 be-tween innovation, businesses, and the econ-omy at large can be boosted.

Innovation - growth in the stock of knowl-edge - is an intriguing theme in Econom-ics. 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 depre-ciation 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 es-tablish 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 cal-culus 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 sec-tor that uses the first as an input.

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

PHILIPP SCHRÖDER: CREATION VERSUS ADOPTION OF INNOVATIONS

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firms and the economies production poten-tial, 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 individ-uals it is composed of.

Against this backdrop we can motivate much of the innovation policy and surrounding institutional choices found in modern in-dustrialised countries. Policy areas ranging from free schooling, over state-sponsored base re-search, patent protection, mobility of people and firms, to competition policy and beyond, all have an innova-tion dimension linking back to these four central forces.

However, there is a fifth, and undoubtedly as important force, that receives much less attention in the public debate – maybe be-cause it is so obvious, but maybe because it is so little understood. When it really comes to fostering innovation, and thereby to se-curing the future of the Danish model, one should worry not only about the available stock of knowledge, but rather about tech-nology adoption, i.e. implementing innova-tions and bringing them to the market. After all, to a large extent a country can secure its prosperity by adopting existing innovations

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, poli-ticians or bureaucrats have any chance of an-ticipating good or bad areas for successful research a priori. On the contrary, what is at stake is something different. Even the clev-erest of ideas has no impact if not some in-

dividual or company adopts it. Thus, while much of the existing innovation structure focuses on boosting inno-vation and hence the stock of knowledge, fairly little is understood and aiming at boosting adoption of inno-vation. And as long as firms,

individuals and society at large do not ab-sorb the full potential of the knowledge that we already have, we might be sub-optimis-ing. Thus, there are two margins to pay at-tention to, one being the actual creation of knowledge, i.e. innovation, and the second the actual implementation, i.e. the adoption of new innovations. The market is one way of ensuring the latter. So, next time we think of an innovator in a white laboratory coat, we should picture the entrepreneur next to him.

PHILIPP SCHRÖDER: CREATION VERSUS ADOPTION OF INNOVATIONS

“...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.“

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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 Copenha-gen Institute for Futures Studies, and then be-came 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 Af-lyst (Gyldendal, 1998), Enerne (Borgen, 2001), and Den Retfærdige Ulighed (CEPOS, 2007).

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

MARTIN ÅGERUPPRESIDENT, CEPOS

THE SPEAKERS OF BATTLE OF THE ECONOMISTS 2013: MARTIN ÅGERUP

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Entrepreneurship links the concepts of lead-ership, innovation, and economic growth. Growth is generated through increasing la-bour 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 entre-preneurship gives us innovation - new prod-ucts 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 ex-ercise leadership running the company. The knowledge required to make decisions is lo-cal, situational, and comes with experience, but is also imperfect and limited by uncer-tainty. 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.

REFORMS LEADING TO INNOVATION AND GROWTH

Government policies that favour certain firms, industries or technologies (industri-al 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 Eco-nomic Council, government support for the windmill industry has been a net loss to the Danish economy.

Political leadership should create a macro-economic 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 regulato-ry and political risk as possible to the com-mercial risk of entrepreneurship. Secondly, an open economy, with few regulatory bar-riers 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 produc-tivity growth happens through this process. The (monopolistic) public sector is insulated

MARTIN ÅGERUP: REFORMS LEADING TO INNOVATION AND GROWTH

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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.

Denmark has an economy that is relatively “entrepre-neur friendly” on several parameters, but quite “en-trepreneur hostile” on oth-ers. We can use the 2012 Economic Freedom of the World Index (EFW) to illustrate this. In terms of total economic freedom, Denmark is rat-ed 16th, just behind UK (12th) and Estonia (14th), but ahead of the USA (18th) and Ger-many (31st). Denmark’s relatively high score can be attributed to high scores on four of the five index areas. Thus, Denmark has low trade barriers, few regulations, a good legal system with security of property rights, and low inflation. A concrete example of how economic freedom benefits innovation and entrepreneurship is Denmark’s flexible la-bour market. It is easy for companies to hire and fire employees, and work time and wag-es are decided in the individual company

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

of 144).

Reforms can increase innova-tion, entrepreneurship, and growth. Among reform oppor-tunities are: Increasing com-petition in highly regulated sectors, for instance lowering

zoning restrictions in the retail sector and deregulating pharmacies, taxi markets, and public transportation (trains and busses); increasing competition and through pub-lic private partnerships creating markets in the large welfare sector (health, education, care for children and the elderly) dominat-ed by public (quasi-) monopolies; lowering taxes on profits, capital gains, and marginal income thus increasing incentives to invest, take risk, and work hard.

MARTIN ÅGERUP: REFORMS LEADING TO INNOVATION AND GROWTH

“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.”

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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 news-paper, Politiken. From 1997 to 2000, he was po-litical advisor for the prime minister, Poul Nyrup Rasmussen. Furthermore, he has been Personal Assistant for the Minister in the Ministry of Fi-nance and a partner at Accenture.

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

PETER MOGENSENCEO, KRAKA

THE SPEAKERS OF BATTLE OF THE ECONOMISTS 2013: PETER MOGENSEN

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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 pub-lic finances and welfare services will rise, despite significant labour market and bud-getary reforms. No one truly knows how sus-tainable 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 internation-al key players – and the impending issues appear even more daunting. Global warm-ing 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 is-sues of our time:

1. Creating a sufficient framework for effi-cient 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 financ-ing a sufficient level of long-term welfare in an efficient manner.

4. Fighting global warming.

FUTURE CHALLENGES FOR THE DANISH ECONOMY - AND SOCIETY

CREATING A SUFFICIENT FRAME-WORK FOR EFFICIENT PRIVATE PRO-DUCTION

Fundamentally, there are two ways to im-prove economic growth: Work harder or work smarter. I will return to the “work hard-er”-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 pro-cess 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 Pro-ductivity Commission finds that it is crucial to improve productivity and innovation in particular in our service sectors. The Com-mission points out three ways of doing this: More internationalisation, improved regula-tion and stronger competition.

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

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

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

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high employment, is paramount going for-ward. Gradual reform targeting the chal-lenges 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 me-dium-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 in-vest in world markets.

STEPPING UP EFFICIENCY AND PRO-DUCTIVITY IN THE PUBLIC SECTOR

There is little doubt that efficiency in provid-ing public services is a key challenge, if we want to maintain our welfare model.Public consumption and transfers require fi-nancing mainly through taxes. But taxes can distort private production and eventually, a tipping point might be reached. I cannot say for sure, but we may be approaching this tip-ping point. There is virtually no political support for high-er taxes. On the contrary, the political agenda points to-wards lower taxes. At the same time, we are fac-ing demographic headwinds – the number of elderly peo-ple will increase dramatically over the next 20 years. De-mand for health services and certain other labour inten-sive services may continue to increase more than our tax base. To help contain this pressure, we need to produce more for less.

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 com-petition 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 chal-lenge.

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

For decades, employment has been high in Denmark compared to most other countries. Since the 1950s when “our women” started to join the labour market and demand ed-ucation – finally being acknowledged as individuals – the public sector has grown significantly in size, partly to incorporate the responsibility for childcare, care for the

elderly, etc. Today, Den-mark holds two records. We have more employees in the public sector than any other OECD-country, and we pay higher taxes than any other OECD-country.

And as always, incentives matter. The much-repeated mantra of ‘making work pay’, is unlikely to fade away soon. When taxes are high, it be-

comes even more important that the tax-sys-tem is efficient. We need to achieve our dis-tributional goals in the most cost-effective way. For some time this has generated pres-


“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.”

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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 in-vestments 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, at-tempting a tricky balancing act between dis-tributional concerns and competitiveness.

FIGHT GLOBAL WARMING

The conclusions are very clear in the most re-cent report from IPCC. Humans have caused the current climate changes, the conse-quences may be dramatic, and large reduc-tions of greenhouse gas emissions are nec-essary to limit climate changes:IPCC:

“Human influence on the climate system is clear. This is evident from the increasing greenhouse gas concentrations in the atmo-sphere, 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. Lim-iting 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 irre-versible ‘run away process’ of global warm-ing. In this respect, we face two major chal-lenges:

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 compre-hensive 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 be-cause the available green technologies can-not 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 de-veloping 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 fast-er 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.


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If progress in living standards continues to be a key success criterion for economic pol-icy 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 high-er. 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 em-ployee 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 reduc-tions 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 suc-ceed, we need to take a look at our tax sys-tem: despite numerous tax reforms, the total

A SOMEWHAT IDIOSYNCRATIC PERSPECTIVE ON

INNOVATIONmarginal 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 in-novation 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) target-ed public funding to address clearly identi-fied market failures in knowledge creation spill-over effects.

The efficacy of market forces in driving long-term growth, e.g. innovation, has been test-ed in numerous cross-country results, not

HELGE SIGURD NÆSS-SCHMIDTPARTNER, DIRECTOR OF ECONOMICS, COPENHAGEN ECONOMICS

EXPERT INSIGHTS FROM COPENHAGEN ECONOMICS

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least by IMF and World Bank. I will add an anecdote from a policy seminar: decades ago, a young economist from Poland was engaged in a discussion with policy plan-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-ness creation cannot be simulated – you need the real thing.

So where does this leave Danish innovation policies? I suggest that at least two main pol-icy areas are given serious attention:Firstly, a more market and innovation orient-ed approach toward firms and institutions, either owned by or subjected to substantial regulation by government. Their ability to innovate is highly dependent on govern-ments putting in place governance struc-tures and market regulation that favours, rather than impedes, productivity growth. Such institutions account for a very large chunk of the total economy: think agricul-ture, education, health, construction sector,

transport, financial services, and utilities (water, waste, district heating, and distribu-tion of electricity). I will mention two exam-ples, based on work, which Copenhagen

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 eval-uating costs and benefits associated with al-ternative health care solutions.

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

Large Government owned/heavily regulated sectors account for nearly 40% of GPDSource: Danmarks Statistik, National Accounts


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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-

ural sciences – the building blocks of private sector innovation – is a particular sore spot. For viewers of a Danish television series, compar-ing test scores of Danish and Chi-nese 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 con-ducive 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 so-cial sciences and fewer natural sci-ences, there will be more funds for social scientist, and less for natural scientists.

The good news about the agen-da raised above is that it is about getting more out of less. Now that

would be innovation in innovation policies.

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

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


LEADERSHIP and INNOVATION

SEE YOU FRIDAY, NOVEMBER 1 AARHUS SYMPOSIUM 2013

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Battle of the Economists 2013 - Key Insights